Just a few years back, startups turning into unicorns was a BIG celebration for the entire ecosystem. Now, with 30+ unicorns added this year (well, I have lost count), it seems that's not enough of a flex.
Now, Mensa Brands has become a unicorn in record time - just 6 months! MIND = BLOWN? Not just yours, mine too. So, I did a bit of digging. Here's all that I understood about Mensa Brands, the industry it is in and what its future might look like.
First things first - what are "Thrasio-style" startups?
Well, firstly Mensa Brands is not an "original" idea. That's the beauty of @buildd-ing companies - you don't need to be original, just time it well and execute brilliantly :).
It all started in 2018 with a US startup, Thrasio. The broad idea is as follows:
- There are thousands (if not millions) of businesses selling stuff online. Most of them are building a typical business - Revenue > Costs, with solid profits.
- Now, what if Thrasio acquires the top-performing businesses and gives the business owners a lucrative exit?
- Thereafter, Thrasio's experts would take over the businesses and manage them.
Since 2018, Thrasio has done this with 100+ brands already! What's more, last year Thrasio made a revenue of $500 million with a profit of $100 million. It is worth $6 billion. Yup, all in 3 years.
Simply put, "Thrasio-style" startups acquire high-growth, money-making online businesses and manage them under a single roof - i.e. aggregator of D2C (Direct-to-Consumers) brands.
Is this space heating up in India?
The success of Thrasio's model led to a bunch of companies in India trying to copy the same model in India. And.....as is typically the case, VCs have gone absolutely gaga over them, with HUGE sums of money invested in them.
Here are just some of the investments they have made in them:
- GlobalBees: had the biggest Series A funding in India of $150 million in June.
- 10Club: within a year of being founded raised $40 million as just a seed round - again one of the largest ever seed rounds in India.
- GOAT Brand Labs: raised a $36 million Series A round in July.
Of course, this doesn't include our fastest unicorn, Mensa (we'll talk about it soon).
Overall, I guess it is safe to say that VCs are VERY interested in this space.
So, what's Mensa really about?
Mensa follows the Thrasio model entirely - i.e. it acquires or buys majority stakes in digital brands and then in-house experts take over to build the brand.
To date, it has already acquired 12 brands. While we have already spoken about the Thrasio model, let's understand the exact process that Mensa has to do to be successful:
- If they are interested in a brand/ business, they may sign a Letter of Intent.
- To ensure everything is in order to invest in the business, they carry out a due diligence. This involves verifying every aspect of the business - financial statements, sales, costs, marketing, and supply chain, among others.
- If they are satisfied with the health of the brand and its future growth, they will share a valuation to buy it and the associated paperwork.
- To wrap things up, the business' founders get the money and many times also get a profit-share moving ahead too.
This entire process is typically completed within 8 weeks.
Of course, the 'real' work starts here - to bring their expertise across various parts of building a D2C brand and to scale the business rapidly.
How were they able to raise such a big round?
So, Mensa Brands raised $135 million at a valuation of $1.2 billion. But, given that 30+ startups turned into a Unicorn this year, is this really a big deal? Well, let's just put this in context:
The quickest companies to become a Unicorn before Mensa Brands were Apna (jobs platform), Ola Electric, Udaan, Glance, and Paytm Mall ⇒ all in the time frame of ~ 2 years.
Mensa Brands did it in 6 months.
But, what makes Mensa Brands such an investor sweetheart:
- Firstly, as discussed earlier, the Thrasio-model itself has captured the imagination of VCs
- Add to it that Mensa Brands was started by Ananth Narayanan, ex-CEO of Myntra who also was co-founder & CEO of Medlife, it just adds a huge amount of credibility to a company that is going to build other online businesses
So much money! Where does it go?
Quite simple - to invest into more brands. Now, while the founder said they plan to acquire another 40 brands in the next 12-18 months, let's do some quick math:
- He said 80% of the fund raise is for acquiring new brands = $108 million
- Also, mentioned that the average deal size = $4 to 5 million
- So, assuming average of $4.5 million, 108/4.5 = 24 brand acquisitions
So, to acquire 40 brands, keep watching this space - Mensa Brands is very likely to have a similarly huge fundraise in the next 12-15 months :)
Is Mensa Brands going to succeed?
The beauty of the model is that by definition you are buying profitable companies that are generating cash. So, as a result, Mensa Brands should also make profits soon (which the founder claims is already the case). However, there are things to consider:
1. From a skillset perspective
- Can Mensa Brands drive enough growth in the underlying brands for it to be worth the huge investment made in them?
- This would require them to be brilliant in managing, growing & building a huge portfolio of digital brands which requires them to be great at marketing, supply-chain, pricing, and a host of other things.
2. From a market dynamics perspective:
- The OG, Thrasio, is said to be planning to enter India soon. We also already spoke about the other startups that have also raised a significant size in funds. So, it is going to be a competitive market soon
- Amazon reports 4000+ sellers that make more than INR 1 crore in sales. So, there are many businesses to choose from. Who gets the best ones? Only time will tell :)
