Acquiring eCommerce Businesses
The CEO and co-founder of Yardline Capital, Ari Horowitz, sits down with Steve to discuss all things e-commerce. In this episode, Ari Horowitz shares his origin story, Yardline capital considerations, realizations, and more.
What Led Him to Co-found Yardline Capital
Horowitz says that two major forces led him to co-found Yardline Capital. First, he has been an entrepreneur all his life. Horowitz had thought about starting his own company and doing what he loves. If there is one thing that Ari Horowitz wants to do and be thought of down the road in this industry, it is to help make other people’s goals possible too. A lifetime entrepreneur, Horowitz knew we wanted to help others achieve their goals.
It is always exciting for him to be in a position like where they are now in Yardline Capital. They enable people to live their entrepreneurial dreams, be in the corporate environment, go for something they are passionate about, and do it independently.
Horowitz mentions that to help make those happen is something fascinating. So, he built up a career, launching several businesses. He even raised over a billion-dollar capital in terms of equity and debt.
In doing all of that, the ultimate road led to his involvement with the company called Thrasio. The company started years ago and has now become the largest acquirer of e-commerce businesses. While he was Thrasio and they were building the platform, Horowitz joined, creating the MNA team.
They went out to look for thousands of companies in the e-commerce space and ultimately acquired less than 10% of those. The common theme of all the companies they spoke to is that they need capital. The economics of being in the e-commerce industry is challenging when purchasing products in China and other places.
Then, the other thing is some expertise. Ari Horowitz states that some companies only have one person to lead. It is almost impossible to know everything to do, especially when platforms become more complex as opportunities become international and go beyond Amazon.
Their expertise as operators, which they applied to businesses to provide capital, seemed natural. That was the genesis of Ari Horowitz’s passion for launching Yardline Capital.
Initial Things that Yardline Capital is Looking at
According to Horowitz, it is all about people. Whether it is an e-commerce business or other business types, eventually, it is about the person running the business. That is what they ultimately bet on. It is a factor that typically drives the success of the company.
The considerations that enable them to decide if they can advance capital, how much to provide, for what period, and rates come down to the data. Yardline looks particularly at the FBA account, Shopify platform, and other digital data they can get. Then they dump it in their algorithms.
These algorithms are original, developed in Thrasio, modified, and updated for the business. They are bundling in their operational expertise. Ari Horowitz believes that they are the best out there to look at a company and make future cash flow predictions. They even provide areas where they see weaknesses to improve the businesses.
Yardline bundles these things together through technology and makes a bet. The key to do these is to know the founder and get the data from different digital platforms.
How Big is the Yardline Capital Team
Ari Horowitz mentions that they are relatively early in the evolution, and they recently announced the investment in Thrasio. They are a small team, ultimately betting on the technology they brought to the table and wanting to make leverage.
He also discloses that they can fund anywhere. Today, they focus more on the U.S. market extending to the United Kingdom and Germany. Yardline is undoubtedly looking at where the sellers are from across the globe.
Things that Businesses Need to Focus On
Any investor primarily looks at the entrepreneur and ensures that they can handle their business. There are some things that you can’t control, says Horowitz. There are always unexpected instances that can happen. Your reaction and management to those things matter.
If Ari Horowitz advises entrepreneurs, he thinks that the attitude should count in the e-commerce space these days since it is all about hitting singles and doubles. They saw people that go out there, start those businesses, build them up, and then sell them. Next, they go to another one.
Once you are good at doing it, you can appoint where the return profile is and monetize the business compared to sticking on it for too long, according to Horowitz. So, with all the data, they can see something or what is going on.
To answer the question specifically, he thinks that understanding your business’ fundamentals is the key to it. If you put a dollar in, ask yourself, what will that dollar turn into and continue to step on that gas right up to the margin.
The Structure of Repayment
Based on Yardline’s working experience with those businesses and their understanding of the different platforms, they create that company’s future sales expectations. When Yardline Capital becomes their partner, they advance capital to purchase inventory, advertise, and extend to other platforms.
In the partnership, Yardline takes a percentage of the business’ revenue until they get their capital. The faster the business grows, the better Yardline does, Ari Horowitz says.
What’s Coming for 2021
The big pieces for Yardline Capital in 2021 is that they will focus on other platforms and emerging them. Ari Horowitz says that they are excited about the possibility of Instagram and Instagram shopping. They saw the shopping button moved down to the primary interface which is more discoverable.
He mentions that they are thrilled to build technology on that platform and feel the growth there. He also thinks that people will see many marketplaces emerging. It is such a phenomenal business, according to him.
Message to Yourself Ten Years Ago
Ari Horowitz thinks that the one thing which he always tells is “you don’t know what you don’t know.” It is still good to go to people with experience. He has been there and did things, so he encourages people to reach out to individuals who know more.
His message to his old self, “Try to do things. If it is not working, walk away from it and move on to the next thing.” He advises trying to grow things fast and take capital when it is available. Take the price you can. There are always great opportunities when you have business capital.
Hello, and welcome to The Exit presented by Flippa. I’m your co-host Steve McGarry here. And this is a 30-minute podcast where we feature amazing entrepreneurs who have been there and they have done it. We talk to expert operators who have bought and sold businesses of all sizes, and you’ll learn how they did it, why they did it, and get exposure into the world of exits. So a world occupied by a very small few, but it’s definitely accessible to many.
And before we dive into this interview with Ari, definitely be sure to check out my previous interview with Kit from liquor.com. It’s an incredible interview. So definitely be sure to check that out. But for this interview, I sit down with Ari Horowitz, the CEO of Yardline Capital. It’s a super exciting project where they’re funding entrepreneurs based on data.
Now, we’ve talked about this in the past, where if you’re looking at people’s data and analyzing it from there, doing your diligence before you make an investment like YardLine is doing, you remove bias from the situation. And not that there is a ton of bias or anything like that in, let’s say Sand Hill Road, but previously, a lot of people have found that operations that just go into your Shopify store, figure out your inventory, figure out how much you’ve sold, figure out your profit margins, just from the platforms, there’s a higher probability that they’re going to fund successful businesses, regardless of where you’re based, your background. It’s just based on the data that the business is providing.
And to me, that is extremely empowering because it just basically allows people who can execute to get capital. And I think that’s what matters. So it’s really exciting to sit down with Ari Horowitz, to talk about not only his extreme experience in operating businesses, but also looking at Amazon FBA and Instagram Shop, which is the new feature that Instagram is rolling out, allowing influencers and pretty much everybody to create a shop on their profile page, which is very exciting.
He also refers to Amazon stores as real estate, and how it’s valuable to get them, which I love when people refer to these different properties, web properties as real estate and valuable real estate. I love that. And similar with Instagram, very valuable real estate. If you get in very early and if you start these shops on Instagram, you could be very well off in a few years. So without further ado, let’s dive into this interview with Ari Horowitz, the CEO of Yardline Capital.
All right. I am here with Ari Horowitz, the CEO of YardLine Capital. How are you doing today, Ari?
I’m terrific, Steve. Really appreciate you having me on this here. I’m excited to talk to you about Yardline and what you guys are doing.
Yeah, excited to have you. I think that you guys are working on some pretty incredible things on the funding side of things. And just before we get into the nitty gritty of what Yardline capital is, what’s the origin story? What led you to co-found Yardline?
Well, I think that there’s two major pieces to it. The first one being that I’ve been an entrepreneur all my life. I’ve been lucky enough to be able to start my own companies and fund my lifestyle by doing what I love. And I think that if one thing I could do and be thought of down the road here it’s that I help make that possible for a lot more people.
So it’s always exciting for me to be in a position like we are today with Yardline Capital, where we’re enabling people to live that entrepreneurial dream, to leave as we say, the shackles of the corporate environment and go off and do something that they’re passionate about. And do it on their own. So to help make that happen is very exciting.
And so I built up a career of launching a number of different businesses. I’ve raised over a billion dollars worth of capital, both in terms of equity and debt, was fortunate enough to get a couple of my companies public. And in doing all that, the roads led to my involvement with a company called Thrasio, which was started just over a couple of years ago now and has now become the largest acquirer of E-commerce businesses.
And while we were at Thrasio and we were building out this platform, I was part of building the M&A team over there. And we went out and looked at thousands of companies in the E-commerce space and ultimately, acquired less than 10% of those. And really, the common theme out of all of the companies that we spoke to, really twofold. One, they needed capital. The economics of being in the E-commerce space are very challenging when you’re purchasing products in China, bringing it to the States and then ultimately, having to wait to get paid by the platforms.
And then the other thing was just some expertise. When typically these companies are being run by one person, it’s just almost impossible to know everything to do, especially as these platforms are becoming more and more complex as there’s more and more opportunity to go international, to extend beyond Amazon where most people are today, or Shopify, into Instagram and other distribution channels.
So the capital and the expertise seemed like an obvious that when we were at Thrasio, there was a lot of companies that were not ready to get acquired for whatever reason, and the opportunity to take all the expertise that we had built as operators, and apply that to a business where we could provide capital seemed like a natural. And that was ultimately, the genesis. Really those two things, my passion for entrepreneurism and those reasons that we found at Thrasio to launch Yardline Capital.
Nice. Nice. So, when you first get a business that you’re interested in, let’s say it’s an Amazon FBA business, what are the first initial things that Yardline is looking at? Like you said, there’s usually one hardcore hustler that’s running everything behind the scenes. But what do you guys dig into?
Well, I mean, you nailed it there, Steve. At the end of the day, it’s all about people, whether it’s an E-commerce business or brick and mortar business. And we solely focus on E-commerce businesses. At the end of the day, it’s about the person running the business. That’s ultimately what we bet on, because that’s the factor that typically, or most of the time, drives the success of that business.
But to get down to the nitty gritty of what enables us to decide if we can advance capital or how much, or for what period of time and at what rates, it ultimately comes down to the data. And Yardline, specifically, we’ll look at the FBA account. We’ll look at the seller central account, we’ll look at the Shopify platform, we’ll look at any of the digital data that we can get. We dump that into our algorithms, algorithms that were originally developed inside of Thrasio and then modified and updated for the business that we’re in at Yardline, and really bundling in our operational expertise.
I believe we’re probably the best out there to be able to look at a business and be able to make a prediction of future cash flows, as well as provide areas where we see low-hanging fruit to improve those businesses. We bundle all that together through some technology and ultimately, make a bet. And so the key there is getting to know the founder a little bit, and a lot of that is digitally. And also, being able to get that data off the different platforms to very quickly turn around a credit decision.
Yeah. Yeah, it’s an incredible thing the amount of data that you can get from an E-commerce company now. I mean, compared to something like a brick and mortar store, let’s say without a traditional point of sale system in place or inventory system, now it’s just totally different with everything. Being online, you’re able to see their Facebook ads, you’re able to see what type of sales they’re converting, what things are working and their skillset, almost.
You can see just from looking at that data, which I find really empowering, because it removes a lot of, let’s say unneeded bias. Bias and borders, I think is such a good way of looking at it where if your data wins at the end of the day, as a business, there’s no reason why you shouldn’t be able to get funding. I think it’s such a fascinating concept. And that’s why like a Square Capital with Jack Dorsey, he always talked about how one of the things that holds entrepreneurs back is their personal record, was holding them back with Square, originally. So it’s really cool that you guys are digging into the success of the business above all. And I think that’s really empowering for people everywhere.
Hey guys, Steve here, and taking a quick pause from the interview. I know that selling a business, it can feel unattainable and just out of reach for everybody, but it’s definitely something that is very reachable for people that are listening to this podcast with Flippa. And I’ve mentioned that this show is presented by Flippa. They have over three million users on their platform who are looking to acquire everything from content sites to E-commerce stores, to SaaS platforms or even mobile applications.
So if you’re curious and want to know more about what your business is worth, head to flippa.com/theexit for free evaluations on your business. It takes a couple minutes to literally go through, and you can just go through the whole process without committing to anything at all. So once again, flippa.com/theexit. Check it out, get evaluation on your business without any commitments, and just see exactly what your evaluation of your business is worth. So, let’s dive into the interview.
Yeah, absolutely. I mean, like you said, it truly is the land of opportunity. It’s so exciting. I think that the E-commerce space, if you could have gotten yourself onto Amazon five, 10 years ago in the marketplace there, and gotten some great real estate and got yourself on the first page, then ultimately, it’s about execution, right?
I mean, you know the platform is going to grow. And so if the entrepreneur can continue to execute and grow with the platform, there’s a lot of success to be had. And I think that’s one of the things that makes our job I wouldn’t say easier, but being able to use the technology and the data to be able to make those decisions much easier than when you have to guess if people are going to come in through the front door, especially in the brick and mortar space.
And this is just the beginning, I think. We’re talking about Amazon and to a certain extent, that platform has matured, but we’re very bullish on what’s happening with Instagram Shopping. We see lots of other marketplaces popping up, all of where people can establish themselves, in an essence, buy real estate or get real estate on these platforms. And ultimately, create wealth. And we’re very excited to be able to help fuel that.
That’s really exciting on Instagram Shopping. I’ve been monitoring that as well, and that’s really in its infancy, which is cool that you guys are digging into that. In terms of Yardline Capital, where you guys are at now, from where you started, how big is the team? And are you guys distributed all over the US, globally? How big are you guys now?
Well, we’re relatively early in the evolution here. We recently announced the investment from Thrasio to get us going and being able to leverage some of their technology and data to get out the door here. And so that happened fairly recently. We’re a small team at this point, really not looking to get too big. We’re ultimately betting on the technology that we’ve brought to the table, and then we’ll continue to build, to be able to leverage that and not have to put too many people behind this platform.
We can fund anywhere. I mean, ultimately we’re focused on the US market today, really expanding to the UK. Germany is where you’ll probably see us next, but we’re looking at deals really all over the world, or at least sellers who are coming from all over the world. Mostly focused on the US market, so today, it is the place to start.
Yeah, that makes sense. And it is such an exciting frontier. I mean, it’s essentially like a global operation where you’re able to cut through all of the Sand Hill Road, if you will, of going to Silicon Valley, raising money, these big exits and things like that. You can literally cut through all of that and just go to the winners.
In the future, when you guys are operating all over the entire world, after you’ve nailed the US, it’s going to be an exciting frontier that you guys are really forging into, which is really, really cool. I’m super excited about these types of data-driven funds because an expert like yourself can go in and help a young, hungry entrepreneur. And I think it doesn’t matter where they’re based, and that’s such an empowering feeling.
But changing gears a little bit, you mentioned that you’ve just raised a really exciting round of funding. For some of the listeners out there that, let’s say they have a E-commerce business, a Shopify business, and they were going through the process of getting things in order to exit, or maybe raise a round of funding from Yardline capital, what would you say are some of the things that are really important that they get in order.
Like, if they had a list of things that they really needed to focus on, that not necessarily you guys would look at, but just in general as an operator yourself.
Well, look, I think any investor is ultimately going to be looking at the entrepreneur and ensuring that they really have a handle on their business. At the end of the day, there’s things you can’t control. There’s always going to be things that change, that you’re not expecting. And it’s really how you react to those and how you manage through those.
If I’m giving advice to an entrepreneur, these days in the E-commerce space, I think that the attitude should and can be, it’s all about hitting singles and doubles. We’ve seen people that go out there, they start these businesses, they build them up, they sell them and they go to do another one. And that’s the amazing thing. Once you’re good at doing it, I think you get to a point where the return profile of what you can monetize on a business compared to if you keep sticking with it for too long, [inaudible 00:15:24] diminishing returns on that.
And so I think that the era that we’ve entered into, with all the data that’s available, you can see these entrepreneurs getting something going, getting the funding to really ramp it up and then exiting, and taking that capital and go doing it again. What’s also cool is you don’t need to give up equity. These days, because of the data that’s available out there, if you can demonstrate performance and you’re on one of these platforms, like an Amazon that drives the demand as we were mentioning earlier, the understanding, the expectations, people are going to continue to buy on Amazon.
Amazon is going to continue to grow at least the 20% per year it’s growing. So if you’re on the first page, you should be able to sit in and maintain that and continue to grow your business. And that’s something you shouldn’t have to sell a piece of your company for. That’s something that you can come to someone like Yardline for, and we can fund that growth to enable you to take advantage of that. And I think that’s really the key here, Steve, is that we’re in an interesting moment in time right now, maybe a unique moment in time where entrepreneurs who are in the E-commerce space should be grabbing as much of this land as they can.
I mean, this is a time when, I think, people will look back in five years who didn’t do that and be like, “Man, why didn’t I just get more of that? It was right there for me.” So I think to answer your question specifically, it’s about really understanding the fundamentals of your business. If you put a dollar in, what does that dollar turn into? And continue to step on that gas right up to the margin. That would be my recommendation for people.
Got it. Got it. And let’s say, I love the idea that as a young entrepreneur out there, they’ve started a company on Amazon. They’ve gotten their real estate, like you said, and they’re starting to really generate some sales, starting to really get the taste of, okay, I need to grow, I need some growth capital. And they need to understand the numbers, like you said.
What does the repayment style thing look like? Is it you determine how much they could possibly take on because they’ve been operating for two years or something, and they’re able to take on a certain amount? Do you give them options and send them an offer? How does the repayment look like? Is it just a percentage of sales? What does that structure look like?
Yes, so you got it right. The idea here is that you come to us, we’ll take a look at your business. It’s all electronically. We can turn around a qualification, almost instantaneously, or we’ll get closer and closer to that over time. Based on our operating experience with these businesses and our understanding of the different platforms, we create an expectation of future sales on that business. And then we become your partner.
We advance your capital to be able to either purchase more inventory, to be able to ramp up your advertising spend or maybe expand to other platforms. And then we become your partner and we take a percentage of revenues up until the point where we get our capital back, plus our fee. So we’re not banging your bank account every month on a fixed basis. We’re aligned. The faster you grow, the better we do. If you get an account suspension, we’re experts in fixing that kind of stuff. And we’re aligned.
If you’re not generating revenues, we’re not getting paid, so we need to help you in that regard. And we think that makes a lot of sense. And it also makes us put our money where our mouth is. We believe in your business, we believe in our ability to predict the future cash flows, and we’re going to make that bet.
Yeah, yeah. And just the sheer amount of data that you can grab from Amazon FBA and even at a Shopify account, you’re just able to get this immense amount of data and really de-risk in investment, from your perspective. And I can see that from putting my investor hat on. What’s the famous saying that my friend, John Chan, always talks about? He says, “Always look down before you look up,” and protecting your downside before you can even look at an upside.
And I think that with the amount of data you guys have right at your fingertips, you’re able to really protect that downside and align yourself with the growth of these companies, which is really, really fascinating and really, really cool that you’re able to do that. So, what’s next? Have you guys hit a milestone of the amount of companies funded? What’s coming in 2021? We’re here, at the time of recording this right at the end of 2020. So, what’s coming this year? What are you excited about?
Well, I think we touched on this a little earlier. I think that the big pieces for us in 2021 are going to be focusing on some of the other platforms, the emerging platforms. I think you and I are both pretty excited about the possibilities with Instagram and Instagram Shopping. As we saw, they moved the shopping button down to the main nav now, so I’m assuming that they’re thinking the same way that we are.
And I think that … I don’t know if you’ve played around with it, but just the ability to know what I’m looking for, I think it’s just a very different environment than what we’re seeing on Amazon. You go on Amazon to buy something. When you’re on Instagram, you get served up things that you’re not sure you want it, but it’s more discoverable. And so I think that’s super exciting and the power of the influencers on Instagram is going to also come through.
And so we’re very, very bullish on that. And to be able to build out technology, to be able to plug into that platform and fuel the growth there is certainly something that we’re excited about for 21. I also think you’re going to see a lot more marketplaces emerge and really get traction. It’s such a phenomenal business to not take inventory risk for these big companies, and to let third-party sellers leverage their audience, that it just seems like it makes so much sense for more and more of these companies that have that audience to not have to use capital to carry inventory, but let third-party sellers do that work. And so I think you’re going to see more and more of that.
And I think sellers should be prepared for that, because I think you can get, I was talking about earlier, being early on in Amazon has been very fortuitous for a lot of people. And there’ll be opportunities like that for people that are ready. So I think that’s number one, the expansion of the different marketplaces. And number two is the international markets. It’s a lot more challenging to get funding outside the United States. It doesn’t have a similar infrastructure like we have. And I just think overall, getting funding for E-commerce companies, up until recently, has been pretty challenging.
It’s not until recently it’s become a little more mainstream is the right word, but it feels that way, at least from where we’re sitting. But in some of these international markets where it’s probably even more challenging to get or if it is more challenging to get financing, the VC infrastructure may not be robust, et cetera. We see a lot of opportunity there. UK, Germany, Japan, those would be markets where Amazon particularly is very strong and we will be following along.
Nice, nice. Well, you’ve touched on it a few times, but for the finale question that we always ask every guest on the exit is, knowing what you know now, what would you tell Ari 10 years ago?
Wow. Probably a lot of things. And I don’t know. We have only what, about another 20 minutes here? But yeah, a lot of things you would know. Look, I think that the one thing that I always like to say, and this probably wouldn’t be telling us anything, but you don’t know what you don’t know. So it’s always good to go to people that have had the experience, and been there and done things. And I would encourage Ari to reach out to more and more of those.
But I think very specifically, it’s time. You can’t get more time. You can get more money. You can make mistakes with capital, maybe spend it in places you shouldn’t have, but you can get more. What you can’t get is more time. And so my advice to the Ari of 10 years ago would be, just try to do things. If it’s not working, walk away from it. Move on to the next thing, and try to grow the things really fast. Take capital when it’s available to you. Get the best price you can.
I coach entrepreneurs and I say, I’ve never seen a business fail by having too much cash, but I’ve certainly seen the opposite. And there’s always that black swan out there, there’s always that unknown. There’s usually great opportunities when you have capital. And the few times that I recall having been offered capital and not taking it over the last 10 years, I think in every one of them at this point now, I regret doing that.
Got it. Got it. Well said. Well said. Well, for all the entrepreneurs listening, where can they go and learn more about Yardline Capital?
Well, look, I love interacting with entrepreneurs. So my email is Ari, that’s [email protected] I’m also on LinkedIn. And hit me up directly. If I’m not the best person to help you with whatever your questions are, we’ll refer you to some of the guys on the team. You can always go to our website as well, there should be some good information up there. And reach out to us and see if we can engage together.
We’re very excited about being able to provide capital to fuel this whole E-commerce opportunity, as well as providing the value-added services. All that we learned on the Thrasio platform about being operators, we’ve integrated and taken some of the pages from that playbook and integrated into the Yardline platform. So when we advance capital in the way that we do, by aligning as partners, we like to help companies grow.
So hopefully, we can provide the ability to fuel these business with capital, as well as some of our expertise that we’ve learned over the years.
Perfect. Perfect. Well, wherever you guys are listening or watching, all the show notes will include the links that Ari just mentioned. But once again, thank you so much for coming on the show, Ari. As you know, from one entrepreneur to another, it’s been fantastic hearing your story. And just, you’ve been an operator for many years, and many, many people can learn a lot from you. So thanks for coming on the show.
Hey, Steve, we really appreciate you having us. It’s always great to be able to have these conversations. And we’re super excited about it, both what you guys are doing and we’re doing. So it should be a good run. I’m excited about the next few years.