Want the next $425M exit? Be ‘ruthless’ with your time (and cap table), BacklotCars co-founder says

In the years leading up to BacklotCars’ historic exit, Justin Davis steered clear of the startup social scene — detouring instead into deep collaboration with capital and automotive industry partners, he said.

“As a startup, getting connected is great, but you have to be ruthless in your execution,” the BacklotCars co-founder told ACG Kansas City’s monthly gathering Friday. “I didn’t go out and do all the networking events. I was very, very disciplined on building something very big. … It’s really hard to build a billion-dollar company, something of value, something someone wants to pay $425 million for.”

And ultimately, BacklotCars found that someone — announcing in September plans to sell the company to KAR Global for a record price. The deal officially closed in November.

Click here to read more about BacklotCars’ $425 million exit.

“Having that intensity and buy-in is crucial because not every day is going to be easy,” Davis said, emphasizing a long-standing mindset to put the product — and its customers — first helped prepare BacklotCars to face the challenge posed by a global pandemic head-on.

“It was almost a year ago to the day — today — where I had to stand up in front of our team and say, ‘Hey, we’re having to hard-pivot. COVID 19/Coronavirus is now here,’” he told Jack Bowling, the deal attorney at Stinson who helped BacklotCars with the KAR acquisition, and who served as interviewer during the ACG event. “There was a lot of uncertainty in the market and essentially all the strategic interest and all of the venture interest evaporated because no one knew what was going on. … It was probably one of the most difficult days in my career as a CEO, because I had to stand up … and get them to believe in something when there was a high degree of failure [possible].”

Because BacklotCars was one of only two companies in the space that could operate 100-percent online, Davis said, he and his co-founders were able to lean into the moment — pushing aside distractions as years of “ruthless execution” had taught them.

“Forget everything else in the world: [We had to] focus on the success of our dealers; think about what they’re going through. They didn’t know what’s going on,” he said. “So we just needed to double-down, triple-down on making this an amazing platform.”

“And essentially it grew like a weed — even faster than we ever anticipated because essentially the market stood still,” Davis continued. “It was in that really magical moment that everything in the business scaled; the real ah-ha moment of ‘Wow, this thing can be a monster.’”

Adding fuel to the fire

Pandemic-era success offered BacklotCars the opportunity to be selective in its next steps, considering strategic alternatives that could see the business either continue independently on its trajectory — built upon years of methodical growth followed by explosive scaling — or seek a partner to send the company speeding ahead even faster.

Jack Bowling, Stinson, and Justin Davis, BacklotCars; ACG Kansas City March meeting

Davis fell back on experience gained through BacklotCars’ previous funding rounds — times they’d focused on who could help the team craft a better mousetrap, rather than just who could write the biggest checks, he said.

“We were really mindful on most people who came onto the cap table to say, ‘Hey, how are you going to help us add value? What is the skill set you can use to help us take BacklotCars to the next level?’” he said. “ … Getting the right names on the cap table to help you create this string of pearls, and make those connections is absolutely crucial.”

Among the early Kansas City investors who helped set that foundation were KCRise Fund, Royal Street Ventures, Greenway Capital — along with a geographically diverse pool of funders from Silicon Valley, Chicago, New York and China.

When the opportunity arose in 2020 to explore exit options, BacklotCars saw all the road signs pointing to KAR Global, Davis said. The company’s leadership — Jim Hallett, chairman and CEO, and Peter Kelly, president — are true entrepreneurs themselves, he emphasized.

“They’ve been in our seat and they actually have a really great track record of fostering entrepreneurship inside of this larger organization to let the businesses blossom,” Davis said. “We expressed interest in ‘Hey, we would still love to build. We are as excited as ever. We want great partners who help foster entrepreneurial spirit and continue to drive it.’”

‘Massive opportunities’ ahead

Now about 120 days after the deal officially closed, the BacklotCars team is as happy as the day they drove off the lot with KAR, Davis said.

BacklotCars co-founders: Josh Parsons, Fabricio Solanes, Justin Davis, and Ryan Davis

“Look, they’ve given us full autonomy,” he said. “We’re still HQ’d in Kansas City; all the founders remain involved in the business, driving the strategic decisions and direction — and now we have a really, really supportive parent company to help enable us to do more.”

Leaders are focusing on bringing the two organizations together, learning how to operate within a collective unit, arming the BacklotCars team with the right resources, and top line growth, Davis said.

Conversations naturally shift to what comes next for Davis and his co-founders following the exit, he acknowledged.

“Right now, we’re not thinking about firing back up [and launching a new startup or venturing into a new space],” Davis said when asked directly about the potential for taking a new startup route away from BacklotCars. “We’re committed to see this out. The founding team’s legacy is BacklotCars. What we don’t want is the transaction to occur, and then the founding team checks out, and this thing doesn’t do what we think it can as a combined entity: our vision of becoming the largest player.”

“In two to three years, if there’s a problem big enough to solve, and I have a recharged battery, then maybe we would do that,” he continued. “Right now, I’m 100-percent focused on executing on the plan at hand.”

The historic exit’s impact on the region — both in perception and hard financial terms — isn’t lost on Davis, he said. And his responsibility doesn’t end with BacklotCars itself.

“What we’ve shown in Kansas City is that we can build something really, really great,” Davis said, specifically noting other startups on the rise like TripleBlind, which recently announced an $8 million seed round. “It’s our duty now as the professionals, as the corporates, as the venture capitalists in the community to help make these companies great, because it creates a lot of wealth and gives this region experience.”

BacklotCars team

Growing BacklotCars’ team to more than 150 — many of whom had equity in the company — gave a talented pool of professionals the experience of how to grow a startup, as well as the capital to help replicate the process, he added.

“Now they can take that capital and invest back into our region,” Davis said. “I would challenge people to get off the sidelines and get in the game. Help one another. There’s not this secretive nature to why Silicon Valley works well: people buy in and are supportive. I think there’s a massive opportunity here. We were just one part of the story, and this region has a tremendous potential and groundwork to do something very amazing.”