ShipHero raises $50M to expand e-comm fulfillment network

Today, ShipHero’s software platform accounts for about $13 million in annual revenue, and its fulfillment business generates approximately $20 million in annual revenue.

“We have always been focused on long-term impact and on building a solid software-driven and high-quality foundation, and for years staying independent gave us the most flexibility in how we achieve that impact,” said Aaron Rubin, CEO and founder of ShipHero, in a statement. “Our market opportunity has expanded significantly, and we have a great opportunity to accelerate our offering to clients as they digitize their businesses. The industry has raised a lot of capital recently and we were approached by high quality investors. Riverwood has a sterling reputation for allowing companies to grow in their own way and has invaluable experience with taking companies public, both of which were very important for us.”

Rubin told FreightWaves that the company’s goal is to have about a dozen fulfillment centers in the United States able to fulfill next-day shipments to every major metropolitan area. The investment from Riverwood will be used primarily to acquire larger wholly owned fulfillment centers; today, Rubin said, ShipHero has 400,000 additional square feet under contract, which will represent about 30% growth in the company’s footprint once it comes online.

The software side of the business has most of what it needs already, Rubin said, including about 55 engineers. It’s the capital-intensive plan to acquire more fulfillment center square footage that prompted the fund-raising.

The story of how the Riverwood deal happened is fascinating. ShipHero had not pursued outside investment and, Rubin said, “we didn’t have a deck and we didn’t have a CFO — we couldn’t have raised money if we wanted to.” Still, ShipHero, which has been consistently profitable, received a constant stream of inbound interest from investors looking to place bets on the future of e-commerce.

Rubin eventually decided that ShipHero could use capital to lock down fulfillment center capacity in an increasingly tight industrial real estate market and decided to start returning investors’ calls. After speaking with a handful of potential investors, Rubin went with Riverwood, the first fund he spoke to, whose partners made the drive from Manhattan to Westchester, New York, in October 2020 to meet for lunch.

“They said, ‘We can help you find a CFO,’” Rubin remembered, smiling.

Rubin said that the investment involved no secondary sales, so ShipHero will use the full $50 million to expand and maintain its torrid pace of growth.

ShipHero’s growth is coming from three kinds of customers, Rubin said. The first type of new ShipHero customer is an e-commerce seller migrating from a legacy 3PL that keeps the seller’s inventory in just one facility and ships all over the U.S. from that single origin. That model makes inventory management a cinch for the 3PL but can lead to unpredictable and volatile shipping costs and transit times, the two variables that ShipHero’s model is designed to control.

A second type is a growing direct-to-consumer brand that may have struck the right balance on the cost of acquiring new customers via social media ad spending, but is rapidly running out of its own in-house fulfillment capacity. Those companies need a solution for managing inventory and moving shipments, quickly — and they need a flexible provider who can scale with their explosive growth. ATOMS shoes and Byte, a DTC Invisalign competitor, fall into that category.

The third major bucket of new ShipHero customers that Rubin spends his time thinking about is often a large multinational deciding to conduct a direct-to-consumer experiment. Often bureaucratic inertia and the second-order effects of setting up e-comm fulfillment inside the company’s existing supply chain are hindrances to rapid deployment and data collection, so these companies choose to outsource.

Tailwinds for ShipHero’s continued growth include e-commerce’s continuing penetration of retail, changing dynamics in e-commerce that will push small shippers to 3PLs who can fulfill rapidly, and geographic expansion. ShipHero just launched a partner warehouse in the Toronto area and is currently working toward a location in Ireland, strategically located for a post-Brexit world.