Heroes, one of the new wave of startups aiming to build large ecommerce businesses by buying smaller third-party merchants from Amazon’s Marketplace, has raised another large round of funding to duplicate that strategy. The London startup has raised $ 200 million, money that it will use mainly to get more traders. Existing brands in their portfolio cover categories such as Baby, Pets, Sports, Personal Health, and Home & Garden categories, some of them such as PremiumCare dog chews the Onco baby car mirror, gardening tools brand Davaon and wooden foot massager roller Theraflow, the best sellers in the category, and the plan is to continue developing all these verticals.
Crayhill Capital Management, a New York-based fund, is providing the financing, and Riccardo Bruni, who co-founded the company with twin brother Alessio and third brother Giancarlo, said most of it will go to acquisitions, and therefore , it comes in the form of debt.
Raising debt instead of equity right now is pretty standard for companies like Heroes. Heroes itself is quite young – it was released less than a year ago, in November 2020, with $ 65 million in financing, a round comprised of both equity and debt. Other investors in the startup include 360 Capital, Fuel Ventures and Upper 90.
Heroes is playing in what is fast becoming a very crowded field. Not only are there tens of thousands of companies leveraging Amazon’s extensive fulfillment network to sell products in the e-commerce giant’s marketplace; But some days it seems like we’re also fast approaching a state of almost the same number of startups launching to consolidate these outside vendors.
Many backlogs follow a similar playbook, which goes like this: Amazon provides the Marketplace to sell goods to consumers and the infrastructure to fulfill those orders, through Compliance by Amazon and its Prime service. Meanwhile, the roll-up business, in this case Heroes, buys several of the strongest companies that take advantage of FBA and Marketplace. Then, by consolidating them into a single technology platform they’ve built, Heroes creates better economies of scale around better and more efficient supply chains, sharper machine learning and marketing and data analytics technology, and new growth strategies.
However, what is remarkable about Heroes, aside from the fact that it is the first roll-up player to come out of the UK and is still one of the biggest players in Europe, is that it does not believe the technology will work. As important a role as having a strong relationship with the companies you are targeting is key given that several companies are now likely to see top sellers in the market as acquisition targets.
“Technology is very important,” Alessio said in an interview. “It helps us build robust processes that tie all systems together across multiple brands and markets. But what we have is very different from a SaaS business. We are not creating an application and technology is not the core of what we do. From the procurement side, we believe that human interactions ultimately win. We do not believe that technology can replace a robust procurement process. “
The three founding brothers of Heroes (two of them, Riccardo and Alessio, pictured above) have worked in various investment, finance and operations roles (CVs include Merrill Lynch, EQT Ventures, Perella Weinberg Partners, Lazada, Nomura and Liberty Global) and say there have been strong signs so far that their strategy is working: of the brands it has acquired since launching in November, they say business (sales) has increased fivefold.
Collectively, startup startups are raising hundreds of millions of dollars to fuel these efforts. Other recent applicants who have announced funding this year include Suma Brands ($ 150 million); Raise marks ($ 250 million); Perch ($ 775 million); factory14 ($ 200 million); Thrasio (currently probably the biggest of all in terms of scope, money raised and ambitions), Apogee, The Razor group, Branded, SellerX, Berlin Brand Group (X2), Benitago, From Latin America I value and Jungle and One Brands outside of Asia.
The picture that is emerging in many of these operations is that many of these companies, Heroes included, do not attempt to make their particular approaches particularly more distinctive than those of their competitors, simply because, with nearly 10 million third-party vendors today at Amazon globally – The opportunity is likely to be big enough for all of them, and more, mostly given the current dynamics of the market.
“It’s no secret that Thrasio and others inspired us,” said Riccardo. “Combined with Covid-19, there has been a massive acceleration of e-commerce across the continent.” It was that, in addition to realizing that the three brothers had the right e-commerce, fundraising and investing skills with each other, that made them see what a “perfect storm” was to seize the opportunity, he continued. “So that’s why we got into it.”
In Heroes’ case, while most of the funds will be used for acquisitions, it also plans to double its current 70 staff before the end of this year with a focus on operational experts to help manage its acquired businesses.