👨‍🔧 Shopmonkey - The All-in-One Solution for Car Repair Shops

Overlooked #141

Hi, it’s Alexandre from Eurazeo. I’m investing in seed & series A European vertical solutions (vSol) which are industry specific solutions aiming to become industry OS and combining dynamics from SaaS, marketplaces and fintechs. Overlooked is a weekly newsletter about venture capital and vSol. Today, I’m sharing a deep-dive on Shopmonkey which is a venture-backed vSol building the all-in-one solution for independent car repair shops in North America. I collaborated with Contrary Research to write this post. It’s a great place to find deep-dives of private startups like Ramp, Knowde, Faire, Anduril, Algolia and now… Shopmonkey.

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In the US, there are 400,000 car repair shops and 70% of them are run independently. Independent auto repair shops are under-digitised. They operate by mostly relying on pen, paper, phone and excel. When they want to digitise their operations, they have no choice but to buy multiple point solutions which are not interconnected or old-school solutions like Mitchell1 which has been around for more than a century.

Leveraging the playbook written by other vertical SaaS serving SMBs such as Toast for restaurants or Service Titan for home services, Shopmonkey is building the all-in-one solution for auto-repair shops.

It started by targeting independent auto-repair shops and by mastering its unique workflow from quote generation to invoices. Shopmonkey is now expanding its footprint by going upmarket to auto repair franchises and by expanding in other geographies like Canada. It also added financial services with payment processing and working capital funding.

If you’re building a solution for auto-repair shops in Europe or if you know somebody who is building one, I’d love to hear about you. You can reach-out at adewez@eurazeo.com.

I divided this post into the following sections:

• Key Insights

• Founding Story

• Product

• Market

• Competition

• Traction

• Valuation

• Key Opportunites

• Key Risks

Key Insights

• Eat your own dog food. Shopmonkey’s CEO and COO purchased their own car repair shop in which they use Shopmonkey. It’s a great way to stay close to their customers and to generate insight to craft and prioritise the product roadmap.

• Shopmonkey is a perfect vSol’s case study. It combines both the potential to become the industry OS for auto repair shops and it has been able to add business model dynamics from financial services (with payment processing, working capital financing and BNPL) and marketplaces (with parts ordering) on top of its initial SaaS.

• vSol can quickly become crowded categories in which several VC-backed companies are fighting for market share in a market which is by definition smaller than an horizontal one. VC-backed vSol should spend as much time as possible under the radar to avoid attracting competition which is something that vSaaS startup studio Fractal has understood well, launching 80+ companies without publicising it.

• Shopmonkey is going upmarket following a playbook that I’ve seen across categories. You start with independent shops before going after larger groups/franchises. Toast in the restaurant industry and Mews in the hotel industry have done the same.

• It’s easy to underestimate the TAM of a vSol. Shopmonkey started by selling a SaaS product at $99 per month to independent car repair shops in the US. If you had done a bottom-up market sizing at the time, it would have given you a $336m TAM which would be considered too small for a VC-backed startup. As we’ll see in this article, Shopmonkey has already expanded its TAM to $3.7bn by adding non-independent repair shops, increasing prices and embedding financial services. Moreover, it still has room to grow this TAM further by entering new geographies, adding other financial services and trying to capture a cut as a parts marketplace.

Founding Story

Ashot Iskandarian founded Shopmonkey in 2016. Ashot is the son of an Armenian family who emigrated in the US after the collapse of the Soviet Union. Passionate about classic cars, Ashot had the insight to create Shopmonkey after being disappointed with the customer experience provided by auto repair shops. He decided to leverage his experience as a product manager in Silicon Valley startups to build the best auto shop management software.

“Shopmonkey is really just a combination of my love of motorsports, my love of software and the calling that I believe I have to serve the people in this industry and repair shops specifically.” - Ashot Iskandarian in Shopmonkey’s Story

The early days were not easy. Ashot raised $75,000 from friends and family and went full-time on the project. He used the funding to recruit a Ukrainian software engineer called Yuri Khmelevsky. While Yuri was developing the product, Ashot was doing everything else from selling to customer support. The duo iterated on the product and acquired their first 100 customers in the first 12 months.

At this point, the company started to take-off. Shopmonkey expanded its team, starting with COO Travis Brown, grew its customer base and raised several rounds with investors like Index, Bessemer and Iconiq.

Ashot and Travis also purchased their own car repair shop in California called Full Throttle Garage specialised in classic cars repair. They obviously run the shop with Shopmonkey to provide an acute vision of where the product should go.

Product

Shopmonkey is an all-in-one solution to run an auto repair shop. Its platform is centred around the auto-repair workflow processed in a kanban board in which each card is a repair job that will go through different phases: (i) a repair estimate is sent to the customer, (ii) the customer approves the estimate and drops off its car to the shop, (iii) the car is repaired by technicians and (iv) the repaired car is picked up by the customer.

Shopmonkey’s kanban board to process car repairs

Around this core workflow, Shopmonkey offers key features including estimates, customer interactions, inventory management, workforce management and payment processing.

Identify a vehicle based on its licence plate to create an estimate

Customer Interactions

Shopmonkey modernises customer communication by enabling two-way communication with customers via email and SMS to boost customer satisfaction and to reduce costs. It automatically sends reminders to reduce the number of no-shows. It streamlines the quote approval process and it enables customers to pay online.

Inventory Management

Shopmonkey helps car repair shops manage their inventory. Inventory is tracked in real time based on your estimates and the jobs completed by technicians. Shopmonkey sends alerts when inventory is low and enables shops to order from third party partners such as WorldPac or Epicor.

Workforce Management

Shopmonkey is also a workforce management system. The shop owner will use the kanban board to assign jobs to technicians. Technicians will rely on Shopmonkey’s mobile app to clock-in and clock-out. At the end of the month, it’s easy to pay employees because payroll data is cleanly recorded into the software. The owner can also track the productivity of its workers and the labour cost on its different jobs.

Payment Processing

Shopmonkey offers an holistic payment produce to its customers. It uses Stripe to process online payment and offline payments with a POS. Payment data is automatically reconciled with invoices and integrated into Quickbooks to streamline accounting. Moreover, Shopmonkey also supports B2B payments when a shop deals with fleets, offering features such as payment terms and bulk payments.

If we take a step back on the product, Shopmonkey is a modern vertical solution:

• Instead of relying on clunky on premise verticalised software or on multiple horizontal point solutions, Shopmonkey offers a cloud based industry operating system covering every aspect of running an auto repair shop.

• It’s easy to use with a best in class UX and a companion mobile app for workers when they’re doing repairs.

• It’s an open solution connected with other systems like Quickbooks for accounting or PartsTech, Nexpart and Epicor for parts ordering.

• It integrates seamlessly financial services like payment processing for end consumers and funding for car repair shops.

• It automates many repetitive tasks (e.g. pre-filling estimates or automatically sending reminders to avoid no-shows).

In terms of benefits, a solution like Shopmonkey enables car repair shops to save time, save costs, increase revenues and improve customer satisfaction.

Autoleap - State of the Auto Repair Industry 2022

Market

Customers

Shopmonkey started by targeting independent car repair shops in the US. In the US, there are 400,000 car repair shops generating $172 billion in sales, out of which 70% are independent. 53% of car repair shops generate less than $500,000 in annual sales and 66% of repair shops have less than 10 employees.

Shopmonkey’s platform is used by several personas:

• Car repair shop’s owner: they have a complete overview of their business on a unique platform and can easily see how to take actions to boost sales and profitability.

• Technicians: it offers a mobile app dedicated to technicians to increase their productivity by managing time-shifts, by tracking their different jobs and by guiding them with procedure on complex car repairs.

• Car repair shop’s customers: it makes it easy to follow a car-repair from the initial appointment to the payment with the possibility to interact with the shop both via email and SMS.

• Accountants: it streamlines accounting by being integrated with Quickbooks and by automatically reconciliating payments with invoices.

Since then, Shopmonkey has extended its addressable customer base into three directions: (i) geographical expansion in Canada, (ii) customer size extension to non-independent car repair shops (e.g. signing franchises like Byrider or Tint World) and (iii) adjacent verticals (heavy duty, tire shop, marine repair, etc.).

Business Model

Shopmonkey has two main revenue streams:

• SaaS revenues: it offers three tiers for independent car repair shops with the most popular option being sold at $5,100 per year as well as an enterprise tier with hidden pricing for franchises.

• Payment processing revenues: for independent car repair shops, Shopmonkey bundles systematically payment processing for online payments (for the most popular plan: 2.9% fee + $0.3 per transaction) and offline payments (for the most popular plan: $249 one shot for the card reader, $10 per month subscription for the card reader, 2.5% fee + $0.15 per transaction). Payment processing revenues are significant for Shopmonkey. The average car repair shop in the United States generates $720,000 in annual sales. Assuming that Shopmonkey processes 100% of its revenues at a 2.5% take rate, Shopmonkey can generate up to $18,000 in incremental revenues per year from payment processing.

Besides these two revenue streams, Shopmonkey can increase its ACV by upselling additional seats ($20 per month per additional users) and by offering working capital funding via Shopmonkey Capital embedded by Stripe.

Market Sizing

We estimate that Shopmonkey has a $3.8 billion addressable market in the US ($1.4 billion for the SaaS for independent, $612 million for the SaaS for non independent, $1.7 billion for payment processing).

An alternative market sizing performed by James Green at CRV ends up with a $2.1 billion addressable market in the US by layering the different levers Shopmonkey can activate to increase its ACV (payments, B2B marketplace, new modules, lending, insurance and price increase).

Shopmonkey’s CRV market sizing

Market Dynamics

At a high-level, Shopmonkey is riding positive market dynamics that we see across vertical SaaS serving independent businesses like (i) the shift to the cloud and mobile, (ii) the rise of a new generation of owners who are digital native (e.g. 64% or repair shop owners are expected to retire in the next 10 years), (iii) the willingness to consolidate the tech stack across a single all-in-one platform.

The automotive aftermarket’s value chain can be divided between (i) the authorised channel controlled by vehicle manufacturers which have their own distribution network with workshops which are both repair shops and dealers and (ii) the independent channel in which auto repair shops can be run independently or within franchises.

The European Automotive Aftermarket in 2030 - BCG

The auto repair industry faces several adverse trends like (i) recovering from Covid-19 which put many shops under financial pressure, (ii) desire for car ownership declining removing the need for repair, (iii) complexification of cars which makes them harder to repair, (iv) shift to electric vehicles requiring less maintenance and fewer components to replace than fuel cars, (v) labor shortage with an estimated shortage of 640k+ technicians by 2024.

Competition

Most of the time, Shopmonkey replaces manual processes (pen, paper, excel) and/or old-school point solutions which are not interconnected. For instance, Mitchell1, a solution commonly used in the industry, has been around for over a century and is an old school suite for car-repair shops (on-premise, not collaborative, poor US, close platform).

Shopmonkey is also competing with other VC-backed startups like Autoleap (Canada-based, founded in 2019, $23 million raised with funds like GFC and Bain Capital), Tekmetric (US-based, founded in 2016, backed by a growth fund called Susquehanna Growth Equity), Shop-Ware (US-based, founded in 2013, $15 million raised with Insight). These startups have all the same vision to become the one-stop shop solutions for car repair businesses.

Mitchell 1

Mitchell 1 started in 1918 as a book publisher selling books with information for technicians and consumers to repair cars. Today, it sells products to independent repair shops including an end to end shop management solution like Shopmonkey, a solution for technicians to access OEM repair information and a solution for shops to manage their marketing activities with email campaign and social media management. Mitchell 1 belongs to a broader industrial group called Total Shop Solutions selling auto repair physical and digital products.

AutoLeap

Autoleap started in 2019 in Canada. It raised a $5 million seed round in Dec. 2020 with GFC, Liquid2 and Maple VC as well as a $18 million series A in Oct. 2021 led by Bain Capital. It operates both in Canada and in the US. It has the same vision as Shopmonkey: to build the all-in-one solution for auto repair shops. It goes beyond Shopmonkey by offering marketing tools such as email marketing campaigns and Google reviews management. It also offers fleet management for auto repair shops working with B2B customers.

Tekemetric

Tekemetric started in 2016 in the US. It raised a growth round in Mar. 2022 from Susquehanna. It has 3,000 customers in the US and in Canada. It also aims at becoming the all-in-one solution for auto repair shops. Compared to Shopmonkey, it has a unique feature called Tekmetric Multi-Shop for people owning and managing several shops.

Shop Ware

Shop-Ware started in 2013 in the US. It raised a $15 million series A in Dec. 2020 led by Insight as well as a series B in Aug. 2022 with Insight and Bosch. It operates in North and South America. It serve both independent and multi-location shops. It was founded by Carolyn Coquillette who used to operate a car repair shop before focusing on the need to create a shop management solution. Again, Shop-Ware wants to become the all-in-one solution for auto repair shops. As Autoleap, it offers fleet management for B2B customers. As Tekemetric, it’s able to serve multishops owners. Nonetheless, it does not offer payment processing.

Traction

The company went from 1,000 customers in Jul. 2020 to 2,000 in Feb. 2021 to 2,500 in Jul. 2021 and to 5,000 in Dec. 2022 growing its customer base over the period at an average CMGR of 5.7% and implying a 2% market share in the US.

Shopmonkey has never disclosed any revenue metrics but with bullish assumptions detailed in the below table, we estimate that Shopmonkey generates $77.7 million in ARR ($25.5 million from SaaS and $53.2 million from payment processing) and $30.7 million in annualised gross margin.

Valuation

In Jul. 2021, Shopmonkey raised a $75 million series C co-led by Index and Bessemer at an undisclosed valuation. Assuming a 15% dilution on this round, the company would have raised at a $500 million post money valuation. With our previous assumption that Shopmonkey generates $56.7 million in ARR and $28.7 million in annualised gross margin, it would imply that Shopmonkey is currently valued at a 8.8x EV/ARR multiple and a 17.5x EV/GP multiple which is c.20% premium compared with publicly listed vertical solutions.

Key Opportunities

Shopmonkey is pursuing 4 main opportunities:

• International expansion: Shopmonkey started its operations in the US. Since then, it has expanded in Canada. Going forward, Shopmonkey could expand into other geographies like Latin America or Europe.

• Expanding into adjacent verticals: Shopmonkey started by targeting car repair shops. It tries to sell to adjacent verticals like repair shops for other type of vehicles (RVs, trucks, marine) or car shops whose focus is not repairs (e.g. auto detailing or tire shops).

• Going upmarket: Shopmonkey started by targeting independent car repair shops. The company is now also going after franchises. For instance, in Feb. 2021, Shopmonkey announced that it successfully deployed its solution into Tint World’s network composed of 80 locations. In Aug. 2022, Shopmonkey announced that Byrider which is a US-based car dealership franchise with 148 locations in the United States will deploy Shopmonkey into its network. It’s a different go-to-market motion with a longer and more complex sales and deployment cycle. It also requires a more robust platform supporting features like multi-locations management and integrations with ERPs.

• Adding financial services: Shopmonkey already offers payment processing and working capital funding to its customers. In 2023, it’s planning to release a BNPL product. In the future, Shopmonkey could offer other financial services including payroll or insurance.

Key Risks

Shopmonkey faces 2 main risks:

• Macro: the auto car repair market will change dramatically in the next 2 decades driving by several trends like (i) the shift from fuel cars to electric vehicles, (ii) the reduced proportion of independent shops, (iii) the increased complexity of cars and (iv) a looming technician workforce shortage.

• Competitive market: Shopmonkey operates in a competitive market with (i) several venture-backed players in North America pursuing the same vision of becoming the one-stop shop for car repair businesses (e.g. Autoleap, Shop-Ware, Tekmetrics), (ii) horizontal players building verticalized products (e.g. Square) and (iii) incumbents trying to shift to the cloud (e.g. 1Mitchell).

Summary

Shopmonkey is an all-in-one platform for independent auto-repair shops which has attracted 5,000 customers in the United States and in Canada. It started in 2016 and raised $110 million in funding from investors like Index, Bessemer, Iconiq and Headline. Shopmonkey is currently growing the business in several directions at the same time: (i) increasing ACV per customer by embedding financial services into its platform, (ii) going upmarket by selling the platform to franchises and (iii) expanding into adjacent verticals such as trucks repairs or tire shops.

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Thanks to Julia (🦒) and Sachin for the feedback! Thanks for reading! See you next week for another issue! 👋