OpenStore Chief Executive Officer Keith Rabois argues that through software, the company can offer purchases for companies “suffering the burden of capital requirements and liquidity requirements.”
In the past four months, the company was without a product. In November, OpenStore’s CEO Keith Rabois has set an ambitious goal for his team of OpenStore to finish the year to acquire a new Shopify-based business every day.
“That will show me, once we’re doing it in an automated manner, it will be clear that we have mechanical equipment that can expand,” Rabois says. “That’s the main goal in this particular quarter. However, the quarter is already X days into the quarter, which means it’s time to get back working.”
Established in March, OpenStore has been working quickly. The company was founded with funding by Founders Fund, where Rabois is an investment partner and the startup studio Atomic. In June, it surpassed an estimated value of $250 million after the company raised $30 million through an investment led by Khosla Ventures’ pre-launch. With a staff of 35 people and more than a dozen merchants integrated into its platform, generating thousands of million in revenues, the Miami-based startup is back at the source to help make Rabois its goal becoming a realization.
OpenStore has acquired $75 million through an investment round in Series B that General Catalyst led, the company declares. Atomic, Founders Fund, and Khosla Ventures, which led the Series A only five months earlier, also took part. In the wake of the funding, OpenStore is now valued at $750 million. An individual with information says to Forbes that the company has tripled the company’s value in the same time frame.
It was created following a Christmas conversation between Rabois and fellow Miami residents and acquaintance Jack Abraham, Atomic’s cofounder. The premise behind OpenStore is to make use of software to evaluate prices rapidly, make offers and price estimates on “long-tail” merchants that sell on their Shopify platform, with typically one-digit million annually in sales. OpenStore will then hope to use its technological capabilities and resources to boost sales of the new products, eventually combining the brands under one brand that Rabois likes to Wish at any price point and Wayfair for all verticals of shopping.
Utilizing economies of scale could increase the margins of these products and allow OpenStore to reduce costs, Rabois says, accelerating customer acceptance. The software will be able to use information from acquired brands to spend more money on marketing such as Instagram advertisements and obtain higher rates from logistics companies such as FedEx and UPS.
The sellers entirely sell their business. This isn’t a venture capital-like or innovative method of financing – they cash out completely. However, the founders of OpenStore see themselves as the righteous ones in this situation. In interviews with them, Abraham claimed that he initially thought of the idea when asked by a founder he had mentored on how she could sell her company, a producer of organic skincare products. “We knew there was an enormous gap that needed to be crossed to get to the point at which the company could be able to have liquidity,” he says now. If the company raised capital from outside sources, investors could expect the company to generate tens of millions in revenue, but the founder was close to $3 million.
As per Abraham, a third-party vendor contracted from Atomic (famous for creating companies to fill in the issues in the market even if it’s not always the initially) discovered that 80% of smaller sellers surveyed on Shopify were willing to acquire. “Giving them liquidity and optionality to do what they want to do with the rest of their life, including getting a win… it’s very pro-entrepreneurship,” he claims.
The companies can join with a hand raised and give their Shopify login credentials to OpenStore’s program working with their sales data. OpenStore has acquired several dozen products brands so far, from frozen food to jewelry. One of the early buyers is FarmFoods, a brand that sells ethically raised meat online. A former human resource Manager created it at Tesla in the year 2018. According to OpenStore Land’s website, the company’s revenue increased fivefold during the outbreak in 2020. Accepting an offer for a multi-million dollar sum let her move forward to “unlock her next opportunity.”
If this all sounds familiar, it’s because roll-ups have been a massive business in recent times, particularly in the Amazon ecosystem in which the startup Thrasio has invested hundreds of millions of dollars on an array comprising more than 200 brands. It has also raised hundreds of millions of dollars in debt. Most recently, it raked $1 billion as an equity investment with a value of five billion dollars at the end of October (a price that may appear cheap for some).
OpenStore declares to possess nothing similar to these companies despite the obvious. “All the aggregators that you can find on Amazon are nothing more than financial engineering because Amazon offers blocking and tackling as well as all the moving parts,” Rabois says. “The people who run these businesses have a much easier job as I am, and that’s good for them. However, there’s no way to boost the performance of these companies as Amazon is quite excellent in doing what Amazon is doing.”
However, that isn’t guaranteed that Amazon aggregates will not set up shop in the Shopify kingdom. OpenStore is already competing with new competitors like Pattern Brands, founded by the group behind the once-powerful brand agency Gin Lane and backed by its group of VC companies. Although Rabois says, he’s never met an actual competitor when negotiating with potential retailers for sale. However, it’s a pretty safe assumption that this won’t be the situation for a long time.
This is why the funding round was so significant. As of now, access to debt is expensive for OpenStore because it’s a new business, which means that a portion of that money will be put into its pile of acquisitions. The company intends to expand its staff to 50 by the end of the year and then to 150 by the next 12 months – most of them engineers, who will enhance its software and make more rapid deal decisions, eventually within one hour. Rabois claims he doesn’t “cherry-pick” firms to choose out of Shopify’s 1.7 million users in the $10 million pool. However, that could change as he acquires more data and software over the future, too.
“They are leading the marketplace in the Shopify ecosystem. However, there are more visions for them to build something much more,” says General Catalyst Partner Mark Crane.
Investors are betting big on Rabois, who claims to have has raised the money within a single day. Rabois is a PayPal mafia-related member as well as the former CEO for Square. Rabois also cofounded Opendoor, an enterprise with a market capitalization of $13 billion that uses technological advances to help flip houses and create a Midas List-like portfolio while working as a venture capitalist with Khosla Ventures, now Founders Fund. The tech star power of this company has drawn talent such as OpenStore President Michael Rubenstein, formerly president of AppNexus; Rabois’ relentless promotion of the growing Miami technological scene, in turn, has attracted the best talent of Google, Facebook, and Uber.
A quarter of OpenStore’s staff relocated to new positions. However, Rabois is still investing for Founders Fund across the U.S. “If I were arguing in public that people should construct in Miami, it is my duty to be building a business in Miami to be an example for others,” he says.