The massive growth of e-commerce brands has given rise to industry aggregators, also known as e-commerce roll-up firms. Investors are increasingly attracted to the sector, stepping up to pour funds into global marketplaces, sellers and businesses.
Globally, e-commerce aggregators raised in the region of US$7 billion in 2021, according to e-commerce intelligence firm Marketplace Pulse, and the flourishing industry sees huge potential for growth in Southeast Asia where they are just starting to make their presence felt.
Singapore-based Rainforest, for example, recently closed a US$20 million pre-Series A funding round led by Monk’s Hill Ventures.
The aggregator plans to draw on the funding to drive its aggressive growth strategy, including expanding its portfolio of direct-to-consumer e-commerce brands in the home goods, mother and children, personal care and pet categories, and growing its leadership team through key hires.
The latest oversubscribed fundraise followed an earlier US$6.55 million equity and US$30 million debt seed round announced in May 2021, further bolstering Rainforest's ability to acquire direct-to-consumer e-commerce brands which sell on Amazon.
The Asset recently spoke with Jason Tan, co-founder and chief financial officer of Rainforest, to discuss the region’s e-commerce aggregator landscape and outlook.
Prior to co-founding Rainforest, Tan was the founding CFO at OVO, Indonesia’s e-wallet startup, and was CFO of Southeast Asia digital platform for offline merchants Fave, helping them secure funding and subsequent exit from Pine Labs. Before that he spent 13 years at Malaysian universal bank CIMB where he specialized in corporate development and fundraising.
As lockdowns spread across the globe, businesses and consumers have turned to digital services and products, purchasing more goods and services online, leading in turn to a surge in e-commerce.
“While the e-commerce trend is undisputed, I think Covid has had the effect of accelerating everything,” says Tan. “It has also made a lot of individuals think of ways to supplement their diluted income with many building their own brands and becoming e-commerce entrepreneurs.”
Armed with a healthy war chest, Rainforest is scanning what is becoming a febrile and increasingly competitive marketplace to seek out the next e-commerce brand investment.
“Because we are here in Asia, we have cultivated a regional network of brokers who focus on e-commerce brand data and have calibrated their attention to align with what we are looking for,” Tan notes.
Word of mouth from owners of brands the firm has acquired – which are typically one-woman or one-man operations – has also helped Tan and his team to productively invest.
And after acquiring six Amazon brands mostly based in Asia, Rainforest is well-positioned to scale these brands faster while providing sellers with an attractive exit opportunity.
But it’s not just in its home territory of Southeast Asia where the aggregator is expanding its services. The Chinese market is becoming an important draw for Rainforest, which recently acquired a China-based brand for US$3.6 million.
“It takes a bit of time but these things cannot be rushed, otherwise we pay over the odds for a brand acquisition,” he explains. “And while we can do that, it doesn't make good investment sense, so that's why we have our own network of scouts as well as our own in-house team. And because a lot of the supply chain and manufacturers come from China, I now have a team in China looking for suitable acquisitions too.”
While Asian-based online retailers saw demand for products and sales grow during the pandemic, that also brought about other challenges such as logistics and supply-chain issues.
Although demand grew, many of them could not scale efficiently due to various bottlenecks. For Rainforest, its ability to master the supply-chain issues in the marketplace is a key offering in its aspiration to scale up.
Tan says Rainforest has the technical capacity to predict and identify potential problems, and this helps the firm decide which brands to acquire.
The majority of e-commerce brands based in Asia are selling their products on Amazon chiefly to consumers in the United States and Europe. Due to sourcing and currency factors, that model is likely to continue for the foreseeable future, he believes.
But going forward, with Asean’s population of about 680 million growing increasingly affluent, Tan envisages a substantial market of Southeast Asian sellers selling in Southeast Asia.
“The idea is to buy them and then after that to synergize with our expertise of the Amazon market and open up a large new market so they'll be doing well in Southeast Asia. That is a very important part of our strategy.”
With e-commerce in the region now bulking up and growing market share, does Tan see it attracting more attention from the mainstream banks?
“I think there are a couple of ways banks might get involved,” Tan says. “For now, however, this business model is growing well with a combination of equity and debt funding. The banks are still in the transition stage to actually learn more about e-commerce brands and this aggregator model in general.”