OpenStore Raises $75 Million To Acquire More Shopify Sellers, Reaches $750 Million Valuation In Eight Months

Four months ago, he barely had a product. Now in November, CEO Keith Rabois has set an ambitious goal for his team at OpenStore: close the year on a pace of acquiring one new Shopify-based business each day.

“That will prove to me, when we get there and we’re doing this in an automated way, that we have a mechanical machine that can scale,” Rabois says. “That’s the goal of this quarter. But unfortunately the quarter’s already X days in, so back to work.”

Founded in March, OpenStore is doing everything in a hurry. The startup launched with backing from Founders Fund, where Rabois is an investment partner, and startup studio Atomic. In June, it reached a reported $250 million valuation 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 into its platform representing tens of millions in revenue, the Miami-based startup has gone back to the well to make Rabois’ target 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 Series A just five months ago, all participated. Following the investment, OpenStore is now valued at $750 million, a source with knowledge tells Forbes – tripling the company’s valuation over the same short period.

Launched after a holiday conversation between Rabois and fellow Miami transplant and friend Jack Abraham, Atomic’s cofounder, OpenStore’s basic premise is to use software to quickly evaluate, price and make offers on “long-tail” 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 bolster the sales of the acquired product lines, eventually combining them under one ecommerce brand that Rabois compares to Wish at all price points, or Wayfair for all shopping verticals.

Leveraging economies of scale can improve margins on such products and allow OpenStore to reduce prices, Rabois says, accelerating adoption with consumers. Its software can leverage data from the collective acquired brands, meanwhile, to better spend on marketing like Instagram ads, and to extract better rates from logistics providers like FedEx and UPS.

The merchants fully sell their business – this is no venture capital equivalent, or new form of financing – they cash out completely. But OpenStore’s founders see themselves as the good guys in that scenario. In an interview, Abraham said he first got the idea after he was asked by a founder he mentored how she could easily sell her company, a maker of organic skincare products. “We knew she had a really big chasm to cross to get to the point where the company could have liquidity,” he says now. Raising outside capital, investors would expect tens 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 minting startups to address gaps in the market – even if it isn’t always first) found that 80% of surveyed smaller sellers on Shopify were open to acquisition. “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.

Companies opt in by raising their hands and sharing their Shopify log-in credentials, for OpenStore’s software to get to work on their sales data. OpenStore has purchased more than a dozen so far, ranging from jewelry to frozen food. One early taker: FarmFoods, a brand selling responsibly raised meat online, founded by a former human resources manager at Tesla in 2018. According to OpenStore, Land’s business grew five-fold during the pandemic in 2020; 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 a booming business in recent years, particularly 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 took in $1 billion in an equity investment at a valuation of more than $5 billion in October (a valuation that may look cheap now to some).

OpenStore claims to have little in common with such players, despite the obvious. “All these aggregators you see on Amazon are pretty much nothing other than financial engineering, because Amazon provides the blocking and tackling and all the moving pieces,” Rabois says. “The founders running those companies have an easier job than I do, which is nice for them. The bad news is there’s not that many levers to improve those businesses, because Amazon’s pretty damn good at what Amazon does.”

But that doesn’t mean Amazon aggregators won’t set their sights on the neighboring Shopify kingdom, where OpenStore is already facing other entrants like Pattern Brands, launched by the team behind once-influential branding agency Gin Lane and backed by its own group of VC firms. While Rabois claims he’s never encountered a direct competitor in talks with potential for-sale merchants, it appears a safe bet that won’t be the case for long.

Hence the large funding round. For now, access to debt is still expensive for OpenStore as such a young company, meaning some of that $75 million will go straight into its acquisitions pile. The company also plans to grow headcount to 50 by year’s end, then 150 over the next year – many of them engineers to improve its software and maker faster deal decisions, eventually within an hour. Rabois says he doesn’t “cherry-pick” companies to target proactively from Shopify’s 1.7 million in the sub-$10 million pool. But that could change with more data and software in time, too.

“They are the leader in the market in the Shopify ecosystem, but there are bigger visions to be able to build something much bigger,” says General Catalyst partner Mark Crane.

For now, investors are betting as much on Rabois, who says he raised the new funding in just one day. A PayPal mafia member and the former COO of Square, Rabois also cofounded Opendoor, today a $13 billion market-cap business that similarly applies technology to automate flipping homes, and build a Midas List-caliber portfolio as a venture capitalist at Khosla Ventures and now Founders Fund. Such tech star power has attracted talent like OpenStore president Michael Rubenstein, formerly president of AppNexus; Rabois’ relentless evangelizing of the burgeoning Miami tech scene, meanwhile, has helped draw away talent from Google, Facebook and Uber.

Three-quarters of OpenStore’s team relocated for their new jobs, though Rabois continues to invest for Founders Fund across the U.S. “If I was pontificating publicly that people should build in Miami, I should absolutely be building a company in Miami to set an example,” he says.