ECWID Story: Perfection, Drive and Emotion
Last week Runa Capital portfolio company ECWID raised $42m from a syndicate of top-tier US Private Equity firms Morgan Stanley and PeakSpan. Part of this capital injection was to buy out early investors, so it was another remarkable exit for Runa Capital and a great financial success for the founders. For me it meant much more: it was a memorable 9-year journey, so I took some time to reflect upon over last few days. A year ago, I published NGINX story, so I am happy to share my ECWID flashbacks in a similar way.
ECWID & NGINX. Indeed, they have a lot in common, these two early investments of Runa Capital Fund I. Great products. Great people. I am strongly emotionally attached to both. There is some magic in strange resemblance of 5-capital-letters company names. I am extremely proud that the founders of both companies invested in Runa Capital Fund III and happy to continue working with them.
We in Runa Capital are very grateful to ECWID co-founders Ruslan Fazlyev (unaltered CEO of ECWID since inception) and Yury Zaytsev (who mostly remained in the shadow). We truly appreciate the continued efforts of Eugene Kaznacheev, Head of Product and later a Board Member, as well as of all ECWID team and wish them all of luck in successfully challenging Shopify — their permanent and vigorous rival. We are equally thankful to Gleb Davidyuk of iTech Capital (Series B investor) for his work in ECWID Board for many years.
E-Commerce Pioneers
It all started more than 20 (!!!) years ago, five years before Shopify was founded. Two 20-year old entrepreneurs Ruslan and Yury from a Russian city of Ulyanovsk founded a startup called Creative Technologies. In 2000 they released X-cart, the first commercial PHP Shopping Cart in the world. It was Open Source, downloadable and based on PHP — which was the hot tech stack in those days. The company never raised any venture capital (who heard about VC back then in Russia anyways?), being profitable from day one. They were riding the rapidly rising wave of e-commerce and successfully acquiring thousands of customers in North America without ever setting foot on the ground there.
It gradually turned into lifestyle business for the founders, but it was just not in Ruslan’s character to remain idle. In 2009 he came up with a new product idea: an online merchant should be able to set up a storefront on an already existing website (or on any other HTML page — like a blog or social network) without rebuilding the whole new site from scratch! His solution was beautiful in its simplicity: widgets! And JavaScript (more precisely AJAX, a newest tech trending in 2009 like PHP in 2000) was to power the web application! To top it all up, the idea itself gave its name to the product: E-Commerce WIDgets = ECWID.
The new product was launched in less than 9 months and first merchants started building their ECWID stores already in September same year. The fundamental idea was to democratize e-commerce: building an ECWID store required no coding and a basic version could be set up at no cost (freemium model allowed that), in less than an hour by anyone who had access to the Internet. Impressive and truly global traction immediately after the launch was the undeniable proof of product-market fit. Bingo!
The vision sounds simple, right? Something a random college grad with a bit of wit and luck could have created? I strongly doubt that. The real foundation of ECWID was the founders’ decade-long experience in e-commerce, their profound knowledge of merchants’ needs and aspirations plus visionary understanding of the industry trends. Also, the whole core product team led by zealous ECWID evangelist Eugene Kaznacheev (who started in X-cart 5 years earlier as support engineer) were not first-timers either. Perfection of ECWID was in their attention to tiny details while building the product.
Meeting Runa Capital
By mid-2010 ECWID was purely organically acquiring about a thousand customers per month, launched its first paid plans and appeared on the radars of several startup media — Ruslan was actively spreading the word about the new product.
About the same time the initial closing of Runa Capital first fund happened, and our small investment team started thoroughly scanning the market in search of exciting opportunities. I don’t remember exactly where we spotted ECWID (perhaps that was Forbes & Google startup competition won by ECWID in 2010), but some day in October I had the business plan in my mailbox.
I was fascinated by ECWID from the first meeting. First, the charisma of the founder: high energy, hyper-active, sharp and competent. Serial entrepreneur, who dropped out of the university to start his first business at the age of 20 — a model Silicon Valley character, but extremely rare beast in Russia at that time… Second, the beauty of the product: nice and neat UI, lots of valuable features, like integrations with variety of payment systems, modern tech stack. Third, rapid and purely organic growth all across the globe. Last, but not the least, we heard absolutely ecstatic user feedbacks — what is often called “wow effect”.
This deal looked outstanding compared to most of our deal flow at that time.
The Deal
ECWID could have well become the first deal of Runa Capital, would we have moved faster… but it was one of the slowest deals I have experienced until today — about a year from the first meeting to the closing, the term-sheet was signed around midway. This does not mean no one was in a rush, but there were couple reasons for being gentle and paced.
First, Ruslan was hesitant whether he needed to raise VC funding at all. ECWID was not capital intensive, could be easily funded by the cashflow from X-cart and was on the path to become profitable. We had to put in a lot of work to convince him that Runa Capital would be a valuable partner.
Back in the days, we were new kids on the block as a VC and building a relationship with Ruslan was a true team effort. We demonstrated all of Runa Capital’s abilities to help ECWID in turning into a global leader, our expertise and network. We applied the irresistible magnetism of my Partner Serguei Beloussov. We used the charms of Soeren von Varchmin, at that time our Venture Partner. His recent experience as VP of Sales in E-pages, one of the prominent German E-commerce players, certainly was important here.
Second, we conducted a very thorough diligence, including several field visits to Ulyanovsk — 900 kilometers train ride from Moscow. Not all of my partners believed in the high potential of an upstart in the already mature and highly competitive market for e-commerce software. Soeren and I were collecting more and more evidence to convince the Investment Committee that ECWID would be a solid opportunity.
Finally, it was a difficult deal to structure: ECWID was a spin-off from X-cart, we aimed to invest in both companies to avoid the potential conflict of interest with the founders, but wanted the two entities to be fully separated first (which btw proved to be the right thing to do, as X-cart followed its own path to success which recently led to strategic partnership with SellerLabs). So, it was in fact two deals closing in parallel.
However, long story short, the deal was closed in October 2011 and announced in December. ECWID was already used by over 100 thousand merchants by that time and generated material revenue, but Ruslan never tried to renegotiate the deal terms agreed several months ago — I have to give full credit to his integrity!
Working together
At the beginning ECWID focused only on direct sales to SME. We proposed an idea to accelerate the growth by adding channel sales. Our plan was to partner up with Internet Service providers (aka “hosters”) or, more specifically the so-called “Site Builders”, which usually worked in Do-It-Yourself mode, similar to ECWID. Clearly, if an SME wanted to have an online presence, it had to start with buying a domain name plus hosting from a local or a global service provider and build a simple website. Many site builders had some basic e-commerce capability, but it was unquestionably inferior to ECWID, so they were happy to replace their own solutions with ECWID, sometimes under “white-label”, but more often under “grey-label” license agreement.
Many Runa LPs come from the web hosting industry and could give us the right contacts to start with. Since then it remains an important part of ECWID business model and couple dozen impressive players, like Wix and United Internet continue successfully reselling ECWID Online Store. Later a whole new dimension of partners became relevant: POS (Point Of Sale) payment solutions providers. They were scared by Shopify invading their domestic brick-and-mortar territory with integrated online-and-offline products and aimed to add online capabilities to their traditional POS systems.
Another important milestone was establishing HQ in the US in 2012, close to the largest geographical market for ECWID. Ruslan was ready to relocate in the role of CEO and together we decided on hiring a senior local manager (President) to support him in running the business in the US. It was especially important given the growth of the indirect business, which involved quite a lot of high-level negotiations and more sophisticated operational management.
After several rounds of interviews, we identified the final candidate: Jim O’Hara. Ruslan invited him to Ulyanovsk for meeting the team and final contract discussions. Jim was offered to take an overnight train from Moscow, sharing a compartment with 3 strangers… that was partly a test on our side: if Jim managed to get through this interesting experience, he would be definitely ready for bigger cultural challenges when working with a remote product team in Ulyanovsk. Jim quite enjoyed this ride and was hired. Shortly after Ruslan relocated to the US and settled close to Jim. That is why the headquarters of ECWID are now in South California, out of a small town of Encinitas close to San Diego. Not a bad choice, given that PayPal, one of the key ECWID partners was just around the corner.
Next memorable step for ECWID (as for many other companies) was raising Series B, back in 2014. Ruslan and I did not want to waste time for a massive road show, but rather reach out to a very few selected firms with the right investment profile: e-commerce and web-presence. The business was growing and nearly profitable, so we did not expect any problems with closing this round. We were not mistaken and soon received the term sheet from one of the shortlisted VCs. Easy. So we thought.
But external forces came into play — big politics. Do you remember 2014? The investor pulled back and we had to make a quick decision: do we want to find another lead investor or to aim reaching the breakeven with a small bridge round from Runa? Growth ambitions won and we started calling the closest and friendliest VC to discuss the opportunity. iTech Capital was the most responsive and fast: just in a few weeks Gleb Davidyuk joined ECWID board — this time the deal was closed at supersonic speed (in striking contrast with our own Series A process!)
Social and Active
We had dozens of meetings and hundreds of conversations over 9 years and I always remained impressed by Ruslan’s high level of energy. He was up 24/7: traveling weekly to all parts of the world to meet ECWID partners, publicly active (you must have seen him starring in the recent Yury Dud’ movie), organizing Ulcamp — a regional IT event in Ulyanovsk, captaining Esmeraldousique (30-feet boat on Volga river). I remember well the board meeting aboard — while traveling from Samara to Ulyanovsk office of ECWID. This was not a pure leisure — we had one of the most productive discussions (I remember a really strategic product decision made related to Amazon) and it was excellent team building exercise!
When closing the recent deal with Morgan Stanley and PeakSpan, Ruslan was texting and calling me starting 6AM and until midnight Pacific Time to get things done. Extensive due diligence and complex deal structuring — it took us only 62 days from term-sheet to cash on account!
Needless to say, how critical momentum is for closing a deal and a sense of urgency for building a startup in general. The ECWID story is an excellent proof point for the assumption that combination of product expertise and speed is invincible.
Less obvious lesson learned is that building a strong team relation with the investors, through social interaction and joint activities is extremely important. It could be sharing a meal from time to time or traditional after-board-meeting dinner, but ideally much more than that. The ECWID Board had to make several difficult decisions along the way (each startup has to!) and sometimes our discussions were getting quite emotional. Strong positive relationship was a very good foundation for high-quality open exchange of opinions, as we were not afraid of hurting each other by being direct and assertive.
Finally, and most importantly, the positive emotions and the relationship remain after exit. We make money to live, not live to make money. Now, with ten exits behind, if you ask me which of the successful investments I’d love to live through one more time, ECWID would be on top of the list — exciting experience, a real adventure!
I am happy we continue working with Ruslan in the Board of Sellerlabs and as an investor in our third fund. Show must go on!
