Four months ago, he barely had a product. Now in November, CEO Keith Rabois has set an ambitious goal for his team at OpenStore: End the year at a pace where they are acquiring a new Shopify-based business every day.
“It will prove to me when we get there, and we do this in an automated way, that we have a mechanical machine that can scale,” Rabois says. “That’s the goal for this quarter. But unfortunately, the quarter is already X days away, so back to work.”
OpenStore was founded in March and is doing everything in a hurry. The startup launched with support from the Founders Fund, where Rabois is an investment partner, and the startup studio Atomic. In June, it reached a reported valuation of $ 250 million after raising $ 30 million in a round led by Khosla Ventures pre-launch. Now, with a team of 35 and more than a dozen merchants rolled up on its platform, representing tens of thousands of millions in revenue, the Miami-based startup has gone back to the well to make Rabois’ goal a reality.
OpenStore has raised $ 75 million in a Series B funding round led by General Catalyst, the company says. Atomic, Founders Fund and Khosla Ventures, which led its Serie A just five months ago, all attended. Following the investment, OpenStore is now valued at $ 750 million, says a source with knowledge Forbes – tripling the company’s valuation over the same short period.
Launched after a holiday conversation between Rabois and other Miami transplant recipients and friend Jack Abraham, co-founder of Atomics, OpenStore’s basic premise is to use software to quickly evaluate, price and bid on “longtail” merchants selling through the Shopify platform, typically with single-digit millions in annual sales. OpenStore then hopes to leverage its technology and superior resources to boost sales of the acquired product lines, eventually combining them under one e-commerce brand, which Rabois compares to Wish for all price points, or Wayfair for all shopping verticals.
Exploiting economies of scale can enhance the advances in such products and allow OpenStore to reduce prices, Rabois says, accelerating consumer adoption. Its software, meanwhile, can leverage data from the collectively acquired brands to better spend on marketing like Instagram ads and to extract better prices from logistics providers like FedEx and UPS.
Merchants sell their business fully – this is not venture capital equivalent or new form of financing – they pay out in full. But OpenStore founders see themselves as the good guys in that scenario. In an interview, Abraham said he only got the idea after being asked by a founder he was guiding how she could easily sell her business, a manufacturer of organic skin care products. “We knew she had a really big gap to cross to get to the point where the company could have liquidity,” he says now. By raising external capital, investors would expect tens of thousands of millions in revenue; the founder was closer to $ 3 million.
According to Abraham, a third-party partner commissioned by Atomic (which is known for influencing startups to solve market gaps – though not always first) found that 80% of the smaller salespeople surveyed on Shopify were open to acquisition. “Giving them liquidity and the opportunity to do what they want with the rest of their lives, including winning … it’s very pro-entrepreneurship,” he claims.
Companies sign up by raising their hand and sharing their Shopify login credentials so that OpenStore’s software can get started with their sales data. OpenStore has bought more than a dozen so far, ranging from jewelry to frozen food. An early taker: FarmFoods, a brand that sells responsibly farmed meat online, founded by a former HR manager at Tesla in 2018. According to OpenStore, Land’s business grew five times during the 2020 pandemic; taking a multi-million dollar cash offer allowed her to move on to “unlock her next endeavor.”
If all this sounds familiar, it’s because merchant roll-ups have proven to be a thriving business in recent years, especially in the Amazon ecosystem, where startup Thrasio has spent hundreds of millions on a portfolio of more than 200 brands, raised hundreds of millions more in debt and most recently raised $ 1 billion in a stock investment at a valuation of more than $ 5 billion in October (a valuation that may look cheap now for some).
OpenStore claims to have little in common with such players, despite the obvious. “All of these aggregators you see on Amazon are pretty much nothing but financial engineering because Amazon takes care of blocking and tackling and all the moving pieces,” Rabois says. “The founders who run these businesses have an easier job than I do, which is nice for them. The bad news is that there are not that many levers to improve these businesses because Amazon is pretty good at what Amazon does. “
But that does not mean that Amazon aggregators will not turn their attention to the nearby Shopify Kingdom, where OpenStore is already facing other entrants such as Pattern Brands, launched by the team behind the once influential branding agency Gin Lane and backed by its own group of VC companies. While Rabois claims he has never encountered a direct competitor in talks with potential dealers, it appears to be a safe bet that will not be the case for long.
Hence the big round of grants. So far, access to debt is still expensive for OpenStore as such a young company, meaning some of the $ 75 million will go directly into its acquisition pile. The company also plans to increase the number of employees to 50 by the end of the year, then 150 over the next year – many of them engineers to improve its software and make faster contract decisions, eventually within an hour. Rabois says he does not “cherry-pick” companies to proactively target from Shopify’s $ 1.7 million in the $ 10 million pool. But that can also change with more data and software over time.
“They are market leaders in the Shopify ecosystem, but there are bigger visions of being able to build something much bigger,” says General Catalyst partner Mark Crane.
For now, investors are betting just as much on Rabois, who says he raised the new funding in just one day. A PayPal mafia member and former COO for Square, Rabois also co-founded Opendoor, today a $ 13 billion market capitalization company that similarly uses technology to automate turnaround homes and build a Midas List-caliber portfolio as a venture capitalist. at Khosla Ventures and now the Founders’ Fund. Such tech star power has attracted talents like OpenStore President Michael Rubenstein, former president of AppNexus; Rabois’ relentless evangelism of the burgeoning Miami technology scene, meanwhile, has helped pull talent away from Google, Facebook and Uber.
Three-quarters of OpenStore’s team moved to their new jobs, though Rabois continues to invest in the Founders Fund across the United States ” he says.