OpenStore by Keith Rabois gets new funding after the valuation soars up to $970M

After a record 2021, many e-commerce roll up companies, also known by aggregators, have seen their growth slow down in this year. However, there are some young companies in this sector that are still thriving.

One of them is OpenStore. This company was founded in 2021 to help Shopify entrepreneurs sell their businesses quickly and with a cash offer. OpenStore has acquired numerous businesses with tens to millions of revenue over the last 18 months.

OpenStore’s early success may be due to the composition of its founders. OpenStore is managed by Keith Rabois, Founders Fund general partnership, and Jack Abraham (founder and managing partner of Atomic), who founded the company with Matt Lanter, Jeremy Wood, and Jeremy Wood.

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Rabois stated to TechCrunch that the team has been disciplined and applied the same principles as me for the past 23-years.

Continued growth

OpenStore, Rabois stated that while aggregators have this year announced layoffs, and even shut down their acquisition divisions. It now employs more than 100 people.

Additionally, although funding for aggregators has slowed down to a relative trickle $9 billion of funding went to aggregators in September 2021, compared to $2 billion in the same period of 2022. The Miami-based company was also among those who received some of these recent investment dollars. OpenStore recently closed $32 million in a Lux Capital round that valued it at $970million. This represents a 25% increase in company valuation over its prior round of $75 million funding announced in November 2021.

OpenStore now has over $150 million in equity funding from investors including Atomic, General Catalyst, and Khosla Ventures.

Rabois stated that the round was preempted. “We have a fair amount capital on the balance sheets and were looking for next year’s raise, but Lux reached me. They are a great company and I was open to the idea of working with them.

Rabois stated that OpenStore’s “sweet spot” for acquisition is U.S-based direct-to-consumer brands with between $1 million to $10 million gross merchandise volume.

Lux Capital founder Josh Wolfe and managing director of Lux Capital, stated via email that OpenStore’s model “is the future” and that it “believes OpenStore is the best way to sell online.” OpenStore’s “focus on increasing liquidity for Shopify merchants makes it particularly relevant and valuable during difficult economic times.”

He said that the company is increasing its acquisition speed and will use some equity to grow the team and purchase brands. Apparel brands Jack Archer and Barn Chic Boutique were acquired, as well as Yogaste, Wearva, and Yogaste.

According to OpenStore, the long-term goal is to “bring back spontaneous discovery” through a new shopping method that connects merchants and customers using one shopping experience that is driven by data, capital, and information.

David Zhu (a former DoorDash engineer) will lead many of these efforts. He joined OpenStore in May to serve as the head of engineering. The company stated that he will continue to develop the company’s technology. This includes automating the process for acquiring merchants through Shopify. OpenStore will also accelerate the operational efficiency of these online shops through OpenStore.

It’s a challenging time

In general, aggregates buy companies from online marketplaces such as Amazon and Shopify with the aim of increasing their growth through technology and logistics expertise. These companies were flooded with money, aided in part by Thrasio’s apparent rapid rise to the top in 2020.

The funding dried up this year, and it appears that they overdid it.

This could be due to many reasons. Taliesen Hollywood is the director of specialist M&A for London-based Hahnbeck. He brokers deals with aggregators. Business Headers was told by Taliesen that it’s not that any one brand owner or aggregator is in trouble, but that online retail has had a difficult year overall.

He said that the deceleration of growth, or reversal, for many of these brands, compared to COVID peak, together with increased shipping costs and other expenses, have made for difficult trading conditions.” This is what almost all brand owners feel.

Hollywood continued to state that the aggregator market is fragmented with a small number of brands, especially those younger, growing well and making good margins.

Although he acknowledged that the market for 2022 will be quieter than 2021, he attributes this to both buyers as well as sellers. According to the FT report, merchants were bought at 6x-7x adjusted earnings before interest tax, depreciation, amortization, and taxes, which means that acquisition capital did not go as far.

This was a good thing for sellers but it also meant that their businesses suffered as the ecommerce market declined. They had to deal with logistical issues, such as products being left on cargo boats at the bottom of the ocean or docks for the past one year. Hollywood stated that all of this combined makes it difficult for sellers to wait until the business is back on track.

He said that “business valuations have softened a little but have not fallen” and that capital continues flowing. He cited Cap Hill Brands’ $100million Series B investment by BlackRock earlier in the month as an indicator that investors still believe that the aggregator model.

Rabois is currently looking at valuations. OpenStore is not like other aggregators, which he calls “arbitrage Amazon businesses.” Instead, he believes that companies that aggregate businesses from Amazon can’t make significant improvements, while Shopify has room for growth.

Rabois stated that the company continues to purchase “multiple companies per day” and is being “careful about pricing and valuation.”

He said, “It was an extremely hot market last year. But we are very strict now regarding valuation and what a company is worth and making offers we are comfortable with.”

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