Perch Raises $123.5M to Expand D2C Amazon Brands

As Amazon continues to expand its own product lines, third-party sellers remain a vital component of its marketplace, contributing significantly to transaction volume and overall growth—accounting for approximately $200 billion of the $335 billion in gross merchandise value sold on Amazon in 2019, according to one assessment. Now, a Boston-based startup is leveraging the principles of economies of scale, which have been central to Amazon’s success, by acquiring and operating direct-to-consumer (D2C) brands sold on the platform, and has just secured substantial funding to accelerate its expansion.

Perch, a company that purchases existing D2C businesses and products already available on Amazon, and then manages and expands those operations, has successfully raised $123.5 million in a new funding round.

The company intends to primarily utilize this capital to continue acquiring D2C businesses, as well as to enhance its team and further develop its technology platform. However, according to Chris Bell, Perch’s CEO and founder, “we are profitable and plan to utilize cash flow from operations to support team growth and dedicate the funding towards acquiring additional successful brands and products,” as stated in an email interview.

Currently, Perch’s portfolio includes brands such as women’s activewear company Satina, kitchenware providers Flathead and Aulett, and various health and personal care brands. The platform presently encompasses 10 brands, with plans to grow to 50 by the end of 2021 and ultimately to hundreds or even thousands of brands as the company scales.

Bell emphasizes that technology is the core of Perch’s business model, stating that it is “the most important part of our model.”

Approximately 40% of the startup’s workforce is dedicated to its platform, which is designed to seamlessly integrate “eventually thousands of brands at scale within an e-commerce-focused environment.” This platform provides tools for analyzing sales data, optimizing pricing and advertising strategies, managing inventory, and making other crucial marketing decisions. In the future, it will also be used to refine sales and product distribution across social media and retail channels, although Amazon will remain the primary sales channel for the time being.

This funding round, bringing Perch’s total funding to over $130 million, was led by Spark Capital, with participation from existing investor Tectonic Ventures and new investor Boston Seed. The startup has not disclosed its current valuation.

Amazon’s growth has been driven, in part, by economies of scale in both procurement and distribution. The cumulative effect of small profit margins on a vast selection of products, combined with efficient logistics and distribution networks, generates substantial returns.

Perch has adopted a similar approach, applying it specifically to the D2C sector.

The rise of direct-to-consumer businesses has been a prominent trend in e-commerce over the past decade, with companies utilizing the internet and advancements in manufacturing to create and sell their own brands directly to consumers, bypassing traditional retail channels. Companies like Everlane, Warby Parker, and Third Love have achieved significant success through this model.

While many D2C companies focus on building their own websites or utilizing social media, a substantial number also sell through online marketplaces—particularly Amazon’s marketplace.

This segment is experiencing rapid growth—increasing by 50% year-over-year in 2020, with approximately 86% of third-party sellers reporting profitability.

However, many of these smaller businesses lack a clear strategy for long-term scaling or eventual exit, creating an opportunity for Perch to consolidate promising brands into a larger operation, benefiting from increased economies of scale in both manufacturing and distribution through Amazon.

“We generally do not retain the original entrepreneurs or founders beyond a transition period, although we remain open to possibilities if there is a suitable fit. They are often eager to take time off or pursue new ventures,” Bell explained. “We discuss the situation with the founder and any staff or contractors involved, and we have retained some of those relationships based on need or mutual agreement.”

Perch’s innovative approach to scaling economies of scale for D2C businesses has attracted investor interest.

“The Perch team possesses the expertise in mergers and acquisitions, e-commerce, and Amazon to identify and elevate high-quality, scalable consumer products post-acquisition,” stated Alex Finkelstein, General Partner at Spark Capital. “We are thrilled to lead this funding round. Perch is already demonstrating exceptional progress, and given the thriving e-commerce market, I anticipate continued growth and further acquisitions this year.”

Bell clarified that while Perch welcomes acquisition inquiries, it maintains stringent criteria for potential targets.

“We seek brands and products that are already successful,” he said. “This means a demonstrated track record of product-market fit, evidenced by at least 18-24 months of profitable sales, positive customer reviews, low return rates, consistent product quality, and a trademarked brand that is actively protected by its channel partners and marketplaces.”

Despite the emergence of competitors like Walmart and Alibaba, Amazon remains the dominant force in the U.S. online retail marketplace, according to Bell. (Estimates from 2018 indicated a market share of approximately 49% in U.S. e-commerce.)

“Amazon has uniquely established the leading third-party seller marketplace, offering the largest consumer base, mature technical integrations, robust brand protection measures, and a best-in-class fulfillment network,” he noted.

He added that “Walmart is making significant progress in developing its seller services and technical integrations, and its announcement of fulfillment services for third-party merchants will be a considerable advantage. I expect they will continue to gain market share, but they have a long way to go to match Amazon in terms of both consumer reach and marketplace seller capabilities.” He also mentioned that “Google is investing in its marketplace, but we haven’t seen comparable traction. The lack of an integrated fulfillment option often leads sellers to prioritize Google ad spending towards directing consumers to their own websites rather than using Google’s marketplace. Facebook/Instagram stores show potential but are still in their early stages.”

Perch’s strategy presents a distinct alternative to the prevailing e-commerce landscape. While some companies, like Shogun, advocate for reducing reliance on third-party marketplaces such as Amazon, Perch has embraced it, expressing confidence in its continued relevance. As Perch expands, its increased scale is likely to provide greater negotiating leverage.

“We generate some sales through standalone brand websites, but the majority of our focus remains on the marketplace, and we anticipate this will continue in the foreseeable future,” Bell concluded.