Two former Zulily executives have landed more than $150 million to fuel a new venture that seeks to buy profitable e-commerce businesses.
Jason LeeKeenan and Kevin Saliba are the co-founders and co-CEOs of Cap Hill Brands, a Seattle firm that uniquely combines the investment capital of a private equity firm with deep operational experience of a startup accelerator. They’ve also won over some big-time backers, including VersionOne Ventures and Victory Park Capital. Seattle venture capital firm Maveron — known for its focus on consumer brands and an early investor in Zulily — also is a backer.
LeeKeenan and Saliba are already off to a fast start — not a surprise given their Zulily roots which was legendary in its early days for moving amazingly fast.
Since forming the new entity last summer, the duo have purchased 10 e-commerce companies. Those include educational products firm Merka; bean bag and floor pillow maker Butterfly Craze; and Aquapaw, the creator of $40 pet grooming product that makes it easy to clean the dog in the shower.
LeeKeenan and Saliba promise more is to come.
“We want to continue at a pretty fast pace,” said Saliba, the former chief marketing officer at Zulily who previously sold Seattle startup ImageKind to CafePress.
To date, each of the acquired companies have been purchased for less than $10 million. Cap Hill Brands doesn’t have a set acquisition price range for its targets, and LeeKeenan said they want to attract a wide-range of profitable e-commerce companies that will benefit from the team’s operational experience.
“As we bring these companies into our portfolio, we are involved in all aspects of running the business: marketing, product sourcing, supply chain fulfillment, all that stuff,” said LeeKeenan, who was a senior vice president at Zulily and later sold Seattle startup TraceMe to Nike. “This is not about just buying these companies and letting them stand on their own. Rather, we actually think, with our team’s expertise, we can bring them to new heights and and really accelerate growth.”
One of the strategies will be helping portfolio companies use various e-commerce platforms, notably Amazon. It has become increasingly complex for sellers to navigate the various e-commerce marketplaces, and Saliba thinks they can help.
“One of the many levers we want to pull for growth is to get these products more widely distributed,” he said.
LeeKeenan added that there’s been relatively little liquidity in the e-commerce market for many years, creating a potential opening for Cap Hill Brands to maneuver.
Roll-up strategies like the one Cap Hill Brands is embarking on are not new. In the Seattle area, Fexy Media — led by Lisa and Cliff Sharples — have taken a similar approach in the online food media arena.
The idea is that smaller brands can achieve greater scale by relying on a team of operational experts, which spread their knowledge across the entire portfolio. “We’re very much deep in the weeds on these businesses,” explains Saliba.
Entrepreneurs who sell to Cap Hill Brands typically take an upfront payment, with the possibility of future earn-outs based on performance. The firm buys 100% of the company. In most instances, the founders leave once the deal is consummated.
“One of our goals here is to make a lot of millionaires,” said LeeKeenan, who declined to disclose the pricing or terms of the deals they’ve made to date.
Maveron has never invested in a “roll-up” style of business before, but partner Jason Stoffer said “this opportunity was too good to pass up.”
“We believe that the accelerated market shift to e-commerce from COVID presents this team the opportunity to build the next generation P&G/Unilever type consumer product business,” said Stoffer.
E-commerce sales surged 37% in the third quarter of last year, and Stoffer doesn’t think that trend will stop once the pandemic ends. On Amazon alone, third party sellers represent about 50% of the company’s retail revenue. That means thousands of third party sellers are doing about $100 billion in annual sales on Amazon, an opportunity that Stoffer said is “very big and exciting.”
“Jason and Kevin’s challenge will be building a machine that can identify which of these companies have high potential and then buy and then grow these business across multiple channels over time,” he said.
Even still, he thinks they are up for the challenge, calling them “exceptional entrepreneurs.”
Finding great e-commerce startups may be a bit like discovering a needle in a haystack. But LeeKeenan said they’ve got a good sense for discovering products that are “beloved” — a skill they also honed while at Zulily. In addition, the 20-person team has built software to help identify products that are gaining momentum, and as a result could be attractive acquisition targets.
Once Cap Hill Brands discovers a company they like, LeeKeenan said it can take less than 30 days from initial phone call to the business owner to wiring them the funds. “We’re pretty efficient in how we go about it,” he said.
While $150 million is a significant sum of capital, LeeKeenan and Saliba said it’s just the start. The initial funding round was oversubscribed, and some potential investors who wanted into the deal were even locked out.
“The interest we’ve gotten more broadly is that this actually can be expanded,” said LeeKeenan. “Kevin and I are in this for the long haul. And we think there’s a very large company we can build out of this.”
And that might mean hundreds, possibly thousands of brands under the Cap Hill umbrella in the next five to 10 years.
“If we have a large portfolio of great consumer products that customers love, that’s a great, valuable sustaining business,” said LeeKeenan.