In the midst of the rollout of the retail operating system, Shopify went public. It did an Initial Public Offering (IPO) of its shares May 21, 2015, on the Toronto Stock Exchange and New York Stock Exchange. As the prospectus detailed, 7.7 million Class A shares were to be sold by six investment banks to investors at a price of $17 each (unadjusted for the stock split in 2022).1 It was well received upon arrival. Strong demand enabled the banks to issue 15% more shares, bringing the total outstanding to over 8.85 million, for aggregate gross proceeds of $150.5 million. On the first day of trading, the stock soared to $28.
The Shopify IPO also created 66.7 million Class B shares by converting the private shares issued to venture capitalists, executives and staff in the years before the IPO. The Class B had 10 votes each and were not listed for trading on the exchanges but could be converted one-for-one into single-vote Class A shares and then sold. The venture capitalists held about two-thirds of the Class B shares, followed by Lütke (14.5%), Lütke’s father-in-law (5.7%), co-founder Lake (5.6%), Phillips through Klister Credit Corp. (3.7%), co-founder Weinand (2.5%) and smaller stakes by other executives and staff.
Not long after the IPO, most of the venture capitalists cashed out by converting their Class B to Class A shares and selling them. Angel investor Phillips unloaded some pieces of his position in the years to come but held on to most of it and by the early 2020s, his investment of under a million dollars was worth about $2 billion. The Shopify team sold varying amounts of their holdings over the years. Along with their Class A shares, Phillips and Lütke ended up holding just over 50% of the votes for much of the period after the venture capitalists had cleared out.
In the weeks before the listing, Lütke and Finkelstein joined the IPO roadshow in the United States, where the lead underwriter, Wall Street’s Morgan Stanley, and two other U.S. banks were selling the majority of the offering.1 Finkelstein was revelling in the promotional campaign but Lütke wasn’t too keen about spending time away from his focus on product development, as he told Krishnan from The Observer Effect:
During meetings, I would say, “Hey, I’m here, and we’ve been doing this roadshow, but I actually spend a lot of my time on the product.” This was to set expectations because I knew I wasn’t going to attend very many investor conferences. Fundamentally, my attention belonged to the product, not to the sales and marketing of it.2
Finkelstein told Nik Sharma and Moiz Ali during a Limited Supply podcast that when Lütke started the three-week IPO tour, he told Morgan Stanley that he wanted to fly back home to Ottawa on the weekends to be with his family. Morgan Stanley apparently were rather surprised: “Morgan Stanley said no one ever had asked them to do that before,” Finkelstein revealed.3 But Lütke was never one to do something just because that was the way it had always been done. Besides, his wife was also close to giving birth to their third child at the time.
Few U.S. investors had heard of the Canadian e-commerce upstart; Lütke and Finkelstein had to explain that Shopify operated behind the scenes providing support to merchants so they could promote their own brands and develop direct relationships with customers. But make no mistake, Shopify was a force to be reckoned with: there were so many online Shopify businesses that “if you bought something on the Internet and it wasn’t on Amazon but the experience was good, it was a Shopify store,” declared Lütke.4
The Shopify executives were asked about the size of their company’s total addressable market, and the pair had to explain that it wasn’t just the number of small- and medium-sized businesses counted up from a survey or census. It was much larger because technological advances had made it easy and inexpensive for wage and salary earners to become full- or part-time online entrepreneurs. Mom or Dad might decide to have a go at commercializing their hobbies, or a young adult might start a side hustle outside of office hours. And so on.
Also helping put Shopify over the top was the articulate Finkelstein and some informative props at the presentations. The power extrovert was doing what he loved doing; his enthusiasm was infectious. The documentary-style video profiling Shopify was a very polished production, with Hollywood-grade lighting, camera angles, background music and other techniques.5
There was also substantial content in the slide deck. One chart showed revenues more than doubling annually from $23.7 million in 2012 to $105.0 million in 2014. Monthly recurring revenues from subscriptions bounded steadily higher from $1.1 million in the first quarter of 2012 to $7.4 million in the first quarter of 2015. GMV (i.e. merchant sales) blasted upwards from $0.7 billion in 2012 to $3.8 billion in 2014. Yet another chart showed how the revenue lost from merchants leaving the platform was more than offset by the remaining merchants upgrading plans, purchasing apps, and selling more on the platform.
About four months after the IPO, there was a big jump in the stock price on news that Amazon had abandoned Amazon Webstore, its platform for online stores similar to Shopify’s. Additionally, Amazon advised the 80,000-plus merchants on the website to migrate to Shopify — in return for some concessions from Shopify, such as paying $1 million and allowing Shopify merchants to use Amazon Pay. Amazon dropped Webstore because it believed the addressable market was not going to be significant to its bottom line. Moreover, the website was underperforming. Nonetheless, handing over Amazon Webstore to Shopify appeared to be “a rare strategic mistake that’s likely to go down in the annals of corporate blunders,” claimed business journalist Brad Stone.6
As the quarters and years went by more and more investors piled into the stock and bid the price higher, creating a pronounced uptrend occasionally interrupted by temporary reversals. The temptation for employees to check the stock’s progress must have been overwhelming but there was an office rule that anyone caught in the act had to go to Tim Hortons and buy Timbits for their team. Periodically, a box of the tasty treats would appear and do the rounds on desks on a floor. Even Lütke had to buy a box once.
One might assume that the amount of money raised by Shopify was the sum collected from the venture capitalists and IPO, or $120 million + $130 million = $250 million. But there was more. A lot more. Shopify’s stock gained more than 5,000% from the IPO to the peak in November 2021; as the stock soared, it reinforced investors’ love affair with the e-commerce upstart and made them eager to buy more. Shopify obliged: it floated several more issues from its treasury of Class A stock to the public, as follows (according to company Annual Reports):
Add up the proceeds from these treasury shares, and the sum is more than $7 billion; if venture capital and the IPO are included, the grand total is nearly $8 billion in financing (not adjusted for rounding errors or broker fees). That’s a humungous reservoir of fuel for powering a journey through the e-commerce universe.
On October 3, 2017, Shopify’s stock closed down 12% on the NYSE, its biggest one-day drop since going public in May 2015. The cause was the release of a report by Citron Research’s Andrew Left, in which it was revealed he was selling the stock short.1 Left was a noted short seller with several prescient calls to his credit; in 2015, for example, a Citron Research report uncovered some practices that led to a downward spiral in the shares of Quebec-based Valeant Pharmaceuticals.
Left claimed Shopify was a multi-level marketing scheme that drew in customers with fanciful claims of getting rich — a deceptive practice that was against U.S. Federal Trade Commission (FTC) rules and should be investigated. Colin Sebastian, an analyst at Robert W. Baird & Co., rebutted that his survey of Shopify clients found that more than 90% said they had not seen a Shopify ad mentioning they could become millionaires.2 True, there was a large online community offering advice on how to succeed on Shopify, but it was not part of the company — they were mostly the third-party designers, web builders and affiliates who were seeking to generate income by providing services to Shopify merchants. During the earnings report for the third quarter of 2017, Finkelstein took issue with the view that Shopify was operating a pyramid-like, multi-level marketing scheme, saying: “It is also important to note that our partners do not get paid to recruit other affiliates or partners nor do they get paid for anything other affiliates or partners do.”3 The FTC did not lay charges.
Nearly six months later, when Shopify’s stock was up by approximately 25%, Left took another run at the company, and again knocked its shares down by 12% in a day. This time Left claimed that the FTC investigation into Cambridge Analytica’s use of the personal data of Facebook users (for Donald Trump’s 2016 presidential campaign and other situations) likely meant impending restrictions on accessing such data by anyone other than Facebook itself, which, in turn, would prevent Shopify’s stores from using such data to target their ads.
Lütke responded by pointing out Shopify merchants sell in many places: their own websites, retail stores, marketplaces (like eBay and Amazon) and social channels (like Facebook and Pinterest). “The power of our platform is that we offer one interface for merchants to sell anywhere and everywhere,” he added.4 In a March 28, 2018, post on X, Lütke argued that any restrictions on Facebook data should have little effect because “our 600,000+ entrepreneurs can sell on any channel they want to. If their customers want to buy via carrier pigeon, we’ll build a channel for that too. The health of any individual channel has little effect on the overall platform. Demand migrates.”
Just over a year later, after Shopify’s shares had nearly doubled, Left took one more stab at the stock that would not die. This time his concerns were about rising competition from Instagram and other sources; inroads by rivals could chop Shopify’s stock in half, he predicted. His position wasn’t based so much on a belief Shopify had a weak business model, aggressive accounting or anything fundamental wrong — in fact, Left was on record for saying Shopify was best in class for its sector. His concern was that the stock had a valuation a lot higher than peer companies. Notably, the ratio of its stock price to sales per share was two to five times higher than comparable companies. Left was so sure of an impending crash in the stock that he committed to donating $200,000 to charity if Shopify was trading above its then current price within 12 months.5
Shortly after his pronouncement, Shopify released its first-quarter results and again, analysts’ estimates were blown away — this time with a 50% leap in revenues. Ensuing quarters told a similar tale, and by the end of Left’s 12-month forecast period, the stock had more than doubled. Finally, Left gave up — at least no more bearish reports could be found. In fact, he announced in January of 2021 — after getting caught in a short squeeze on GameStop — that he was going to switch to buy recommendations. Did Left donate $200,000 to charity? No indication could be found after an extensive search; an email inquiry went unanswered.
Notwithstanding Left’s campaign, Shopify staff still did very well by their holdings of Shopify stock and options. The stock went on to gain several thousand percentage points after the first short-sale call, and hundreds of millions of dollars were cashed out along the way.
Scrooge McDuck, the Walt Disney character who has graced comic books and TV cartoons since the late 1940s, struck it rich in the Klondike Gold Rush of 1897 and was worth “one multiplujillion, nine obsquatumatillion, six hundred twenty-three dollars and sixty-two cents.” He kept his wealth in a deep vault filled with gold coins and spent a lot of time diving into it and rolling around. Thank goodness those who found their motherlode in Shopify stock weren’t like Mr. McDuck. Sure, they were able to live a more affluent lifestyle, but they certainly didn’t hoard it. Much of it was donated to charitable causes or invested in other companies.
Several Shopify people did indeed become quite wealthy thanks to their holdings of Shopify’s shares. Lütke’s stake turned him into a billionaire; some senior executives had fortunes worth hundreds of millions of dollars and other senior staff were up six to eight figures. Staff below the executive level also came into greater affluence: just before Shopify’s IPO, more than 450 employees were given options to acquire 8.6 million shares at an average price of $1.57 each. “The disposition of these options is unknown but had the employees sold at roughly the same time and price as did senior executives . . . the group would have grossed close to $700 million,” noted Ottawa Citizen journalist James Bagnall in 2018.1 The venture capitalists, some employees and departing staff sold their stakes early: they still did well but missed out on a lot of the upward sweep in Shopify’s stock.
“As residents have seen so many times before — at Mitel in the 1970s, Newbridge, Corel and Cognos in the 1980s and 1990s, and Nortel and JDS Uniphase during the 2000 tech bubble — the new money at first finds its way into luxury cars and real estate, then into charities and new startups,” added Bagnall. Some executives bought properties in Ottawa’s leafy enclave of Rockcliffe Village, which was filled with mansions inhabited by diplomats, old money and tech tycoons. Fauser’s fine accommodations were acquired in 2017 within an exclusive neighbourhood of Vancouver. Other executives and high-level employees hired top-notch architects to design abodes on prime land fronting the Ottawa River.
The new money also went to charities through direct donations or via private foundations. The Thistledown Foundation was created by Lütke and his wife to promote decarbonization, but it switched to fighting the COVID-19 pandemic in 2020, gifting $26 million to children’s hospitals in Canada, as well as funding fast grants to researchers. Miller and his wife set up the Vohra Miller Foundation “to improve the health of the planet and its people.” One of its grants established First Exposure, a partnership with the University of Toronto for research on protecting children from the risks of medications, pollutants and other substances during pregnancy and lactation. The Northpine Foundation was launched by Phillips and his wife; it takes an entrepreneurial approach to a variety of social issues, such as recidivism and racism. Waverley House Foundation was established by Bruce McKean to support basic research into the identification and treatment of mental illnesses.
Not surprisingly, a good number of former Shopify employees have founded and invested in their own startups or become angel investors. Their conspicuous presence in the startup community was such that they earned the sobriquet “Shopify Mafia,” which was a riff on the “PayPal Mafia” epithet assigned to the former PayPal employees that started and invested in companies like Tesla, LinkedIn and YouTube.
In the spring of 2021, Business Insider interviewed nearly three dozen members of the “Shopify Mafia” for the article “Meet 35 Members of the Shopify Mafia.”2 One of them was Harry Brundage, who had joined Shopify as an intern in 2011 and rose to become a director of engineering before leaving in 2017. With co-worker Mohammad Hashemi, he co-founded a startup called Gadget, which offers tools that make it easier for software developers to build e-commerce apps. It has several blue-ribbon backers, including Sequoia Capital, Bessemer Venture Partners and Shopify’s Fauser.
Erin Chan worked as a product manager in Shopify’s point-of-sale group and spent her spare time working with her husband on Rhenti, a platform founded in 2017 to make it easier for property owners and renters to connect. It obtained financing from a number of rental companies and was working with over 1,000 landlords.
Inspired by a trip to Italy, Greg Macdonald started Bathorium to sell bath bombs, soaks and other bath products. When it reached $5 million in annual revenue in 2021, he left his Shopify merchant-manager job. “Shopify is the only company in the world where you can have a million-dollar side hustle and still work your day job,” Macdonald told Business Insider.3
Other Shopify alumni have formed angel investing funds. For example, a former VP of product, Adam McNamara, and his colleague Joshua Tessier are the driving force behind Ramen Ventures, an angel fund. Another case is Fahd Ananta, a Shopify product lead: in 2021, he started Roach Capital to invest in “hard to kill” early-stage software companies. Financial backers included former Shopify executive Satish Kanwar. Another branch of the Shopify Mafia was the Backbone Angels, a collection of current and past female Shopify employees interested in financing startups launched by women. Forsyth is a member. In 2021, the Backbone Angels funded over 40 startups.
The senior managers are the most prolific group of angel investors from the company. One of the leaders, according to Crunchbase, was Lütke. He had more than two dozen angel investments to his credit as of late 2022.
Finkelstein was named Canadian Angel Investor of the Year at the 2017 Canadian Startup Awards gala and did a stint as one of the judges on CBC’s Next Gen Den (the online version of CBC’s Dragons’ Den, aimed at young entrepreneurs). He had nine angel investments in place as of the fall of 2022, according to Crunchbase.
Miller was also an active angel investor. He selected those startups that he believed could have a big social impact through fighting climate change or empowering entrepreneurs. Miller also met with the startups and passed on what he has learned from his experience at Shopify.
For a long time, the most active angel investor at Shopify was Phillip’s Klister Credit Corp. After he retired in 2023, Crunchbase gave that status to Farhan Thawar, a VP and head of engineering. His more than three dozen holdings included Parallelz (a platform that rapidly transforms native mobile apps into native web apps), Hookdeck (a webhook infrastructure for ingestion and error handling), Shakepay (makes it easy to buy and earn bitcoin) and Outpoint (data modelling platform that improves marketing budget allocation).
Shopify executives were not business barons like Mr. Monopoly, wearing top hats and pinstriped trousers in their private clubs with glasses of brandy and cigars in hand. Quite the opposite. They had social consciences and a concern for the plight of others and the environment, as highlighted by the charitable foundations they set up and the donations of millions of dollars to various causes. They also invested in dozens of startup companies, some of which would become sources of jobs and new technologies.