Following Rainforest reporting 9x revenue growth in ‘FY 2022 and announcing a US$21.5M convertible note round (now bringing their total funding over US$100M), we recap our conversations with Rainforest founders, CEO JJ Chai in 2021 and CFO Jason Tan in 2023, as they talk about building Rainforest to become the ecommerce house of brands for moms and babies.
Developing an approach to acquiring ecommerce brands and growing them post-acquisition
First, we get an introduction to their approach of acquiring and growing brands from JJ.
JJ: Today, our business model is set up in a way that, like, we can only help in a case where we actually provide them an exit, right? This is something that will fundamentally change over time, which is we are keen to figure out how to help micro-entrepreneurs over time, whether it’s, like, even as simple as just providing them content about how to be a successful ecommerce entrepreneur, how to grow your business.
Nothing to do with exits or anything like that. It’s just how to grow an ecommerce brand. There is this sort of explosion of people who want to create their own brands and products, design things. And I think society in general benefits if we help them along and we have better products and better things for us to use and have an impact on.
I think you’ll see us doing more and more of that. Of course, at the early stages, we need to focus on the core business, which is around acquisitions. And in that space, the very specific things that we look for are really around what are the areas that sort of form the most important part of the zero to one, which is, do you have evidence that you have crossed product-market fit?
Do you have a product where people are buying it, are happy with the product, and will continue buying it or recommend it to their friends if they had a chance to? So fundamentally, that’s the core question we ask ourselves when we look at these brands and products, which is, have they crossed product-market fit?
Is this a product that someone already enjoys? And then, can we then put it onto our platform, with abilities to source better, run supply chain better, distribute better, and run marketing better to then accelerate the growth of that brand and product.
Obviously, the other part of the business is we need to grow the brands that we have into a sort of cohesive portfolio of brands.
The end goal, also a sign that we’re hitting success, is that we have a growing portfolio of brands with cohesiveness around who they are, who’s the buyer behind it, and the categories that we’re in, such that there are similarities around the people who are buying it.
And they start looking at us as a house of brands where we have products for you, right? So if you are of a certain demographic, you have a good chance of having one of our products in your home or in your life. I think that’s where we hope to get to.
Bringing together a top tier founding team to build an ecommerce house of brands
And to run this house of brands, it was important from day one to bring together a strong founding team.
JJ: And then the co-founder piece was really around, from my experience working with different startups in my career, being deliberate about finding your co-founders is one of the most important things about founding a company.
Which is, who do you want to work with? And what kind of skill sets do you have, and who are the people that will help complement the skill sets that you have?
So I had everything around growth, around company-building, putting systems in place, and scaling up things in a more structured way.
I needed a tech side of things, someone who understood ecommerce selling, and platforms, in our case, particularly Amazon.
And I needed someone who understood capital markets and deal-making better than me. So that’s where I had in mind three different areas to fix: tech, ecommerce selling, and capital formation or deal-making.
So those were the three areas. And as part of that, I deliberately went out to find people, almost like a recruiting exercise, that would work. So it was just broad talking to people, asking around, and eventually coming to find both Jason and Perilla. And of course, specifically for Jason, it was actually thanks to the Insignia side of things that we actually made the initial introduction as well. But I think the idea of not being deliberate and not sort of forming your startup with the people who just happen to be around you is probably not a great idea.
Sometimes it works, but just because they were sitting next to you in class or just happened to be looking for something at the same time is probably not such a great idea.
Jason shares his side of the story, meeting JJ and co-founding Rainforest.
Jason: So I know of Insignia, obviously, although they did not invest in any of the previous startups that I was a part of. Definitely, we met through events and so on. So one day I got an approach to ask if I was interested in joining something exciting.
I do believe that was the top line sold to me. Then, I’d say, why not? That’s just a pretty much no-regret call. That’s when I was put together in a call with JJ, some sort of blind date for founders, so to speak. And that was just the beginning of a series of calls.
And eventually, I was also introduced to our tech co-founder Ola. And I think after speaking for about two to three months or so, we decided to put something on paper, sign it off, and that was then the birth of Rainforest. Running a startup is really tough, right?
And to have the right team, to have the right set of aligned values, is very important, especially among your co-founding team. And I am very grateful that I found that in my co-founders, JJ and Ola. And I’m just glad that our journey has been great.
It has been a little more than two and a half years since then, and Jason goes into what they have achieved thus far.
Jason: I think in the span of about two and a half years, we have now acquired 16 ecommerce brands, focusing on parenting and kids categories. We have recently recorded our first-ever profitable quarter. So that’s one of the great achievements for Rainforest.
And I think so far we have been focusing a lot on Amazon-based assets. So one of the things that we are shifting our strategy, or expanding our strategy to be exact, is to look at non-Amazon brands as well, and bigger assets for acquisition.
In terms of numbers, I think looking back two and a half years, growing from the three of us to now close to a hundred-strong team across more than 15 countries, I think that’s another number that I would also like to share. Because Rainforest is all about its people as well. And to me, building a remote-first and such an international team is something that I am very proud of.
How the Rainforest’s approach to acquisition and post-acquisition growth for brands has evolved
And with this progress, we revisit through Jason’s view how their business continues to evolve as their house of brands grows.
Jason: So as part of my role at Rainforest, I lead acquisitions as well. And I think it’s important to also highlight that acquisition is just a means to building up the portfolio. What’s equally, or even more important, is how we build a brand post-acquisition to realize its potential.
In my role, I have a wide and holistic view on everything from fundraising to numbers, to forecasts, and to acquisitions as well. Obviously, they all are interlinked. And I think having this holistic view is important for me. It’s important for Rainforest just because of the interconnectivity among all these functions.
So, I think if you open up the portfolio, there will always be overperformers, those that meet expectations, and similarly, there’ll be underperformers as well. There are many factors to that. It could be anything from supply chain to pricing to competitors. So many things can actually impact the actual versus forecast.
What is actually more important for us is to create the team, create the foundation, and create the tools for us to take action to build this brand to its fullest potential.
One example that we probably would look at is product development. So if a brand is already successful, the team will actually look at new opportunities to either improve existing products. It could be as simple as introducing new colors, new sizes, or even adjacent products to actually leverage the strength of the brand and, ultimately, grow the brand and profitability.
Rainforest’s Impact on Ecommerce Entrepreneurs and Consumers
And as Rainforest continues to grow its house of brands, as of this recording, with 16 brands contributing to 9x growth in revenue in FY ’22, having raised a recent round of US$21.5 million, and making inroads toward profitability, they continue to be guided by their role in shaping ecommerce brands and consumers long-term.
JJ: We help encourage ecommerce sellers around this part of the world, right? Which is, if anyone is listening to this podcast now and thinking, “Hey, actually, you know what, why don’t I do a side gig now? Then in two years’ time, I can sell to Rainforest, right?” And you try it, right?
I think for me, the emergence of ecommerce aggregators around the region encourages people to try a bit. Because one of the things is that if you start and then sort of aren’t sure, right? Like, “What do I do with this brand? Do I have to make it really big or am I stuck with it?” But now there are a lot of options in between. You can grow to a somewhat sizable scale, and there are players like us who can give you an exit. So, give it a go.
And trying to build something unique encourages a level of innovation where better-thought-through products actually get to the market, which benefits consumers in general. It hopefully provides them with more choices, which they wouldn’t have without the platform in place.
Some of these brands will never reach certain consumers, never have enough stock, or never expand to the right markets, and as such, they never get to consumers who actually might want them in certain parts of the world. Some brands unfortunately get stuck at a certain stage, and without the help of aggregators to provide them a platform to grow, the products actually never reach the consumers who might want them.
Stay tuned for our next full episode next week!
The content of this podcast is for informational purposes only, should not be taken as legal, tax, or business advice or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any Insignia Ventures fund.