Markai raises $4 million from Pear VC, Sea Capital and others to acquire Chinese e-commerce brands

China has attracted another e-commerce roll-up to enter its gigantic e-commerce market. Markai, founded by two Stanford business school graduates, has joined the fight to buy out Chinese brands seeking global consumers.

Over the last few years, so-called brand roll-ups, i.e. e-commerce aggregators, have appeared in Europe and the USA. Typically venture-backed, they acquire small e-commerce sellers and try to scale them using a larger pool of capital, supply chain resources and operational know-how. Not only does China have a long history of export manufacturing, but it is also home to the majority of Amazon sellers in the world. Naturally, this is an ideal resupply place for Markai and the like.

Other brand aggregators that have recently landed in China include Boston-based Thrasio, as well as Berlin Brands Group and Razor, both from Germany.

China is just the entry point for Markai, as the startup plans to fish out brands from across Asia and make them available to a global audience.

To fund its acquisition efforts, Markai recently closed a $4 million seed round led by Pear VC, an early investor in DoorDash and Gusto. The company also incurred several million dollars in debt, but declined to disclose the amount.

The other significant seed investor in Markai’s seed round is Sea Capital, the new investment arm of Southeast Asian internet conglomerate Sea Group. Sea is the parent company of well-known brands in the region, including e-commerce site Shopee and online gaming company Garena.

Signia Venture Partners, Western Technology Investment, Graph Ventures and other “prominent” angel investors from the U.S. and Asia also participated in the round, Markai said.

Markai co-founders Chenyu Ren and Tim Spencer, roommates at Stanford University, both came from the corporate world. But their true passion, as they told TechCrunch in a video chat, is “empowering small and medium-sized enterprises in emerging markets.”

Ren’s sense of mission to empower the underdog is rooted in his childhood, when he watched his father, a small business owner, struggle to secure financing in China. On the other hand, Spencer’s eagerness stemmed from his privilege. Thanks to his parents’ work in the airline industry, Spencer traveled a lot early on, but his parents reminded him of this:Life chances are primarily a function of circumstances someone’s birth.”

“We want to help the small players fight the big ones,” Spencer said. “We take the best salespeople in China and give them the best technology from Silicon Valley.”

E-commerce metamorphosis

For years, Chinese sellers on Amazon have done well with their old formula. A small team of SEO experts and old supply chain guys, led by a well-connected boss, could rake in millions of dollars in monthly sales. However, Amazon’s recent crackdown on black hat tactics such as fake reviews has led to purges of hundreds of Chinese sellers. Those who survive feel an urgent need to reform and comply with Amazon’s increasingly stringent rules.

Many sellers feel they can no longer compete on price; branding and operational efficiency are increasingly important to long-term success. They realize that these are gaps that can be filled by Western brand aggregators focusing on data and methodologies.

“Retailers in the U.S. and China have exactly the opposite problems,” Spencer suggested. “American brands often have great brands and reviews, but they don’t know what they’re doing on the supply chain side. That’s why aggregators have value for them.”

“Chinese sellers are great at supply chains and pricing, but not at marketing and branding, so we’re coming in to sort things out,” he added.

Markai believes its roll-up approach in China is unique. In addition to its deal sourcing staff, it has also hired a supply chain team in China, led by Ren. Having an on-site team that can knock on factory doors is crucial in an industry built on trust and relationships, said Ren, who grew up in a small manufacturing center in central China.

In the US, Spencer leads a data team that analyzes direct-to-consumer markets and brands. This consumer knowledge will, in turn, determine what its factory partners in China produce and through what channels it sells.

Like many e-commerce operators today, Markai looks to Shein for inspiration. The growing fast fashion brand has impressed the retail industry with its demand-driven model. With large swaths of real-time consumer data, Shein is able to forecast demand; thanks to a network of small and flexible suppliers in southern China, it can produce new products faster than Zara.

Markai declined to share its acquisition progress in China. Currently, the team consists of ten people, and by February next year there will be fifteen of them. Despite the influx of foreign brand aggregators into China, the founders believe there is enough room for many players.

“Most of the brands we met in China don’t even know that selling their company is possible,” Spencer said.