Shopify’s 39-year-old cofounder and CEO Tobi Lutke, pictured here at the company’s 2015 IPO, went from shredding the slopes to shredding the markets.
Move over, Silicon Valley. The newest additions to the angel investor Hall of Fame are a little-known husband and wife from Toronto, who are now each worth $1 billion thanks to a small investment they made 13 years ago in Shopify, a software platform that helps small and midsize businesses launch and manage their online stores.
John Phillips, a 68-year-old retired lawyer, and his wife, Dr. Cathy Phillips, a psychologist who specializes in helping cancer patients deal with stress, have turned their $750,000 investment in Shopify into a $2 billion fortune simply by sitting on its stock. They join other Shopify billionaires, including CEO Tobias Lutke (net worth: $4.2 billion) and Lutke’s father-in-law, Bruce McKean (net worth: $1.4 billion). Shopify cofounder Scott Lake is also likely a billionaire if he has held on to at least half his shares since the IPO. The third cofounder, Daniel Weinand, who joined the company a bit later, doesn’t appear to have enough stock to crack the three-comma club.
These investors have benefited from a stock that has climbed an incredible thirty-fold since its 2015 initial public offering. The company now sports a market cap of $60 billion, making it Canada’s seventh most valuable company, ahead of the likes of Canadian Pacific Railway and Thomson Reuters. It has also become a millionaire factory for Shopify’s 5,000 workers, who sit on stock awards worth $2.2 billion. Shopify’s stock price has become such a distraction at headquarters that any employee caught checking the stock price must buy a box of doughnuts from Tim Hortons for their team.
Shopify’s origins hark back to a snowboarding trip that Lutke took in his early 20s to the Whistler ski resort outside Vancouver, where he met his now wife, Fiona McKean, in 2002. A year later, Lutke moved from his native Germany to the snowy expanses of Ottawa, Canada, to be with McKean and decided to start an online snowboard shop with one of her family friends, Scott Lake. However, they quickly grew frustrated with the sparse software tools available to manage their site. Lutke figured others had the same problem. In 2004, they launched Shopify to offer software to other small businesses looking to sell their goods on the Web.
At the time companies could pay for placement on sites like eBay or Amazon, which took a cut on each sale, but there was no easy way to sell directly to customers online. Lutke decided to build a one-stop shop that would cater to both existing brick-and-mortar retailers and to the emerging generation of social media entrepreneurs. He offered an array of tools allowing proprietors to quickly create a website, process payments, fulfill orders, manage inventory and place ads. For these services, he charged a monthly fee between $29 and $299.
Before he took any venture capital money, Lutke turned to Toronto-based angel investor John Phillips for funding. Phillips had spent the better part of his career as a corporate lawyer, first at Canadian white-shoe law firm Blake, Cassels & Graydon and later as general counsel at telecom firm Clearnet Communications, which was bought by Vancouver-based Telus in 2000 for $3.1 billion. Phillips came across Shopify in 2007, during a second act as an angel investor, when the chief technology officer at one of his portfolio companies crowed about how easy its software was to use.
Phillips invested $250,000. “I really liked that the software was rooted in Snow Devil’s immediate practical needs,” says Phillips, referring to Lutke’s snowboard shop, who recalls walking away from his first meetings “thoroughly impressed by his acuity, clear and deep thinking, and resolution.”
Phillips would put in another $500,000 by 2009 and join the board of directors in 2010, where he encouraged Lutke to remain chief executive officer. Shopify’s valuation ballooned from $3 million when he first invested in 2007 to $1.3 billion when it went public in 2015. He and his wife have unloaded about a million shares, or 20% of their holdings, according to filings, netting a nice payday of about $70 million before taxes. However, the couple has hung on to the bulk of their shares and still owns a combined 4 million Shopify shares through their wholly owned investment firm Klister Credit Corp., worth a total of $2 billion at yesterday’s prices.
The couple split their time between Toronto and the small coastal town of Flatrock, Newfoundland. John has retired as an angel investor after backing some 50 early-stage companies, while Cathy continues to help those with cancer manage stress. She leads support groups and in 2013 published a book titled, Calm Your Mind, Warm Your Heart.
Shopify’s other early backers are sitting pretty, too. Lutke’s father-in-law, a retired diplomat with postings in India and Egypt, is now an active philanthropist and serves on several nonprofit boards. Cofounders Scott Lake and Daniel Weinand both left the company several years ago. Lake now runs his own venture capital firm, Hello Ventures, and Weinand spends most of his time playing poker and composing music.
Plenty of ordinary investors have hit a home run with Shopify, too. A $1,000 investment in the company when it went public is now worth $28,000. But buyers beware: Shopify is currently one of the priciest stocks on the market. The unprofitable firm trades at a price-to-sales multiple of 36 times, compared to 7 times for other software companies and a mere 2 times for the broader S&P 500.
Growth-focused funds have been among its biggest backers, who salivate over the millions of mom-and-pop businesses around the world that have yet to go online. “The long-term market opportunity is essentially unlimited,” says Joseph Dennison, a portfolio manager at Zevenbergen Capital Investments, who first invested in 2016.
Already, Shopify’s technology powers over a million businesses and counting, ranging from Kylie Cosmetics, created by the world’s youngest self-made billionaire Kylie Jenner, to sustainable shoemaker Allbirds, handbag company LeSportsac and Matcha tea-seller Laird Superfoods. Bigger brands like Heineken, General Mills and KitchenAid are also on board. In 2019, those businesses sold a gross $61 billion using Shopify’s service, generating revenues of $1.6 billion for Shopify, a 47% year-on-year increase.
But despite that growth, the firm has yet to generate an annual profit and faces entrenched competition from Amazon and eBay—not to mention potential new entrants like Instagram and Square.
“Amazon is trying to build an empire,” Lutke recently told his Twitter followers. “Shopify is trying to arm the rebels.”
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