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Samreen Ahmad · · 6 min readIndia’s young roll-ups may be in for a wake-up call
The term “roll-up ecommerce” was virtually unheard of in the Indian startup ecosystem until the middle of last year. Since then, over half a dozen companies in the space have racked up millions of dollars in funding.
Mensa Brands team/ Photo credit: Mensa Brands
Modeled after US-based Thrasio, these companies focus on acquiring and scaling up ecommerce brands.
Two roll-up ecommerce players, namely GlobalBees and Mensa Brands, surpassed US$1 billion in valuation within a few months of their existence.
See also: Roll-up ecommerce flexes its muscles in India
The Indian ecosystem has been stunned by their meteoric rise. However, there are signs in the US that the “aggregator bubble” may be bursting. In May, even Thrasio had to lay off and reshuffle its leadership as the industry pioneer had been struggling to keep up with its blistering deal flow.
The question arises: How will Indian players fare amid the current market downturn?
Justified valuations?
The first criticism against the roll-up model has to do with the method of valuing it, which is distinct from regular tech startups.
Pushkar Singh, a partner at Tremis Capital who works with roll-up players on brand acquisitions, explains that all roll-up firms follow the same playbook: They usually offer a brand 1x-1.5x of its revenue depending on its EBITDA margin.
Singh, who refers to the Thrasio-led model as an acquisition-led valuation game, estimates that every brand acquisition worth US$1 million could increase the aggregator’s valuation by US$4 million to US$6 million.
In other words, the more acquisitions these aggregators make, the higher their valuations climb.
Image credit: Timmy Loen
So far, GlobalBees has announced 13 acquisitions but it has acquired many more brands in total, Damandeep Soni, chief business officer at GlobalBees, told Tech in Asia. Competitor Mensa Brands, led by former Myntra CEO Ananth Narayanan has acquired 20 brands. Mensa Brands is already profitable, according to Narayanan.
Debt to the rescue?
Challenges with scaling up
Headwinds going forward?
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One year and two unicorns later, India’s roll-up ecommerce space faces a reckoning amid a broad economic slowdown.
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