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Investors pour $1bn into buying up small merchants on Amazon



Investors have poured almost $1bn this year into companies that are buying up successful brands on Amazon to try to build digital consumer goods conglomerates akin to Unilever or Procter & Gamble.

Independent merchants on Amazon’s vast marketplace will make more than $200bn of sales this year, analysts predict, and tens of thousands of them have revenues of more than $1m a year, according to industry experts.

That has created an opportunity to roll up dozens of the emerging winners and scale up their businesses. “Amazon is the new mall,” said Frederic Court, tech investor at Felix Capital. “It’s just gigantic.”

Just as 20 years ago, big corporations started to consolidate local independent gyms, dry cleaners and coffee shops into chains and franchises, “we think that same phenomenon will take place in the digital world”, said Billy Libby, whose New York-based investment firm Upper90 offers debt-financing to such start-ups. “I don’t think people realise how big this will be.”

The roll-ups benefit from more financial muscle, better marketing, and greater bargaining power with factories and potentially even with Amazon.

Several of them were founded by refugees from the wave of “direct to consumer” start-ups such as Warby Parker, Casper and Dollar Shave Club that were the darlings of investors over the past decade, but which have mostly failed to build enduring businesses.

Instead of trying to build new consumer-goods brands from scratch, the new ventures each plan to buy up dozens of small merchants that have already proven successful on Amazon. Their targets could be selling anything from dog leashes to dietary supplements.

During 2020, seven start-ups in the US and Europe raised a combined $950m to buy sellers trading on Amazon marketplace. Most of them — including Berlin-based SellerX and Razor, London-based Heroes and San Francisco-based Heyday — did not even exist at the start of the year.

All hope to emulate the model of two-year-old Thrasio, which itself took on $360m in new financing this year, and Anker, the Chinese electronics accessory maker and “Amazon native” brand that listed in Shenzhen in August at an $8bn valuation.

“We want to be something like the digital Procter & Gamble,” said Malte Horeyseck, co-founder of SellerX, which raised $118m in November from investors including Cherry Ventures, Felix Capital and TriplePoint Capital. “This is a huge market with more than 2m sellers, it’s very fragmented and there is a lot of opportunity for synergies.”

The merchants they target are all part of the “Fulfilment by Amazon” (FBA) programme, who pay to store their stock in Amazon’s warehouses, sell through its main website and app, then have the item delivered (for free, to Prime customers) by Amazon.

“It’s an incredible infrastructure that Amazon has built,” said Riccardo Bruni, co-founder of Heroes, “and Amazon keeps investing billions of dollars to make sure it remains the most sophisticated infrastructure in the world.”

Amazon’s Marketplace is more than 20 years old, yet it took the pandemic’s ecommerce boom for most investors to see its potential as a platform for building large-scale companies.

Shrestha Chowdhury, co-founder of Razor, which has raised €25m in debt and equity, calls her company a “pandemic baby”.

She and her four co-founders, who have backgrounds at German ecommerce group Rocket Internet and consultancy McKinsey, were inspired to start the company in August by the sudden shift in consumer behaviour to ordering online, as well as seeing the success of Thrasio in the US.

Ms Chowdhury said that Razor was using its own algorithm to sift through sellers and product reviews to find the most promising merchants, before automatically approaching them over email.

“We have technified the M&A process,” Ms Chowdhury said, adding that Razor planned to acquire 60 merchants over the next 12 months. “We do due diligence on thousands of sellers every month.”

Workers at Anker in Shenzhen. The company listed in August at an $8bn valuation
Workers at Anker in Shenzhen. The company listed in August at an $8bn valuation © Qilai Shen/Bloomberg

But finding the durable businesses in the Amazon haystack is far from straightforward. Some merchants have only informal contracts with suppliers, doing deals over WhatsApp and TransferWise with Indian and Chinese factories they will never visit. Others use fake reviews to inflate their ratings. Some have been even been accused of bribing Amazon workers or running counterfeit schemes.

Set against these pitfalls is the need to move quickly, especially as capital floods into the FBA roll-up business model.

“The barrier to entry is low so you need to get to scale,” said Mr Libby at Upper90. His company offers founders debt — unusual in early-stage tech — because he says the sellers that the start-ups acquire are usually profitable and make a quick return. “The real challenge is [raising] enough capital to buy a large enough number of them to apply these efficiencies,” he said.

Integrating the acquired businesses will be another challenge. Amazon does not make it easy to transfer a merchant’s assets or online brand, sometimes requiring them to ship all their inventory out of its warehouses and then reinstate it as a new entity.

Thrasio now has a 500-step integration process, said Gabriel Ginorio, one of its earliest employees, developed through “a lot of trial and error”.

“We did it when ecommerce was not as booming [as in 2020] so we had a little more flexibility in testing things out,” he said, while admitting: “We are growing a lot faster than we can consolidate.”

One reason institutional investors did not see potential in Amazon’s Marketplace before 2020 is the so-called “platform risk”.

Disgruntled sellers have accused Amazon of ripping off their ideas for its own “Amazon Basics” and other in-house brands, though the retailer denies such behaviour.

The European Commission in November accused Amazon of distorting competition by gathering data from third-party vendors to advantage its own retail operation and launch its own competing brands.

Others complain that frequent changes to its product search rankings and its coveted “Amazon’s Choice” labelling, new rules or sudden account suspensions make it difficult to build a stable business. “Amazon changes its [search] algorithms so much faster than Google does,” said Mr Ginorio.

On the plus side, these entrepreneurs say, the market is still growing incredibly fast.

Amazon’s own revenues from providing services to third-party sellers increased by more than 50 per cent in the second and third quarters of 2020, suggesting a similar growth rate for the vendors themselves.

The Seattle-based company has said that small and medium-sized sellers make up about 60 per cent of its physical product sales, while its own private-label items, such as Amazon Basics, are only 1 per cent.

That gives these companies comfort that Amazon will remain more of an enabler than a competitor. “Not every Amazon Basics brands is going to win,” said Ms Chowdhury.

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'It’s more than sport – every day we are fighting for our rights to be equal’




French pro basketball player and podcaster Diandra Tchatchouang on her role beyond the court

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Emily Dean on how allyship amplifies the female experience on film




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When I was six years old, I decided to be an artist. When I was 12, I decided to be a filmmaker. And instead of saying no, you can’t do that, or it’s not possible, my mum bought me a video camera.

After several years of working in the industry, I’m working with a female director for the first time. And it’s been such a gratifying experience. Women express leadership in different ways. Maybe you don’t have to be the loudest person in the room. But you can have great ideas.

And the best thing about being mentored by women and being a mentor to women is that make friends with women.

There’s something so powerful the women coming alongside other women, especially in a group setting. Because it means that you can and back each other up. You can support each other’s decisions, and you can amplify each other’s voices.

It’s about seeing yourself in your work. Seeing some part of yourself reflected is really gratifying. It’s also important that we speak up for female characters. I want to see girls and women on screen who have the whole cacophony of experience of what it’s like to be female.

I want to see their flaws. I want to feel their struggles. I want to see their joy. That is so important to making a character feel real. And it took me a little while to settle into myself and realise, if the characters I like to come up with are not your everyday run of the mill characters you see in animation, that’s fine. Because this is who I am.

When you walk into a story room, when you’re working on a film, you have to leave your ego at the door. I think that can be interpreted like keep your ego out of the work. But I’d also say for women who are maybe more shy that leaving your ego at the door means you walk in. And your job is to focus on what’s best for the story and for the film.

The story needs you. The film needs you, and it needs your best ideas. It won’t thrive unless you speak up.

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Crimea ‘water war’ opens new front in Russia-Ukraine conflict




When a cyclone drenched Crimea in rainfall last month, rivers burst their banks and thousands of people in the Russia-annexed peninsula had to be evacuated from the floods.

The silver lining to the deluge was that the rains also filled Crimea’s depleted reservoirs, temporarily alleviating a crisis brought on by an extended drought and a Ukrainian blockade of the Soviet-built canal that previously provided up to 85 per cent of the peninsula’s water supplies.

Moscow’s struggle to supply Crimea’s 2.4m residents with fresh water has become a flashpoint in an undeclared war, seven years after Russian troops seized Crimea from Ukraine. An even longer conflict between Kyiv and Russian-backed separatists in eastern Ukraine has claimed more than 14,000 lives.

Russia has accused Ukraine of “genocide” over the building of a concrete dam across the North Crimean Canal, in addition to the existing sandbag and earth dam that was built in 2014. Kyiv fears that Moscow is plotting a military incursion to secure water flows from the nearby Dnipro river.

Coupled with surging food prices and international isolation because of western sanctions, the water shortages threaten to undermine President Vladimir Putin’s promise of a better life for Crimeans under Russian rule.

Though state-run pollsters claim Putin remains more popular in Crimea than on average across Russia, the patriotic fervour that sent his approval ratings to record levels after the 2014 annexation has long since subsided.

Map showing Ukraine and the North Crimean Canal, Crimea

“The water reserves and fields have dried up,” said Viktor, 47, a Crimean who regularly travels to Ukraine for work. “Each year it’s getting worse and worse. We didn’t have this problem before annexation,” he said, adding that most Crimeans blamed Ukraine for the crisis.

A $3.7bn bridge across the Kerch Strait linking Crimea with mainland Russia has become a conduit for trucks ferrying water for locals to take away in plastic containers. Popular Black Sea tourist resorts can turn on their taps for just a few hours a day during peak droughts, while the canal has filled with grass and weeds.

Crimea’s agricultural output has fallen owing to a lack of irrigation, making it all but impossible to grow water-intensive crops such as rice.

Construction of the canal began in 1957 after the Soviet Union transferred the arid peninsula to the Ukrainian Soviet Socialist Republic to manage rebuilding after the second world war. The waterway allowed for the cultivation of arable land and helped transform Crimea into a haven for tourists.

“The canal symbolises the stupidity of the Kremlin in occupying Crimea. They didn’t weigh the consequences at a moment of electoral euphoria that was fed by their own propaganda,” said Oleksiy Reznikov, Ukraine’s deputy prime minister in charge of reintegration policies for the occupied territories.

“Why didn’t you think about water?” he asked.

The North Crimean Canal is seen with a low level of water
The severely depleted North Crimean Canal previously provided up to 85% of the peninsula’s water supplies © Pierre Crom/Getty

Workers collect potatoes on the North Crimean Canal
Workers collect potatoes on the North Crimean Canal. Ukraine blocked the irrigation channel after Russia’s 2014 annexation of Crimea © Pierre Crom/Getty

Russia, while pressing Ukraine to reopen the waterway, has launched a Rbs50bn ($680m) programme to bolster Crimea’s supplies, repairing crumbling infrastructure, drilling wells, adding storage and desalination capacity.

Russian prosecutors last week filed a lawsuit in the European Court of Human Rights accusing Ukraine of “flagrant violations” over the issue. Crimea’s governor plans to file a separate complaint demanding up to Rbs1.5tn in compensation.

“Kyiv has essentially used Crimea’s infrastructure dependence on Ukraine, which came about in the Soviet era, as a weapon of mass destruction against all Crimeans. The water blockade is an act of state terrorism and ecocide, but the international community is failing to notice the Kyiv regime’s crimes,” Sergei Aksyonov, the peninsula’s governor, said in written comments to the Financial Times.

Reznikov said Russia, as the occupation force, was responsible under the Geneva Conventions for securing water and other basic needs for local the population. Ukraine has filed its own multi-billion-dollar claims against Russia, citing losses caused by what it describes as an illegal land grab.

With tensions rising, Russia deployed tens of thousands of troops and advanced weapons to Crimea this spring, as well as to the border of the two breakaway eastern regions where Moscow-backed separatists have battled government troops into an eighth year.

Col Kyrylo Budanov, chief of Ukraine’s army intelligence unit, said Russia was looking to seize the canal as well as adjacent territory to connect Crimea with the breakaway regions. Russian troops could advance on Nova Kakhovka, the Dnipro river town where the canal begins.

Some Crimean Tatars, an indigenous ethnic group whose members largely opposed Russia’s annexation, have set up a makeshift camp near the dams to make sure the water flow does not resume.

A Crimean Tatar activist on the North Crimean Canal
A Crimean Tatar activist enters his base on the North Crimean Canal. Tatars have set up camp to make sure the water flow does not resume © Pierre Crom/Getty

A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka
A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka, a village on the North Crimean Canal © Pierre Crom/Getty

“It will be a full-scale war,” said a 55-year-old activist who gave his name as Alibaba. He said he and his fellow activists were willing to take up arms to defend the blockaded canal. “There will be nowhere to hide in these fields. Let them try,” he added.

At the Kalanchak border crossing near the new dam, Russian and Ukrainian troops have dug trench positions a few hundred meters apart.

Tensions have also flared in the Black Sea, not just with Ukraine but also with western navies. Russia fired warning shots in the path of a British destroyer sailing through contested waters off Crimea last month. Sevastopol, Crimea’s largest city, is home to Russia’s Black Sea fleet.

Moscow has insisted it would not go to war over Crimea’s water supplies, even as it conceded that Ukraine was unlikely to restore them. “All these hysterical statements from Ukrainian politicians are completely baseless — they’re just stupid, aggressive propaganda aimed at inciting hatred between the Russian and Ukrainian people. There won’t be any ‘water war’,” Crimea governor Aksyonov said.

Reznikov, the Ukrainian minister, said Kyiv was ready to provide Crimea with humanitarian assistance, including drinking water, which it already does for the separatist-run eastern territories, but no request had been made.

“For Russia to admit they’re weak is very difficult . . . it would amount to an admission that they made the wrong decision,” he said.

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