BacklotCars - A Kansas City Success Story

Next time you drive by a used car lot, ask yourself how the cars got there. Not all of them are trade-ins. Many are bought at auction. Thanks to a Kansas City company, the process was made easier with the founding of Backlot Cars. The company, founded a little more than five years ago, made it possible for companies to buy and sell online without going to an in-person auction. (Backlot was pandemic-proof before we knew what that was.)

Last year, Backlot Cars was sold to KAR Auction Services for $425 million. The company’s founder, Justin Davis, remains with the company, running the Kansas City operation. He spoke at ACG’s March 5 meeting.

Davis recounted the company’s history and how it survived from start-up to exit.

One of the early investments, one that saved the company from closing, was an infusion of capital from Renren Inc. That experience taught Davis that being from Kansas City wasn’t a liability when it came to raising money.

“We were pre-revenue,” he said. “They took a huge bet on us. They didn’t care that we were in Kansas City.”

After that round, the company grew its footprint from Kansas City to Springfield and to Chicago. Then it received start-raising money in the Midwest, from KC Rise and Origin Ventures in Chicago.

“We needed scaling help,” Davis said. “We got that knowledge from Origin and that was important.”

Through the years, Davis learned valuable lessons about inviting the right firms to the cap table and about having a board of directors that would tell the truth, even when it might hurt.

“Karl Brewer was a board member who’d been at William Blair for years; he understood the public market equity side of the business. He brought out things we needed to look at and provided a nice balance in the board room.

“He was also a seed investor in each of our financing rounds. He bet on us big.”

While 2020 was a tough year for everyone, for Backlot it was a chance to hone in on the basics. Before 2020, the company was primed for a kick-off to another funding round. In early March that all changed and a hard pivot was necessary.

“We got the team together to talk strategy,” Davis said. “We needed to be in front of our team, to get them to believe in the uncertainty.”

For Backlot, the pandemic opened a world of possibilities. An easy insider round made financing easier so the management team was able to concentrate on what was next – working toward an IPO, combining with someone in a merger or to continue on the set path. The opportunity with KAR was too good to pass up.

“The price was right,” Davis said. “And they were entrepreneurs. They allowed us to keep Kansas City as the headquarters and to operate with autonomy.

“We closed in November, so we’re about 120 days in now. They have been awesome. They are doing what they said they would. We’ve been very, very busy.”

Davis doesn’t anticipate that he or any of the company’s founders will be leaving Backlot anytime soon.

“Right now, we are committed to seeing this through,” he said. “We’ve shown that in Kansas City you can build something great. It’s our duty to make these things great.”

Davis hopes that Backlot’s success is just a jumping off point for the region and put out a call to action for other entrepreneurs and business owners.

“It’s time to get off the sidelines and help one another,” he said. “We have massive opportunities in the region. It’s up to us – the business leaders to make it happen.”