Let’s uncover the secrets behind Thrasio’s success

27 Jun 2022 | Sales & Marketing, Small Business Stories - Brego Business

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Hooshang Bakht

Brego Business was started with a mission to make entrepreneurship easy. Our goal is to help business owners grow and scale without having to deal with the day-to-day stress of running a business. We specialize in providing services that help business owners grow their businesses, including search engine marketing (SEM), social media marketing (SMM), LinkedIn marketing, video production, accounts receivable (AR), accounts payable (AP), internal audit, VCFO, and recruitment. We have helped more than 500 brands grow their businesses. We work closely with the clients to understand their unique needs and develop customized strategies that deliver measurable results.

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Breaking Down The Thrasio Model

A Sneak Peek Into It’s Indian Counterparts 

Thrasio, a US-based unicorn, has created a buzz due to its unique operations of funding selective online brands. In the startup ecosystem, it is now known as the Thrasio model. Over $300 million has been invested in Indian startups based on the Thrasio concept.

It’s as clear as it seems. Nearly a dozen Indian entrepreneurs are currently working on the same thesis: creating a house of online brands, inspired by the success of Thrasio, a US-based breakout unicorn. Last year, the three-year-old thrasio turned a profit of $100 million on $500 million in revenue.

Now, about $300 million is being poured in the initial investment rounds of Thrasio’s India equivalents, many of whom are shunning the limelight and not even releasing their company names to anybody other than staff and investors. We break down the stakes, problems, and opportunities, as well as what’s next for them.

What Is The Thrasio Model & How Does It Work?

Founded by Carlos Cashman and Joshua Silberstein in 2018. Thrasio looks for online brands that are selling on amazon. The startup contacts them for collaboration and also acquires them in some cases. Thrasio has clocked a revenue of over $500 million in 2020. Thrasio earned a profit of over $100 million within 3 years as a startup with the Thrasio model which speaks for itself.

The Thrasio model, which involves acquiring and scaling up promising online startups, has gained significant attention in recent months. According to a Bloomberg report, Thrasio, a unicorn startup, was valued at $3 billion in February 2021 and just one month later saw its valuation surge to $3.5 billion. As a result, other online startups have started to secretly gain funding in the hopes of following a similar model.Although the concept is relatively new in the Indian ecosystem, it has gained popularity in the last three months. Venture capitalists are offering these startups almost identical deals, with the intention of acquiring fast-growing online firms. After acquisition, the parent firm provides the startups with the required technology and marketing strategies. Some anonymous startup owners claim that this approach is helping them to achieve rapid growth and success.

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Beginning Of The Thrasio Model In India 

10club, a Bengaluru-based start-up, has lately gained notoriety and fame after raising one of the largest initial funds among Indian start-ups to date. The success of this start-up, which has raised $40 million, can be credited in part to its novel business plan, which is based on the newly controversial Thrasio-style business model.

In the previous 2-3 months, the so-called Thrasio model has been making the rounds in India’s startup and venture capital landscape, with every major VC firm considering or having already made an investment. This is the next consumer revolution in India. One investor in such a company commented, “This is Flipkart in 2008, or Swiggy in 2015.”

Except for their investment rounds, these companies’ ambitions and, more significantly, obstacles, have remained unknown until now. The hysteria and secrecy surrounding Thrasio-based models seem contradictory, but they are inextricably related. At least three of these companies don’t want their names to be known yet, and their founders’ LinkedIn profiles state that they work for a “stealth phase startup.”

Decoding The Brands In The Game 

Mensa Brands, launched by former Myntra CEO Ananth Narayaan, GOAT Brand Labs, formed by Flipkart fashion director Rishi Vasudev, and at least six more firms all subscribe to this thesis. Narayanan, Vasudev, and Supam Maheshwari, the founder of FirstCry, have collectively raised $150 million for this.

Image Source: Moneycontrol 

Many of these firms have adopted the Thrasio model, which involves acquiring and scaling up promising Amazon merchants. Companies like Evenflow have done extensive research on the sector, with Evenflow’s Agarwal reportedly speaking with 400 Amazon merchants in the previous six months to learn about their strategies, processes, and potential for acquisition.

Before making a buyout bid, each corporation has its own approach, which often involves “wine and dine” meetings. Some promise unrivaled market experience, while others offer a “founder friendly” relationship in which the Amazon seller can continue to control the company. Yet others promise that their acquired companies—currently popular on Amazon but unknown elsewhere—would receive favorable media coverage. All of these tactics are aimed at convincing Amazon merchants to sell their companies to the Thrasio-like firms, which promise to provide the necessary resources and expertise to grow the businesses rapidly.

The Size Of The Market In Play In India

According to a 2020 Bain estimate, India has between 100 and 110 million e-commerce consumers. While this is expected to grow at a rate of 30-35 percent per year over the next decade, macroeconomic considerations, particularly an increase in per capita income, will play a role.

For years, investors and entrepreneurs have wagered that India will be the next China—a bet that now takes center stage in a post-pandemic world, when India’s internet users are growing and China is often regarded as a saturated market. Nonetheless, in 2019, 62 percent of Chinese shoppers shopped online, compared to only 11 percent in India. Currently, the market sizes are vastly different.

According to one banker, India has 10,000-15,000 brands in total, and while having a house of brands is enticing, how many of these houses can genuinely make it big—become multibillion-dollar businesses—remains to be seen. Mensa, GOAT, and others are looking for brands in a variety of industries, including fashion, food, and beverage.

Many of these entrepreneurs and investors are counting on the internet’s power, the scale it brings, and the capacity to produce profits as a result. These firms may gain a portion of the enormous offline market if they acquire offline-led brands, but this would be a departure from the Thrasio strategy, which is internet-driven.

Valuation Is Important 

All of these startups’ strategies could succeed or fail based on one factor: the pricing at which they purchase these sellers. These eight to ten startups are on the lookout for e-commerce vendors with annual turnover of Rs 1-70 crore (some are aiming at Rs 1-10 crore, while others are eyeing Rs 5-50 crore).

The founders claim they seek to pay 4-5 times EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), or 1.5 times revenue. So, for Rs 12 crore, a brand with Rs 10 crore in revenue and Rs 3 crore in EBITDA may be purchased.

This assessment is critical. If it is bought out for Rs 20 crore instead of Rs 12 crore, and 7 times EBITDA becomes the industry standard, these Thrasio-companies will be entering into acquisitions at exorbitant prices. Even if the company expands tenfold from then, its valuation may not be proportionate because it will now be positioned at 3-4 times EBITDA or even less because it has scaled and may not go any further. The valuation drops, and an otherwise sound investment may not yield much simply because of the entry price.

The Bottomline 

Never before in the Indian startup ecosystem has a group of companies in a single industry raised so much money just on the basis of their potential. Neobanks took the lead in 2019, but investment activity was not as widespread. In fact, some of the neo banks, like Jupiter and Epi.fi, are only now starting to roll out their platforms.

In the next year or so, these “house of brands” are expected to rapidly acquire online brands. According to one investor, the next 2-3 rounds of funding for the top 2-3 players are already confirmed. That could imply that a promise is worth more than half a billion dollars.

The destiny of these models will be determined by the price at which they purchase brands and whether they do so with cash or debt. For example, more than $30 million of Mensa’s $50 million round includes debt. Companies prefer to finance purchases via debt. Using share capital for buyouts dilutes founders’ stakes more than necessary and is inefficient.

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Frequently asked questions

What is the Thrasio Model?

The Thrasio Model is a business model that involves acquiring and scaling third-party Amazon FBA (Fulfillment by Amazon) brands to achieve economies of scale and profitability.

Is the Thrasio model sustainable in the long term?

The sustainability of the Thrasio model remains to be seen, as it is a relatively new business model. However, Thrasio has experienced significant success in a short amount of time and is continuing to grow rapidly.

Can Amazon sellers partner with Thrasio without selling their entire business?

Thrasio generally acquires entire Amazon businesses, but they may consider partnerships or collaborations on a case-by-case basis.

Who benefits from the Thrasio Model?

The Thrasio Model benefits the original brand owners who receive a lump sum payment for their business, investors who benefit from high returns on their investment, and consumers who benefit from a wider range of quality products.

What are the risks associated with the Thrasio Model?

The risks associated with the Thrasio Model include market saturation, increased competition, and operational challenges in scaling multiple brands simultaneously.

How does Thrasio acquire brands?

Thrasio acquires brands through a combination of outreach to brand owners, partnerships with brokers, and strategic acquisition of competitors.

How does Thrasio optimize the brands it acquires?

Thrasio optimizes the brands it acquires through a combination of operational improvements, marketing initiatives, and product development.

What is Thrasio's track record?

Thrasio has a proven track record of success, having acquired and scaled over 100 Amazon FBA brands and achieving a valuation of over $10 billion.

Can I invest in Thrasio?

Thrasio is a private company and currently not publicly traded. However, accredited investors may be able to invest in Thrasio through private equity funds.

Is the Thrasio Model sustainable in the long term?

The sustainability of the Thrasio Model depends on factors such as the continued growth of e-commerce, Thrasio's ability to adapt to changing market conditions, and the success of its acquisitions and operational improvements.

In conclusion, the Thrasio Model is an innovative approach to e-commerce that has garnered much attention in recent years. As a result, many businesses have turned to the Thrasio Model to increase their profitability and grow their brand. However, navigating this complex model can be challenging without expert guidance.

This is where Brego Business Digital Marketing Services come in. With their extensive experience in e-commerce and digital marketing, Brego Business can help businesses understand and implement the Thrasio Model to achieve success in their marketplace.

By partnering with Brego Business, businesses can take advantage of their expertise in product acquisition, branding, and digital marketing strategies to maximize their profits and grow their online presence. With their proven track record of success, Brego Business is the ideal partner for any business looking to implement the Thrasio Model and achieve long-term success in the e-commerce space.

Contact Brego Business today to learn more about how they can help your business succeed in the competitive world of e-commerce.

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