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Good morning! It's Thursday, January 25th. Today’s post looks at Rover, the online marketplace connecting pet owners with pet sitters that generates $230M in annual revenue!

THE FEATURE

Pets and Private Equity— Rover’s Journey to $2.3B

The days of paying family, friends, or your neighbor’s kids to walk your dog are gone— there’s an app for that now. 

Rover took the pet care market by storm, and investors noticed. A little over a month ago, Blackstone acquired Rover for a stunning $2.3B!

Let’s break down what Blackstone saw in this pet care company and why they were willing to pay a 61% premium for Rover shares!

Founding Story

The idea behind Rover came from a startup event in 2011 when computer science student Phillip Kimmey met veteran investor Greg Gottesman. 

At the event, Gottesman discussed the need for an “Airbnb for dogs” after his golden retriever contracted kennel cough from being boarded. Kimmey approached Gottesman about the idea, boldly claiming he could have the platform built over his summer break, and thus Rover was born. 

Two years after Rover’s launch, it raised $3.5M in a funding round led by Petco to expand its services nationwide. With 8-figure funding rounds over the next five years, Rover became a mover in the pet care industry with $71M in annual revenue! 

The company’s growth trajectory came to a screeching halt when the pandemic hit, forcing Rover to lay off 41% of its workforce as consumers spent more time at home and didn’t need dog sitters and walkers. 

However, the pandemic ended up becoming Rover’s most significant tailwind. During the pandemic, dog-owning households increased from 38% to 45%. Even crazier, Americans spent $90B on their pets in 2018 versus $143.5B last year! So, when people went back to their in-person jobs, there was unprecedented demand for Rover’s platform.

Rover’s annual revenue has paralleled the dramatic increase in pet ownership and rose $232M last year!

The Business

Rover is an online marketplace for people looking to buy and sell pet care services. Pet owners can find pet sitters for dog walking, house sitting, daycare, and boarding at the sitter’s home. 

Rover’s primary revenue stream comes from admin fees paid by pet owners and care providers. Pet owners pay a 15% service fee for booking through Rover, and pet sitters receive 85% of the total booking price.

The company also has a more unconventional revenue stream: background checks. Each pet sitter must purchase a basic background check for $25 or an enhanced one for $35. Since Rover has over 500K pet care providers on its platform, background checks provide a solid source of profits. 

Key Observation

Blackstone’s $2.3B investment comes as no surprise considering Rover’s impressive revenue numbers, but there is a second reason Blackstone invested in the pet care industry— it’s a safe investment category. 

Especially in America, pets are considered part of the family and will always be well taken care of, regardless of whether the economy is good or bad. 

This is precisely why Rover is just one of a series of recent private equity investments in the pet care industry. In the past few months, we’ve seen private equity firm PAI Partners purchase pet food maker Alphia and veterinary care company Petfolk raised $40M. 

The pet care industry has drawn so much attention from investors that the Federal Trade Commission (FTC) Chair, Lina Khan, is now mandating that PE firms obtain prior approval before acquiring veterinary clinics!

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