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Good morning! It's Tuesday, February 6th. Today, we’re looking at OpenStore, the company on a mission to take over the e-commerce industry with its automated acquisition process and $970M valuation!

THE FEATURE

The Rollup Machine Taking Over the E-Commerce Industry

Have you ever wondered how fast leading venture capitalists could grow their own startups? Well, as it turns out, the answer is freakishly fast. 

In 2021, Keith Rabois and Jack Abraham from investment firms Founders Fund and Atomic created their e-commerce rollup OpenStore. Within the first eight months, OpenStore hit an eye-popping $750M valuation!

So, let’s dive in and see how OpenStore is disrupting the e-commerce industry! 

The Problem to Solve

OpenStore was born from a conversation Abraham had with a DTC entrepreneur struggling to find acquisition offers for his business. This conversation was a lightbulb moment for Abraham as he realized that the pandemic-induced explosion in online shopping created countless e-commerce businesses that investment firms had overlooked.

The specific businesses Abraham was looking at were those on Shopify. Shopify has created a platform for over 4.8M businesses, but Shopify’s merchants face obstacles like limited access to capital, cutting-edge technology, and high customer acquisition costs.

The solution to those obstacles? A business that provides liquidity and acquisition offers to those overlooked small to mid-sized e-commerce merchants.

OpenStore generates revenue by bringing these acquired brands to its own online storefront, which operates like a decentralized department store. By owning and hand-selecting all the products on its marketplace, OpenStore’s unique competitive edge is that it is a low-quantity but high-quality alternative to Amazon.

The Business: An Automated Acquisition Machine

In the first eight months, OpenStore rolled up over a dozen merchants that represented tens of millions in revenue. Today, they have an algorithm that lets them acquire a new Shopify-based business daily. The goal is to expand that algorithm so that they can automate 95% of the acquisition process and roll up Shopify brands even faster. 

As if to prove the massive demand for investor attention among Shopify merchants, OpenStore doesn’t even have a sales team. Instead, it relies solely on organic acquisitions. 

Merchants initiate the acquisition process by linking their Shopify store to OpenStore and adding their financials. To qualify for an OpenStore acquisition, they must meet the following criteria: 

• Over six months of operations

• $500K+ in net sales

• Path to profitability in the next 12 months

• 70% of sales occur on Shopify

• The majority of sales are generated in the US

If a Shopify merchant meets those criteria, OpenStore’s proprietary engine generates an acquisition offer that takes into account metrics like customer acquisition growth, average order value, and on-hand inventory. Merchants that accept the offer receive 80% upfront, with the remaining 20% distributed over the transition period. 

How The Win: Finding a New Revenue Stream + Acquisition Channel

Approximately a year ago, OpenStore uncovered an untapped market: Shopify store owners who aren’t ready to sell but want to take a less active role in their businesses. 

Those entrepreneurs can now enroll in OpenStore Drive, which lets OpenStore take over their Shopify store management for one year. Store owners earn passive income over the year, and OpenStore takes a 10% cut as its management fee. 

On top of the management fee, OpenStore takes home all excess profits if a store exceeds the expected revenue projected in the proposal process. This incentivizes OpenStore to build up partnered Shopify stores as fast as possible, which they are famously good at. 

After the year-long management period, Shopify merchants receive a new acquisition offer based on the store’s performance, which is the true genius behind OpenStore Drive. It simultaneously creates a new revenue stream via management fees and forges a partnership with store owners that makes them more likely to take an acquisition offer in the future. 

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