Singapore-based Rainforest, an acquirer and aggregator of e-commerce brands, has announced its formal launch with a seed funding of $36 million. The funding round — a mix of debt and equity — was led by UK-based Nordstar Partners, with participation from Insignia Ventures Partners, according to a statement on Thursday.
Rainforest, Asia’s first e-commerce aggregator, was started by former executives of the used-goods marketplace Carousell and fintech firm Fave.
The equity financing of the latest deal amounted to $6.5 million and was led by Nordstar and Insignia Venture Partners. The $30 million debt financing came from a US debt fund.
Operational since January 2021, Rainforest has already acquired three brands in the home and personal care categories. Our acquisitions typically amount to between $1 million and $5 million, depending on the revenue of the business, co-founder and CEO JJ Chai told DealStreetAsia in an exclusive interaction. He did not divulge the names of the acquired brands.
The funds from the latest seed round will be used to invest in technology, hire more talent and acquire eight to twelve promising Asia-based Amazon FBA (Fulfillment by Amazon) brands by the end of the year, said Chai.
Global interest in e-commerce aggregators
The funding comes against the backdrop of the COVID-19 pandemic accelerating spending on Amazon, US-based Thrasio — an acquirer of Amazon FBA brands — raising hundreds of millions of dollars, and Anker, an Amazon-native brand, going public in August last year.
According to Marketplace Pulse, nearly $1 billion in fresh capital (a mix of equity and debt) was committed in 2020 to firms — Thrasio, Heyday, SellerX, Boosted Commerce, Razor and more — looking to acquire Amazon sellers and brands.
Nordstar Partners most recently backed the Miami-based e-commerce brand acquirer Unybrands in a $25 million seed investment.
At a glance, there are 57 companies that acquire Amazon businesses, as per Marketplace Pulse. Most are based in the United States; however, there are also companies operating in the United Kingdom, Germany, France, and Spain.
Of the acquiring companies that have disclosed their financing publicly, Thrasio has by far raised the most— $1.7 billion since its founding in 2018.
Meanwhile, Branded Group, set up by ex-Lazada CEO Pierre Poignant only seven months after his departure from the e-commerce giant, had raised $150 million to join the frenzy of startups in the US and Europe acquiring brands on Amazon Marketplace.
Thrasio, the world’s largest buyer of Amazon FBA businesses, had purchased 90 Amazon brands by early December 2020 and already has close to 100 brands in its portfolio today. These companies were said to be producing $500 million in annual revenue.
Offering an exit route
Chai noted that the people who started these Amazon FBA businesses are typically solo entrepreneurs.
Referring to one of the brands Rainforest acquired, which was started by a Singaporean, he said, “He [the seller] literally went for a course, put in $30,000 into his business and then single-handedly grew it into a $1.5 million dollar, top-line business on Amazon.”
Many such sellers have the drive and creativity to develop a new product, launch it, and establish it on the marketplace.
But as their business matures, they often discover that they need a whole new set of skills to take sales and profits to the next level.
“To fulfil the full potential of the brand, you need to build the organisation, have a structure behind it, hire people, etc, which these brand owners do not want or are not capable of doing. They are happy to sell the business and then go build that next brand,” said Chai. Acquirers like Rainforest offer an opportunity for such entrepreneurs looking to exit.
Rainforest looks out for lifestyle brands typically in the home, kitchen, pets, and personal care categories. “We don’t do fashion, electronics or other categories that are a bit too fast-moving, and very trend-based,” explained Chai, on what makes them different from other acquirers. Typically, these brands earn over $200,000 in profits annually, for at least the last twelve months.
After acquiring the brand, players such as Rainforest inject working capital, pump in expertise ranging from sourcing to logistics to marketing and grow the brand to a scale at which the original owner was not able to.
According to Chai, there will only be more such micro brands in Asia.
Amazon’s third-party Gross Merchandise Value (GMV) was $300 billion in 2020, growing at 50% year on year. Over 30% of the top third-party sellers were based out of Asia, as per statistics provided by Rainforest.
China, in particular, provides an incredible opportunity — the country houses an estimated 200,000 Amazon sellers, based on EcomCrew stats. “So far, we don’t know of any Chinese player doing this [acquiring Amazon FBA businesses],” said Chai, as Rainforest plans to enter China, where Thrasio is also making inroads.
When asked about targeting brands from online marketplaces such as Shopee, Lazada, or Shopify, Chai observed that these marketplaces are still quite nascent compared to what we see in the Amazon ecosystem.
In particular, IP rights, trademarks, and the extent to which sellers create their own private label brands — that typically generate greater profit margins — are still not as favourable on Shopee, Lazada, or Shopify.
“When these ecosystems are ready, we will be acquiring from sellers on these online marketplaces,” added Chai.