The $800B market that fuels independent retail: Our Investment in Tundra

Annie Kadavy
Jun 25 · 5 min read

Imagine the last time you purchased a thing. Not a byte, but an atom. Maybe it was a gift for a birthday party, a new leash for your dog, or supplies for your most recent home DIY project. It could have been bought online or in-person. Now consider that, as the end consumer, you are at least the second person to purchase that exact item. The first time dollars flowed for it was on the wholesale market. Roughly $800 billion worth last year, just through independent store owners in the US alone.

We’re excited to announce our investment in Tundra, the marketplace connecting wholesale buyers and sellers. There are currently more than 500,000 independent store owners with fewer than 20 employees in the US. By increasing buyers access to products and reducing the cost to transact, Tundra is quite literally improving their bottom lines. The team shared more here about their mission to put $1 billion back in the pockets of independent store owners.

I’d love to fill a portfolio with marketplace investments and have been fortunate to invest in or work at ClassPass, DoorDash, Patreon and Uber. Most of the companies that have recently achieved huge scale and recognition have been B:C, meaning that individual consumers comprise supply and/or demand. However, it is B:B, not B:C, marketplace models that I expect will have more staying power over time.

Combining the best from B:C and B:C marketplace models

Small retailers make purchasing decisions and have usability expectations that are more akin to those of a consumer than a large enterprise. However, they require sophisticated and consistent platform tools to manage their business.

B:C or C:C marketplaces (e.g. AirBnb, eBay, Rover) are good at:

  • Brand building and customer experience

B:C marketplaces almost always make money by taking a cut of each transaction. This makes sense because each transaction is unique and not expected to be repeated — it is simply finding the unit of supply that a buyer values and will pay a “match fee” for.

B:B marketplaces (e.g. Alibaba, IndiaMart, Uber Freight) are good at:

  • Comprehensive payment and financing solutions

B:B marketplaces can make money in different ways, through subscriptions or service add-ons that facilitate repeat business transactions.

Tundra is building a consumer-grade front end product atop an enterprise-grade logistics and payments backend to serve their needs. Optimizing for ease of use and consistency increases trust on both sides of a marketplace. And, trust translates to long term defensibility.

Why now and why not Amazon?

The Millennial consumer is more discerning than previous generations. Demand for personalization is forcing the fragmentation of retail. And that requires retailers to be more agile. They need to transact on lower MOQs at a higher frequency and have a navigation layer to search an increasingly long-tail of products to meet their customers’ wants and needs.

Related, how people work is changing. Fewer people trek to 9–5 jobs and instead more are hanging their own, often digital, shingle to work for themselves. They may open a coffee shop or yoga studio. Or, they might stand up a Shopify site or build an Instagram following that they can monetize. This, however, is a tiny fraction of the broader market which includes hardware stores, day spas, schools and doctor offices. All of these business owners, whether decades old or brand new, need to procure the items they will use or sell and today there is no great solution.

So, what are the options in 2019? Today, there are three options for SMB wholesale buyers and sellers to transact: (1) Alibaba/Amazon, (2) find suppliers directly online via their own website or contact lists, or (3) attend an in-person wholesale trade show. Let’s address the challenges with each:

  1. Alibaba / Amazon — These are enormous platforms and how to co-exist with them was, admittedly, my biggest question. What I learned surprised me. Despite being a $300B+ public company, Alibaba has struggled to win buyers’ trust in the US. Their supply was built in China and continues to skew that way. Amazon’s B:B business is quickly becoming more challenging for SMB wholesalers and there are recent rumors that they will soon stop servicing sellers that transact less than $10M/yr all together. More importantly though, Amazon is a consumer company first and this is at odds with servicing wholesale transactions in any category where buyers want to then sell products to consumers themselves. That perception, in addition to increasing transaction take-rates, make it an unfavorable solution for independent retailers in particular.

Execution is everything. Especially here.

The problem (connecting wholesale buyers and sellers) and solution (online marketplace) that Tundra is solving is simple. However, this is a much more difficult business to build than it seems. As with any early stage investment, it’s the team that matters more than anything. “Ideas are cheap, execution is everything” as they say.

We think it’s important that founders have an earned perspective on the problem they are solving. After working as McKinsey consultants, Arnold and Katie scaled an international third party logistics company and spent nearly a decade learning how to ship things of all dimensions, prices and volumes across the globe. They’ve dealt with returns. They’ve dealt with counterfeits. They’ve managed customer service on a global scale. And, most importantly, they have interacted with thousands of buyers and sellers and have an earned perspective on their customers’ needs and priorities.

Our co-investors are uniquely suited to see greatness and help scale Tundra as well — Background Capital, FJ Labs, Initialized Capital, Peterson Ventures and Switch Ventures have invested in some of the most valuable recent marketplaces and logistics companies including Instacart, Flexport, Opendoor, Lime, Uber and Wish. I’m personally very excited to work with this team and to be part of Tundra’s mission to put $1 billion (at least! ;)) back in the pockets of independent retailers.

Redpoint Ventures

Since 1999, Redpoint Ventures has partnered with visionary founders to create new markets and redefine existing ones.

Annie Kadavy

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work hard and be nice to people.

Redpoint Ventures

Since 1999, Redpoint Ventures has partnered with visionary founders to create new markets and redefine existing ones.