Amazon has become a lynchpin in the e-commerce machine over the years in part because it’s a site we consumers can visit to buy just about anything we want — sold either by Amazon or its 5 million+ third-party merchants — and easily get it delivered to our homes. But the system is not completely efficient, and today, one of the startups looking to build more economies of scale is announcing some funding that it will use to roll up and consolidate some of these third-party merchants.
Suma Brands, which buys up what it sees as some of the more interesting and successful brands selling and fulfilling their orders via Amazon, has picked up $150 million in funding in a round led by Pace Capital and Material alongside a credit facility led by i80 Group.
As with other roll-up plays that have raised huge sums of money, the majority of Suma’s round is coming in the form of debt, which will be used for acquisitions, with a smaller equity tranche to continue building out its tech stack and core business. In this case, equity is $12.5 million and the rest is in debt. Valuation currently is not being disclosed.
Roll-up plays are rolling into town at a very fast pace at the moment — we’ve written about many of them raising money, including Elevate, Thrasio, Heyday, The Razor Group, Branded, Heroes, SellerX, Perch, Berlin Brands Group (X2), Benitago, Latin America’s Valoreo and Rainforest and Una Brands out of Asia.
In all of these, the premise is the same: Amazon has built its business on economies of scale, but that efficiency has not necessarily been played out at the marketplace level, where you still see the vast majority of sellers working as independent companies, facing all of the challenges they might face as they grow — these include the need for more sophisticated tech tools to manage areas like marketing, analytics and supply chains; more buying power with suppliers; capital to grow; and more strategic talent succession plans.
This is where the roll-up plays step in: They provide a route for marketplace founders to potentially exit their businesses without giving them up by giving them a chance to grow under the wing of a company looking to build the brands alongside others they are acquiring.
In the case of Minneapolis-based Suma, the startup is being led by co-founder Andrew Savage, who has a very interesting insight into the world of retail, and specifically online retail, by way of his background.
It includes years with Amazon itself, where he led teams in categories like toys, and also spearheaded the company’s push into targeting university students. Prior to that, he also worked for years at Target — where he was instrumental in building Target.com — and Best Buy. (Sidenote: These are also two Minneapolis companies, and one reason why this is such an interesting city in which to found an e-commerce startup.)
He also spent time as an executive at hip, independent e-commerce company Dolls Kill, meaning he understands both the pain points of being a relatively small and indie brand, as well as the big behemoth that works to sell them on their platforms.
His two co-founders equally have interesting track records: Matt Salzberg was the founder and former CEO of Blue Apron; and Jon Dussel was the former CFO of Dolls Kill.
Savage told me he came to found Suma because he could see a clear opening to build a company to bridge the gap between small merchant and big platform better than it is today. While that might well spell economies of scale and economic opportunity — the two big motivators for other roll-up players — it feels a little more like Suma may be approaching that challenge from the operational perspective.
This will include helping manage supply chains and sourcing, running performance marketing, brand building and running multiple channels across Amazon and other properties, and providing working capital, Savage said.
“We vetted a number of potential investments in the space, but hadn’t found the right team until we talked to Suma,” said Jordan Cooper, general partner at Pace Capital, in a statement.
“Winners are going to be exceptional operators, and the Suma team from the co-founders on down have e-commerce operations in their DNA. They’re a tested team who have proven their ability to rapidly scale e-commerce businesses,” Asher Hochberg, managing director at i80 Group, added.
Suma, like others in this space, declines to say how many brands it has acquired so far, nor will it spell out too many specifics on its strategy of what it wants to pick up. Some of the companies in its stable today include a children’s footwear brand Lone Cone, and Turmaquik, a turmeric supplement company.
Savage tells me that the plan is not necessarily to buy up brands and give founders an easy exit, or even to tie every star to Amazon’s rise: Some who want to join Suma may stay on, and some brands might find D2C to be a better or supplementary option to Amazon. There is no winner-takes-all, nor is there a one-size-fits-all approach, simply because it’s too big, and so many brands need help.
“This is a $300 billion space, and growing at double digits,” said Savage. “It’s an ocean. And there are at least a couple of hundred thousand brands with more than $500,000 in revenues worldwide. It’s easy to get lost in that.”
Refreshingly, in a market full of a lot of the same stuff — Amazon is overpopulated with sellers who all buy the same wholesale goods, and it’s somewhat depressing when you realize that choice isn’t nearly as big as it looks on first glance — Suma is looking to forge something different simply by focusing on other things.
“What gets out of bed is not creating financial instruments but a stable that makes people feel better,” said Savage. “The thing that differentiates us is that we are very founder-focused and spend a lot of time considering this before buying a business. We are really trying to avoid the me-too businesses.”
I’ve spoken with a number of founders in this field, and one of my biggest takeaways has definitely been that it may not be a winner-take-all-market if the space is a long term winner, because each company is bringing something unique to the table that gives them a new angle for success.
The “if” in that premise is still debatable, however, not least because Amazon could easily also become a consolidator, and might be best one of all in terms of operational expertise and financial muscle.
Savage said he wasn’t sure if Amazon would ever look to repeat the roll-up approach itself, but it’s an area to watch. If the strategy is strong enough for Amazon to try to replicate itself, it’s a pretty strong signal that it is one to continue pursuing (even with that extra competition in the field).
https://ift.tt/eA8V8J Suma Brands raises $150M to acquire more third-party brands for its Amazon roll-up play https://ift.tt/3ftLK0b
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