Thrasio for small businesses: How this acquisition model is getting startups to jumpstart SMBs’ growth

Small business acquisitions are funded through equity money initially while debt is the primary channel to buy these businesses.

Ease of Doing Business for MSMEs: Small businesses across the world have inherently lacked the means and wherewithal to multiply their growth. For such enterprises, the internet or online channel serves as the window to the exponential scale, provided they have the technology DNA that fuelled the growth of billion-dollar startups globally. Eventually, many small and emerging brands have to significantly shift their business to e-commerce marketplaces to crack key metrics for rapid growth. However, the personalised handholding and support required to scale small businesses or brands haven’t been pervasive while these businesses have the product-market fit. The acquisition-led model of some of the popular startups such as Perch and Thrasio in the US, and SellerX in Germany has this element of pervasiveness central to their businesses. In other words, small firms selling goods online, largely through e-commerce marketplaces, are acquired by such startups to provide whatever it takes to slingshot their growth.

“When capital became cheaper, people realised they don’t have to build a profit pool to grow fast. They can simply raise capital to buy companies and grow inorganically fast. The Thrasio-like model had started with this thesis. This is a new way of creating conglomerates. It can happen anywhere where there is a product-market fit journey,” Abhishek Goyal, Co-founder at research firm Tracxn told Financial Express Online. Tracxn is akin to Crunchbase for data on startups and private companies.


Small businesses or brands are acquired fully or with a majority stake by startups like GlobalBees, Evenflow, Mensa Brands, Powerhouse91, 10club, and more in India to provide the required support. “We take 51 per cent to 100 per cent stake in the company to run its end-to-end operations such as product development, admin, HR, logistics, supply chain, branding, and more,” Damandeep Singh Soni, Chief Business Officer, GlobalBees told Financial Express Online. GlobalBees was launched by Nitin Agarwal, formerly at Edelweiss Financial, and FirstCry founder Supam Maheshwari. The startup had in July this year raised $150 million in Series A funding. Small businesses in home and kitchen, personal care, food, sports, and other categories with a revenue rate of $1 million to $20 million are sought by GlobalBees for acquisition.

Importantly, while e-commerce entities have lakhs of MSME sellers on their marketplaces, dedicated focus on each seller to help them scale faster isn’t easy. In fact, only a handful of sellers account for the majority of e-commerce sales. The custom support to each and every seller is not smooth. “They (e-commerce portals) are phenomenal at building technology that you get access to as a seller but that is not for everyone. That doesn’t take the pain point for SMBs to scale on e-commerce portals away. Whereas we have a dedicated team focused on such businesses. We don’t offer support in exchange for a fee. We buy them and scale them,” Utsav Agarwal, Co-founder, Evenflow told Financial Express Online. The former Uber executive said the company looks at digital-first sellers with Rs 50 lakh to Rs 8 crore in annual GMV, their reviews, ranking, ratings, what products they sell, and more before picking them for acquisition.

Kolkata-based four-year-old BabyPro, which sells safety kits for baby proofing, was acquired by Evenflow recently. According to its founder, the brand is now better equipped with resources for growth. “The scale at which support is offered through platforms like Evenflow has been very significant for an emerging brand like us. I believe there is always a need to find the right partners for your business who can help in co-creating the growth path. We were able to realise the potential we had through Evenflow that is equipped with the right kind of people, resources, and most importantly they have the direction to take the brand further. I couldn’t have explored this alone,” Rachita Agarwal, Founder, BabyPro told Financial Express Online.

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Pricing or ascribing valuation to small businesses for acquisition in such a model, which doesn’t have Indian precedent, is a function of supply and demand much like acquisitions in other models. “The multiple can go up to 4-5x if there is demand. Valuation is a function of market demand and depends on how the future looks like along with how much can the company scale and not just current progress,” founder of another startup, which recently raised funding, in the segment told Financial Express Online on anonymity. The startup is looking to acquire small businesses in the lifestyle segment, the founder added. 

Small business acquisitions are funded through equity money initially while debt is the primary channel to buy these businesses. Utsav explained the debt has to be repaid in the three-year period of raising it. “If any acquisition takes more than three years to be able to pay off the debt then the purchase is not a good one for us. As you are able to build a portfolio and prove yourself by scaling these brands, you are able to raise more debt.” 

However, unlike the power law in venture capital or startup funding, wherein only a few companies are able to secure exponential value higher than all others in a given fund’s portfolio, almost all small businesses acquired in the said model are expected to deliver. For instance, out of let’s say 50 VC investments, 40 are expected to fail while five are likely to return the principal amount and the rest five are hoped to become superstars with returns that would cover up for the loss of investments in 40 startups. In contrast, only five could potentially be failures in the Thrasio-like model while the rest 40 should be able to pay off the debt, and the remaining five are expected to be super achievers. 

“The percentage growth that we bring in for the brand that we acquire is how we measure our growth. For example, for a brand that was having 100 per cent growth in a year, we would measure whether within the next 12 months, it is growing by 300 per cent or not. We see companies that are selling profitably,” added Soni. 

However, the likely challenge in the model is that India or the ecosystem is yet to learn how to do successful acquisitions. “There is execution risk here. In the US, when Google started buying companies, there were a lot of precedents there as companies like CISCO and Salesforce had acquired businesses and become large unlike in India where there haven’t been many success stories around the acquisition. It is a country-level challenge,” said Goyal.

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