Startups Target Small Merchants On Amazon's Platform For Acquisition: FT

A new trend is emerging in the investment space where startups raise capital to buy small e-commerce merchants, the Financial Times reports.

What Happened: Startups like Thrasio, Heyday, Perch, SellerX, Boosted Commerce, Heroes, and Razor Group have raised roughly $1 billion in equity and debt capital to acquire independent e-commerce merchants, rolling up to build huge digital consumer-goods conglomerates.

Independent merchants on Amazon.com, Inc AMZN marketplace could cross more than $200 billion in revenue this year and thousands of them have revenues of more than $1 million a year. As per FT, these merchants are ripe targets for startups looking to invest.

“Amazon is the new mall,” said Frederic Court, tech investor at Felix Capital. He opines that there is a huge opportunity to roll up dozens of successful small merchants and scale up their businesses.

New York-based investment firm, Upper90, offers debt financing to such startups. Its CEO Billy Libby said that 20 years ago, big corporations started to consolidate local independent gyms, dry cleaners, and coffee shops into chains and franchises. The same phenomenon is taking place in the digital world. “I don’t think people realize how big this will be,” added Libby.

Why It Matters: Instead of building new consumer brands from scratch, startups acquire small merchants from Amazon that have proven successful. The merchant could be selling anything from dog leashes to dietary supplements.

Startups are hoping to emulate Chinese electronics accessory maker Anker’s success, which was listed in Shenzhen in August at an $8 billion valuation, as per FT.

Co-founder of Heroes, Riccardo Bruni, said that Amazon had built an incredible infrastructure and it remains the most sophisticated in the world. The targeted merchants are all part of the “Fulfilment by Amazon” (FBA) program. These merchants pay Amazon to store goods in its warehouses and deliver them to Prime customers for free.

Libby said that there is capital flooding in the FBA rollup business model, but one has to move quickly due to low entry barriers. “The real challenge is raising enough capital to buy a large enough number of them to apply these efficiencies,” he told FT.

Price Action: AMZN shares closed 0.14% higher at $3,206.18 on Monday.