• LSESU Trading Society

Venture capital: Acquisition of Amazon third party merchants

By Annie Li, Analyst at the LSE Trading Society

Venture capital cash has been used in companies which acquire successful marketplace sellers or brands in the eCommerce market to aid company growth. This is especially targeted at sellers in the fulfilment by Amazon (FBA) programme where Amazon warehouses the merchants’ products, ships and provides customer service.

One reason for this is the opportunity to build a digital consumers goods conglomerate, similar to Unilever, made more obvious by the eCommerce boom due to the pandemic. “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,” an investor from a debt financing firm to start ups predicted. Various independent merchants on Amazon already proved to be successful where many of them have received over $1 million in revenue per year. By buying up small sellers that are already profiting, this prevents the new ventures to build new brands on its own.

Berlin-based SellerX and Thrasio are a few of the early movers in the market to use Amazon as a platform for building large scale companies. In November 2020, SellerX raised over $100 million and most recently, Thrasio which raised another $750 million to boost its FBA acquisition due to its exceptional growth after the first round of acquisitions. Thrasio has evaluated around 6000 Amazon sellers and 14,000 category leading products. Their model has proven so far to be highly successful, allowing them to gain $1.5 million in revenue each day.

The market for this is still growing as Amazon’s revenue has increased by 50% from providing services to third party sellers on the platform which would reflect a similar growth for the sellers themselves. However, the profitability of this market is still uncertain as there still exists many risks such as a platform risk where sellers have accused of Amazon copying their ideas for its own.

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