Is your goal to essentially become a conglomerate of niche e-commerce firms or do you eventually intend to resell the companies you acquire to others?

We plan to be long term holders, eventually taking the company public. We look at Constellation Software up in Canada (where Allan is based) as a great model. The entrepreneurs often stay with the company since they know the customer and product better than anyone. Then with shared resources, best practices, and talking to their peers they can grow their business.

Forgive me for my naivety, but whats the point of the founders staying when you're taking out almost all the potential upside for them by acquiring them? Surely if they believed in the ability for their company to succeed long term they'd stick by it without taking an acquisition early. If your advantage is capital and experience, why would they not just go for a debt based option like clearbanc and retain their potential upside?

Clearbanc and others super useful to help short term cash flow, but its tough to get enough money out to take money off table (a lot of founders have a chance to take money off to go buy a house etc...). For example one of our portfolio company was started by 4 guys with $20K, and we just were able to pay them $4M, and then if they keep growing it they get more upside. One of the ways to grow is to increase the inventory and then increase the velocity of sales through new channels and increase in advertising. They didn't grow it in the past because they didn't want to make that investment but we have access to capital to make that investment.

Big, fat cash bonus...

Equity in big, fat growing company...

Help from shared pool of resources/experts taking a company from $5-20MM (easier) in sales to $100-300MM+ (harder) in sales much, much faster...

Help widening margins on high revenue...

Probably some sweet incentives if they do... Etc...

It makes sense. This isn't particularly innovating, but I have a feeling everyone here will be cleaning house soon enough.

Berkshire hathaway used to do a lot of this. Also, if the sellers want to retain upside, they can accept some portion of the purchase in stock from Moonshot

for sure Berkshire inspired Mark Leonard at Constellation which informs our approach

This sounded a lot like Constellation to me. Love what you are doing.

sort of reminds me of physicians or lawyers sharing a practice than going at it alone.

Can you say something about what kind of companies you are looking for, how you value companies, etc?

Contrived example: Say a company has $1m, $500k, 100k in sales, gross & profit respectively... is that enough information for a starting point? How do marketing mix, growth, sector and other such factors play in?

Also, since it sounds like you are running these as going concerns, what happens if/when founders and key employees aren't included in the acquisition or move on? Is running companies directly an avenue, and if so, are they still run as independent units?

Lastly, do you dabble in grey areas between outright acquisitions and partial ownership?

Also interested in your terminal destination... but other comments have covered this.

What's the actual business model here? Y Combinator shouldn't be backing a tiny PE fund, so this can't be that. What's the angle? There must be some financial engineering in the buyout or some unique plan for post-sale.

"Selling your eCommerce business is broken. We're disrupting this space with AI-informed ML that doesn't suck. We're building Uber for SaaS companies, where we're Uber and the owners are drivers."

There, now it's YC compatible.

Not sure i ever want to be the uber of anything, but you are spot on that there is a ton of data, that we can use machine learning to both better identify acquisitions and grow brands. And yes for many founders the process is broken

First, they have "Private Equity" job openings, so that's definitely part of it.

More specifically it will be about scaling the brands they buy and cross-selling when possible. A lot of e-commerce brands/founders hit a ceiling around $1-5M in revenue. At that point, you need more experienced operators to get to $10M or $100M. People who know how to optimize marketing, conversions, fulfillment, and who can move into new channels (eg get on shelves at Target or Costco). A lot of online store founders don't want to deal with that.

Once they hit a certain number of brands under their umbrella, there will be cross-selling/marketing opportunities (assuming they're not just buying Amazon FBA drop ship brands). They can combine email lists and will eventually have good data to power product recommendations.

I'm guessing here, but the long-term play is eventually put all brands under a single online store–in other words, a new amazon.

Great insights especially the last one, some of the smartest investors we spoke to saw the end game being we can offer special perks for customers like an amazon prime like program. It’s interesting and I wonder why the traditional conglomerates like P&G don’t do it; probably because they don’t have a direct relationship with the customers? On the PE job post yes for MBA interns were were looking for folks who have the skills to find and evaluate potential acquisitions

> Y Combinator shouldn't be backing a tiny PE fund, so this can't be that.

Why not? YC backs a lot of things that don't necessarily look like a classic "software company".

Not saying you're wrong, but where do you see that they are backed by YC? This reminds me of Thrasio and all the similar companies that have had success with buying Amazon businesses. I assume they have quantities of scale with in-house devs, operators, etc., which gives them a built in advantage.

Edit: nevermind, I see now that they are in fact YC-backed. Don't think I've ever seen YC back another "fund"

Participating in YC was hugely valuable for our team, we had great mentorship, access to an amazing network of founders who have provided advice as we launched Moonshot, and of course investors. I don't know what their criteria is for accepting us, but I think the fact we were multiple time founders that had built operational and technology company and that there is a big opportunity to apply technology to every step of acquire, operate and grow in our model. We also love the idea of building something like Startup School for ecommerce entrepreneurs. One day we hope that ecommerce entrepreneurs want to be a part of Moonshot the same way we wanted to be part of YC. Finally as we build tools for ourselves we could potentially make those available to the millions of ecom sellers out there.

Did you raise $160m prior to joining YC? If so, that 7% must have been worth quite a bit.

This shouldn't be surprising; YC is no longer a tight group of like-minded nerds sitting around a table, despite what image they still try to market. It is a giant machine that is growing in both scale and breadth. Where the signaling value used to be very valuable to a particular segment of the population, it's now the same as getting an investment from a prominent traditional VC. Still has value but in a much more general sense.

Congrats all! Mind elaborating a bit more on how this is different than selling to some PE bros though?

Also, for anyone reading this, if you’re a high income individual or have come into a windfall from RSUs/Stonk/inheritance/coin there’s marketplaces and plenty of access to brokers if you want to buy your own shop.

Lot of sellers under $1MM ARR will sell their company at like 2-3x (!) which if you can just maintain or improve just slight, a couple years becomes pure cash vehicle. I know a few folks who navigate this space and make great money buying very small and profitable businesses too low-profile for PE to care for.

We are both entrepreneurs ourselves, and have lived through working with PE shops that might gordon gecko style fire everyone and flip. Its not our model, our ideal seller stays and grows within Moonshot, where we can both create more value. That being said there are sellers ready to cash out, and for them we have a platform so we can operate and grow the business.

On your point on brokers, we get our leads a variety of ways, including by building great relationships with brokers.

And your last point for sure the higher the ARR the higher the multiple generally (at extreme someone like Proctor and Gamble trades 20x-40x). What we find from our experience is that there are folks that are asset rich (meaning the company is ebitda positive) but cash poor because all the money goes back into inventory/product launches etc... Moonshot is flexible and can help them take money off the table, and then get upside in the future.

oh i also see you know a lot of folks who buy companies, if they grow them to $3M+ and are looking to take money off the table send them our way! We pay referral fees for successful deals https://www.moonshotbrands.com/leads

Thanks for response. Super interesting and cool. Wish you all the best!

> windfall from RSUs/Stonk/inheritance/coin there’s marketplaces

Do you recommend any specific marketplaces?

Ya, owning several ecommerce sites there is nothing on this site that says if you would be even interested.

I think some details on what you are looking for (even from a broad sense, like what category, do you allow single product dropshipping, shopify, custom application, etc).

Also there is tons of ecommerce sites on websites like flippa and others, why not look there?

good point, here is basic criteria: Private label brands $3M-$30M in revenue 15%+ net margin Predominantly on Amazon but also open to Shopify/DTC brands that are profitable. Allan built HomeSav focused on home goods ("everything from couches to candles"), and we also like sporting goods, office, home improvement, etc... In terms of products staying away from fast fashion, electronics that can become obsolete. We don't do drop shipping, software etc... Looking globally

How are you different from Thrasio, Perch, and host of other competitors? Seems like this is just a race to execute deals faster than the other guys - what is your competitive advantage?

Interestingly this is somewhat how Wayfair began back when they were known as CSN Stores. They started out looking to buy some ecommerce companies and realized they could arbitrage Google search with high specialized ecommerce sites. Of course it is different - they ended up creating the stores vs. buying other people's stores.

Most of the bigger and better DTC marketing agencies I know are making the same move as your concept. Buying or starting internal brands as they can scale them better and more effectively than their clients can. Why are you different / better?

What makes us different than DTC marketing agencies starting or buying brands is that we are looking to grow our portfolio of companies not just through growth marketing strategies, but by providing a better customer experience overall. We're also looking to create a founder-friendly company; one that simplifies the acquisition process, is transparent about how we value companies, and that offers founders a seat at the table after an exit.

I'd also add that its hard to run an e-commerce business, you need to source products, manage supply chains, manage teams etc... We know this is going to be hard and went in eyes wide open this is not just about marketing or just about financial engineering. And we have experience running operationally intensive companies that utilize and develop technology.

You mention taking companies public. I actually used to do consumer PE for a family fund with a buy and hold / long term growth strategy like yours. We advised founders, grew cpg companies, took them public. I really never saw a CPG company go public without expanding into brick & mortar at some point - do you think this has changed? Are you planning to help your brands enter b&m retail if it makes sense down the road? It was often a big reason CPG companies wanted PE backing, frankly. Also, lmk if by ecomm you really meant ecomm retailers in which case this is irrelevant.. seems like you meant dtc cpg.

would be awesome to talk and hear more about your experience. we absolutely are looking at omni-channel, something that is different from some of the early players in the space. We are starting with ecommerce because these founders have developed product market fit and are doing it profitably. As a platform we can help them get on other marketplaces (e.g. walmart, target, international amazon) and then into physical retail. The sale cycle there is longer as you know, but having a top rated product on amazon is already catching the attention of brick and mortar buyers.

Thanks for the response. That makes a ton of sense. Best of luck to you- I totally agree that the consumer vc space needs improvement. I don't know why YC decided to get into probably the most risky space that exists in the investing world!? but happy for you that they did, and perhaps it speaks to your experience which is very impressive.

Nice. This reminds me of Tiny - https://www.tinycapital.com

For sure, we are focused on ecommerce brands instead of services/software. I love how they think about partnering with founders. And we share a Canada connection.

One of the problems with acquiring e-commerce business is that most of them are not very well ran. Most do not even know their COGS or margins, thus making them horrible acquiring targets because you don’t know what you are buying. Might work at scale though. Good luck with the venture though, good idea.

We are looking at companies that are doing at least a few million dollars in sales. The sellers are super impressive in my opinion, its hard to get there! So yes sometimes they don't have the best records, but we are looking at companies with a relatively few number of skus so if we need to go back to the bank records and invoices to recreate cost structure we can. So far most sellers we work with are great entrepreneurs that either don't have the resources, capital or experience to take the brand to another level.

Seems like a potentially very profitable endevour, but the name is not very apt. Profit making e-commerce companies are sort of the opposite of "moonshots" - very low risk, no technological breakthroughs needed. Or is the idea that some of them could turn into decacorns?

What are your thoughts on the acquisitions that Aterian ($AETR) has done in the last 6 months?

Are you going to be approaching it via a similar acquisition financing mechanism? Buying at 2-3x SDE for a mix of cash and Moonshot stock issued at 10-20X Earnings?

Its probably too early to say how Aterian (mowhawk) acquisitions will work out. In terms of structure we are early enough that we are creating deal structures for each entrepreneur that makes sense for them. Some would prefer all cash, others would like to have more upside in the future. We want to meet the entrepreneur where they are and create a deal that aligns incentives. And we are not public so its a different conversation around including Moonshot equity in any deal

What does your valuation process look like? Are the prospective buyers uploading csv dumps from their ecommerce store e.g. shopify, woocommerce, etc.. Or are you integrating into these stores to pull the info you need?

Yes and yes. We are building out integrations to automate, right now we are doing a mix of manual and automated processing. There are a bunch of different companies that have built pipes into the platforms and then there is clean up and analysis. One of the nice things about these busiensses is that they are not super complex and by doing a data dump from amazon and their DTC site you can get almost all you need on revenue side, then if they are spending on facebook/insta or google you need to pull that data in as well.

I'd add after we agree on terms we do a light weight due diligence process with accounting/law firms to confirm what we saw

The referral feature isn't clear to me - would someone refer the contact info of the target business, or one's own contact info for further conversation? I'm assuming the latter.

And congratulations!

Thanks we are moving fast and building things that don't scale! its just a form right now, and then I email you a referral agreement that say's we will pay you if we close the transaction. I'll go in and update the text on the form to make it all more clear.

Do you have any success stories? I see nothing on the site

Also your blog points to a couple of generic blog post.

We've been hyper focused on executing on finding great companies and now operating and growing them with the entrepreneurs, so embarrassingly haven't posted any content yet. BUT we just brought on an awesome content marketer and will begin telling our story. magnetoboards.com was among our first acquisitions if you are looking for a longboard!

Just want to preface by saying - this is not a comment on you but rather YC. You're trying to improve the VC process for consumer brands, and I'll take you at your word for that.

I'm surpised, and a bit saddened, to see YC investing in a PE rollup kind of play. I’m probably reading too much into it, and maybe I had a misconception about YC was supposed to be, but to me, the brand was about innovation and scrappiness. YC founders use technology to move the world forward, usually through a better product. This brand conglomerate is way more blatantly of the form of “lets try to take a pile of money, and turn it into a bigger pile of money”.. of course they need $160M in funding, it is a fund. That money will go chiefly to buy companies, not into massive scale.

Not many entrepreneurs start out hoping to engage in raw capitalism, guided purely by returns. YC seemed like a place that catered to that dream of building something for yourself. Maybe that was never true, and I just had stars in my eyes. Maybe there’s no longer those low hanging fruits and everything’s become harder. But this seems almost of a betrayal of that original dream, only showing that YC is the same as everyone else in our capitalistic society.

Everything you state describes YC a decade ago, or even more recently but none of their current actions beyond empty words have demonstrated this sort of focus or commitment. I don't doubt that all the partners are genuine, honest and ambitious, but it's hard to see from inside the machine. YC is moving up market.

The good news is it's never been easier to bootstrap the phase YC traditionally got you through, and there are a lot more resources and higher level of sophistication from other providers. This is thanks to YC in a large part, but their role and focus has changed.

What's your valuation algorithm? 2-5x EBITDA or gross profit?

yes focus on EBITDA. In some cases there is a metric called SDE which is seller discretionary earnings that has some additional add backs.

You should partner with adleaks. They love this stuff.

cool, will have to check it out, do you know them? feel free to intro or i can find them.

I’d just head to their partners page on their website.

Simple but important question: What is e-commerce?

if a tree falls in the woods..

but seriously how we are defining it for our business is private label sellers of physical goods. So you own a brand that sells on Amazon or DTC, and your products have your brand on it. The supply chain varies from folks who own their own manufacturing to others who source from suppliers and never touch their product it just straight to amazon FBA. But not drop shippers, not software, not online marketplaces.

Sounds a bit like Rocket Internet's business.

Which part of their business?

$160M in funding. Is that a typo?

Probably not, there are huge rounds of funding going into these companies in europe right now, like SellerX, Razor Group, Berlin Brands Group etc (and Thrasio in the US).

Most if them are focused on amazon FBA which I honestly don‘t understand. This generic approach sounds better to me.

It sounds high, but their business model involves them buying established revenue streams, right? Their use of funds is less speculative than a typical software company?

"funding" can mean many things. It could be debt.

Probably not. Lots of funding going into buying ecom brands and amazon brands and rolling them up.

Not a typo though we haven't announced it yet, whoops....

How do you differ from Thrasio?

Hey CJ :) Nice to see you guys publicly launching here and great to see more success coming from Affinity Lab alumni. Good luck!

Affinity Labs! So far ahead of their time...

Lots of exciting movement in this space. Since you've mentioned Canada, I'll throw a shoutout to my friends at Emerge commerce https://emerge-commerce.com and clearco https://clear.co

The latter provides a new funding mechanism for e-commerce companies.

Kamil we agree with you there is a significant amount of positive activity in this market and those are great companies. What is a great outcome of this is that the entrepreneurs and e-commerce sellers and operators have more options. Moonshot is excited to provide great options for e-commerce company operators as we are we are cut from the same cloth. Moonshot is unique in that we are very excited to have the entrepreneurs join us and bring their companies to the next level while we also offering an option of a traditional acquisition, both great options.

How does Moonshot quickly and effectively perform due diligence on prospective acquisitions? Have you built any in house tools for such purposes?

I ask because a good friends of mine who works in private equity was telling me about how ridiculous and inefficient he though the process was. Apparently it's a drawn out process of emailing Excel spreadsheets back and forth.