keith rabois disrupt

Keith Rabois’ OpenStore lands new funding as valuation rises to $970M • Technology Flow

Many e-commerce roll-up companies, also known as aggregators, have slowed this year after a record 2021. However, some young companies are still thriving in this space.

One of these is OpenStore, a company founded in 2021 that provides Shopify founders with a cash offer and a low-stress experience to get their businesses up and running in days. Over the past 18 months, OpenStore has acquired dozens of businesses representing tens of millions in revenue.

The company’s early success may lie in the makeup of its founders: OpenStore is led by some heavy hitters, including Founders Fund General Partner Keith Rabois and Atomic founder and managing partner Jack Abraham, who started the company with Matt Lanter and Jeremy. wood

“We’re disciplined, applying the same principles I’ve been doing for the last 23 years,” Rabois told Technology Flow.

Continuous growth

While aggregators have announced layoffs and also downsized their acquisitions departments this year, OpenStore has “grown significantly, increased the number of brands and tripled the size of the team,” Rabois said. The company now has more than 100 employees.

Additionally, while funding to aggregators has slowed to a comparative trickle — $9 billion in funding flowed into aggregators by September 2021, compared to $2 billion in the same period in 2022, according to the Financial Times — the Miami-based firm was among the recipients. Some of those recent investment dollars. To wit, OpenStore closed with just $32 million in a round led by Lux Capital, valuing it at $970 million. This represents a 25% increase in the company’s valuation from its previous round of $75 million announced in November 2021, the company said.

The new round brings OpenStore’s total equity funding to more than $150 million from investors including Atomic, Founders Fund, General Catalyst and Khosla Ventures.

“The round is early,” Rabois said. “We have an adequate amount of capital on the balance sheet and are looking to raise next year, but Lux approached me. I respect them and their strategy and agreed to work with them.

OpenStore’s acquisition “sweet spot” is US-based, direct-to-consumer brands that have between $1 million and $10 million in gross merchandise volume, Rabois said.

Josh Wolff, founder and managing director of Lux Capital, said via email that the firm “believes OpenStore’s model is the future of online retail” and that “Sopify’s focus on accelerating the path to liquidity for merchants means OpenStore is particularly relevant and valuable in challenging economic times.”

The company is also ramping up its acquisition pace and will use some of that new equity to grow the team and buy brands, he said. Brand acquisitions include apparel brands Jack Archer, Barn Chic Boutique, YogStay and Verva.

OpenStore’s long-term goal, according to the company, is to “bring the spontaneous discovery experience back online” in a new way of shopping that connects merchants with customers through a shopping experience driven by data, information and capital.

Much of this effort will be led by former DoorDash engineer David Zhu, who joined OpenStore as head of engineering in May. He will continue to develop the company’s technology, including automating the process of acquiring merchants on Shopify and speeding up the operational capabilities of running these online stores through OpenStore, going so far as to reduce the acquisition offer from the current 24 hours to an hour. The company said.

Challenging times

Aggregators, using technology and logistics expertise in general buying companies from marketplaces like Amazon and Shopify, aim to grow them. 2020 is the fastest growing Thraceo has made money for these types of companies.

They overdid it this year as funding dried up.

There are many reasons why this happens. Taliesen Hollywood, director of specialist M&A at London-based Hanbeck, brokers deals with aggregators, and told Technology Flow, “It’s not so much that any particular aggregator or brand owner is struggling, online retail as a whole has had a tough year.”

“The decline or reversal of growth for many of these brands compared to the COVID peak, combined with increased costs, particularly in shipping but also in pay-per-click advertising and others, has led to difficult trading conditions,” he added. “Almost all brand owners are experiencing this.”

Hollywood says the aggregator sector is fragmented with a small percentage of brands, particularly young ones, still thriving and with good margins.

He acknowledged that the overall market in 2022 was “much quieter than 2021,” but attributed that to both buyers and sellers. On the buyer side, the FT reports last year that businesses were bought for sometimes 6x to 7x adjusted earnings before interest, tax, depreciation and amortization, meaning acquisition capital didn’t go that far.

That’s good for sellers, but as the e-commerce market slows down, so do their businesses. They also had to deal with logistical issues with products sitting on cargo boats in the middle of the ocean or docked last year. All of this adds up to the fact that sellers will need to wait until business picks up again, Hollywood said.

He noted that the business is “down in value a little bit, but not collapsed” and that the investment flow continues, noting that investors still believe in Cap Hill Brands’ $100 million Series B investment from BlackRock earlier this month. Aggregator model.

Meanwhile, Rabois is also focusing on valuation. He believes OpenStore has “nothing in common with other aggregator companies,” which he calls “intermediary businesses on Amazon.” Instead, he said, companies that integrate businesses from Amazon aren’t able to make many improvements, but with Shopify, there’s room to grow.

The company continues to acquire “multiple companies a week” and is “cautious about valuation” and disciplined on pricing, Rabois said.

“It was a hot market last year, but we are now very strict about valuation and what the business is worth and making offers that we are comfortable with,” he added.

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