Destination exit: Less talk, more acceleration drove quiet BacklotCars to $425M deal

In the half-decade run-up to BacklotCars’ historic $425 million exit, the Kansas City startup remained largely under the radar, Justin Davis acknowledged, noting the intentional move became less about strategy and more focused on team values.

“Like many people in Kansas City and the Midwest, we all prefer getting to work rather than talking about it,” said Davis, co-founder of BacklotCars, revealing how the company’s quiet motor — and selective leadership team — propelled the dealer-to-dealer platform forward.

Click here to learn more about BacklotCars.

BacklotCars announced Tuesday a massive deal wherein Carmel, Indiana-based KAR Auction Services is set to purchase the Kansas City company by the end of the year. The exit dwarfs previous sales in the ecosystem, while keeping BacklotCars headquarters — which includes 187 full-time employees; 90 based locally — in Kansas City.

Davis and his fellow BacklotCars’ co-founders Ryan Davis, Josh Parsons and Fabricio Solanes will maintain their positions, the companies said Tuesday.

Click here to read more about KAR’s plans to purchase BacklotCars for $425 million.

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

Founded in 2014, a keen eye on the road ahead — and the fellow drivers who could use a boost themselves — helped BacklotCars map its journey toward the exit, Davis said.

“We really focus our external efforts on talking to the people who we feel we can impact with our mission and vision,” he said. “That means focusing on our dealers and our people. I think the lesson there is to be intentional with your focus. Find the few things that really have an impact and get really good at executing them.”

For BacklotCars, the pandemic proved no time to let off the gas, Davis said.

“COVID-19 accelerated adoption of digital-only marketplaces in the entire wholesale automotive industry,” he said. “That wasn’t totally evident from the onset, but we had, and have, confidence in our product and people and knew we could provide a solution for both buyers and sellers as states implemented stay-at-home directives and social distancing requirements.”

BacklotCars then quickly spun up communication channels and processes to accommodate an entirely remote workforce, Davis said.

“Instead of pulling back our presence, we accelerated through the most uncertain months which allowed us to get our online solution in front of dealers who still needed a wholesale outlet to run their business,” he added.

Scaling beyond highway speeds

BacklotCars’ highly scalable mission to make dealers more successful by easing the wholesale process attracted early interest from Royal Street Ventures, said Laura Brady.

Laura Brady, Royal Street Ventures

“We first met Justin Davis and the BacklotCars team in 2015 when the Backlot platform connected buyers and sellers in just a handful of small cities in the Midwest,” said Brady, managing director for Royal Street, which invests in early stage startups in underserved markets. “At that time, the team was highly focused on improving its unit economics in those smaller cities before tackling larger growth plans. That focus combined with the team’s experience working at traditional wholesale car auctions made Backlot an intriguing investment.”

“It also didn’t hurt that Backlot’s technology removes transaction costs from a $160 billion market,” she added.

Today, BacklotCars has expanded its geographic footprint from the Kansas City region to now serving dealers across 46 states.

The startup remained quiet — not just in its hometown, but nationally — until it was able to break into larger markets and founders knew it had a competitive business model that could beat the competition, Brady said.

“Too often, entrepreneurs get caught up in the attention and publicity generated by raising capital,” she said. “Backlot understood that each capital raise was just a step in its journey to building a great business. It remained steadfast in scaling its business even as its largest competitor raised nearly six times as much capital as Backlot.”

Before Tuesday’s announcement, BacklotCars had raised $50 million to date, placing it among the top five ventures on the Kansas City Top-VC Backed Companies list for the past three years. Investors of BacklotCars include Stripes, Origin Ventures, Pritzker Group Venture Capital, Royal Street Ventures and KCRise Fund.

Leadership at BacklotCars deserves applause and congratulations, said Brady, and not just for its fundraising or historic exit.

“Justin Davis, Josh Parsons, Ryan Davis, and Fabricio Solanes chose to build BacklotCars in KC,” she said. “They had plenty of people tell them it would be difficult to raise capital, hire talent, and scale a business in the Midwest. They knew otherwise and should be celebrated for how they scaled a solid business with talented employees. This exit is a testament to their perseverance.”

BacklotCars team

Ripple effect for KC

Predictors of BacklotCars high potential were evident more than a year ago, said Victor Gutwein, founder and managing partner at M25, an influential venture fund in Chicago.

Victor Gutwein, M25

“BacklotCars had a couple of rounds, really quickly, back-to-back. And that’s pure venture — from Seed to Series A, which people respect — and it’s happening fast,” Gutwein told Startland News in August 2019. “For people who are trying to make investments, this is a huge proof point this year in Kansas City.”

And while Tuesday’s announcement wasn’t a storied “unicorn exit” — an acquisition of $1 billion or more — it’s “still a prime example of what any venture capital firm would have loved to invest in,” he said.

“BacklotCars is a true example of a rapidly scaling tech company that led to a very successful outcome,” Gutwein continued. “$50 million raised to get to a $425 million exit means massive amounts of wealth have been created in an efficient way — and the exciting thing is that some of this is going back to local KC funds that backed it, and that the founders are super tied into the community (already advising and mentoring other local startups — now they will be investing here too).”

Bottom line: The exit will directly result in more dollars flowing to local and regional startups, and likely more and higher-quality startups coming from an impending BacklotCars diaspora, he said.

Gutwein and Brady agreed impacts of exits like that of BacklotCars are exponential based on the acquisition amount and distribution of equity.

“A $100 million exit is great but not really doing anything transformational to an ecosystem,” Gutwein said. “A $500 million exit can start to tip that balance.”

One startup can’t do it alone, Brady said, but every big exit helps.

“As I mentioned when PayIt recapitalized a year ago, the Kansas City ecosystem needs a couple $100 million-plus exits each year and a $500 million-plus exit every few years to compare favorably with the likes of other well established startup ecosystems such as Chicago and Salt Lake City,” she sad. “The BacklotCars exit certainly demonstrates to other founders and investors that it is possible to build a huge company in Kansas City.”