After only five years, Kansas City startup BacklotCars cashes in big with $425M sale
The trajectory of Kansas City’s BacklotCars is the stuff of dreams for entrepreneurs: Five years after launching, the company announced Tuesday a $425 million sale to an Indiana auto marketplace.
BacklotCars allows car dealers, auto finance companies and rental car companies to buy and sell online without going to a physical auction.
The company’s origin story is a classic startup tale: the founders, with experience in the wholesale auto business, identified a problem and built their own solution. BacklotCars, which launched in 2015, provides vehicle inspections, transportation and inventory finance services to dealers in 46 states. It’s designed to make the process of selling cars easier for both buyers and sellers by addressing longstanding pain points of online transactions like certified inspections.
“I’m surprised how quickly it happened but I’m not surprised they are having such a large, successful exit because the founders of that company knew intricately the scale of the problem,” said Ryan Weber, president and CEO of the KC Tech Council. “Those founders knew the problem, executed on a solution and quickly scaled a company that clearly was valuable to the industry.”
The $425 million sale price to KAR Auction Services, based in Carmel, Indiana, will go down as one of the largest sale prices for a Kansas City startup in recent history. The sale is expected to close by the end of the year.
“That is a huge number. It cannot be understated,” Weber said. “You do not often see those kinds of exits from tech companies in Kansas City, especially in the amount of time they were able to execute it.”
After the acquisition, KAR said it plans to maintain BacklotCar’s headquarters in downtown Kansas City’s recently renovated Lightwell building. The company will continue to employ several executives, including co-founders Justin Davis, Ryan Davis, Josh Parsons and Fabricio Solanes, according to a news release announcing the sale.
“KAR Global is the most innovative and progressive digital remarketing company in the world, and their entrepreneurial roots and culture are a great match for BacklotCars,” CEO Justin Davis said in the news release.
KAR says it sold nearly 3.8 million vehicles last year through its auto auctions, generating about $2.8 billion in revenue.
The sale is a big win for investors and founders alike. But it also shows other entrepreneurs of what’s possible in Kansas City, despite the significant obstacles in accessing capital outside of major coastal tech hubs.
“What you’re seeing there is an example of an ecosystem working,” Weber said, noting other local auto-focused tech ventures like VinSolutions and AutoAlert. “That leadership team made this happen. You can build a team like that in Kansas City.”
BacklotCars raised $50 million in multiple rounds of investment. Much of the funding came from outside the region, but it was also backed by a broad swath of locals, said Darcy Howe, managing director of KCRiseFund LLC.
Her for-profit co-investment fund invests in early stage companies based in Kansas and the western half of Missouri. It backed BacklotCars in 2017. The $425 million sale means the 90 companies and individuals that invest in KCRiseFund will see a big payday.
“We’ve had a very significant return out of the investment, so that’s an important thing for our investors,” Howe said. “They’ve done really well with this particular company.”
On Tuesday, she said she had heard from other startup founders across the region who were encouraged by the sale.
“This is nirvana,” she said. “There’s a new high bar. This is the goal not necessarily for an exit, but the goal is to build something big.”
To Howe, the sale underscores the importance of making it easier for local startup founders. She said the quick rise of BacklotCars also shows the promise of small businesses, which can oftentimes create change in the marketplace much faster than industry incumbents.
“The acquirer bought BacklotCars because they didn’t have that capability inside. They couldn’t grow their own BacklotCars even though they’re in the business,” she said. “This is classic: Large companies need innovation. Small companies are great at innovating. It’s a great marriage.”
This story was originally published September 8, 2020 at 5:02 PM.
