The e-commerce roll-up model, in which companies buy smaller brands, usually independent online retailers, to grow, has seen them either pivot or close shop in a clear sign of distress.
During the pandemic, many startups, including GlobalBees, GOAT Brand Labs, 10Club, and Upscalio, have emulated the model of Thrasio, a US-based e-commerce brand aggregator that is heavily funded by committed investors. Founded in 2018, Thrasio has pioneered the art of acquiring and scaling e-commerce brands, especially those operating on the Amazon marketplace.
Amid the craze in India, Mensa Brands, founded by former Myntra CEO Anant Narayanan, became a unicorn in just six months.
So far in 2024, the roll-up e-commerce sector has raised $10.9 million across three funding rounds, compared to its peak in 2021, when it raised $778.08 million across 18 funding rounds, according to market intelligence platform Tracxn.
Capital Issue
In 2021, the digital explosion during the pandemic has led to significant user growth in the e-commerce sector and increased confidence in the roll-up model.
“The Trasio model focuses on valuation arbitrage – acquiring undervalued brands with low EBITDA multiples, increasing their value to match higher market multiples and then selling or operating on a consolidated basis,” explains Ankur Bansal, co-founder and director at Blacksoil.
But in India, the space saw companies pumping multiples of adjusted EBITDA into brands. It also saw a flood of venture capital money into startups and roll-ups racing to acquire brands across sectors to consolidate their market position. But after a few months, when the fundraising winter hit, companies were not only forced to stop acquisitions but also struggled to manage the existing brands in their portfolios. Founders realised they had spent too much money on acquisitions and were forced to restructure their businesses, says Bansal.
“With future capital uncertain, rollups are currently prioritizing organic growth and profitability over new acquisitions,” he says. “But this growth doesn't come easily, and many have not realized the cost advantages and economies of scale they claimed when making acquisitions. Many smaller acquisitions have been written off or even threatened with litigation.”
GOAT, a roll-up e-commerce company, was founded in 2021 by Rishi Vasudev and Rameshwar Mishra and works with D2C founders to scale their brands. The company's brand portfolio includes Chumbak, The Label Life, Pepe Inner Fashion, trueBrowns, Abhishti, Neemli Naturals, Breakbounce, NutriGlow, Voylla, Imara, etc. The company now requires fresh capital to repay existing debt, according to sources.
“The company has about a quarter of its cash remaining and is in talks with existing lenders as well as venture debt firms to raise working capital,” the source said.
Similarly, Mensa Brands, which has 25 brands across fashion, beauty, FMCG and content verticals including Villain, Pebble, Folkulture and MyFitness, is also struggling to raise capital, another source said.
For FY23, Mensa Brands reported a loss of Rs 2,270 crore, while revenue rose to Rs 5,346.7 crore. GOAT reported revenue of Rs 129.9 crore, according to data from Private Circle Research.
Lessons learned
Rollups are now trying to balance profitability with reducing their debt burden. Some are looking to shed brands that don’t have the potential to scale, while others, like 10Club, want to abandon the rollup structure and go the D2C route. Those in a financially stronger position are optimizing operations, cutting costs, consolidating brands with clear synergies, and focusing on categories that drive higher customer returns.
“To be successful, it needs to build technological expertise in e-commerce and implement a cost-efficient supply chain to reduce operational costs. Over the next 12 months, Rollup will aim to become self-sustaining towards increasing profitability and will ultimately grow slowly, contrary to investor expectations. We believe both new capital and valuations will be accommodative for this model,” says Bansal.
Investors also highlight the need for long-term upfront capital to acquire and build roll-up model companies.
“Fundamentally, the business model makes sense. A lot of small businesses are trying to sell online and are paying separately for key items like digital marketing, server costs, tech teams, inventory, sourcing etc. Roll-up brings complementary ideas together, allowing each company to create cross-selling as they pursue their market and share costs for synergies. Of course, execution is the key. It's not easy to buy and build,” says Ankur Mittal, co-founder of VC firm Inflection Point Ventures.
“In the early stages, scaling up from 1:100 requires a strong process. That's where companies struggle. (But) the idea still has merit and a few success stories could change the paradigm,” he added.
The path forward will require a balance between innovation and fiscal discipline, and sustainable growth rather than rapid expansion.
