When the COVID-19 pandemic hit North America in earnest this spring, Marcelo Cortes wasn’t worried about his company surviving. The co-founder and chief technology officer of Faire, an online marketplace that connects retailers with brands, knew the firm could coast for a year or two on its reserve of venture capital from Silicon Valley investors. The retailers using Faire’s platform—most of them mom-and-pop shops with slim margins—weren’t in the same cushy position. As Cortes told The Logic in an interview this fall, “We can survive, but if our customers don’t survive, we don’t have a business.” 

More than eight months later, Faire, with its dual headquarters in San Francisco and Kitchener, Ont., is in a stronger position than ever. The company closed a $222-million Series E funding round in late October, more than doubling its valuation to $3.6 billion, the highest among its Canadian startup peers. It also claims it doubled its customer base in the past year and tripled the business it does, with more than 35 million products purchased on its marketplace and moving up to US$4 million in inventory in a day. It now works with some 100,000 retailers selling products from 10,000 brands. 

With a CEO based in San Francisco and backing from Silicon Valley heavy hitters like Sequoia Capital and Peter Thiel’s Founders Fund, Faire is often overlooked as a part of Canada’s tech ecosystem. But Cortes insists the company is as Canadian as it is American. Key to Faire’s success is its team in Kitchener, the headquarters where Cortes himself is based, along with the team responsible for engineering Faire’s products—and in recent months, managing its customers through what for many of them has been the most trying period in their careers as entrepreneurs.

The pandemic has accelerated global trends that were already percolating well before the first case of COVID-19 was reported late last year, and online commerce has been one of the greatest benefactors. 

The droves of retailers rushing online in the past eight months have raised the demand and profile of online marketplaces that can help companies manage their inventory and facilitate sales. Faire was well positioned. Its business-to-business (B2B) online marketplace helps independent retailers source and manage their inventory by connecting them with brands. The idea is to draw retailers away from trade shows and face-to-face meetings with brand reps by making it as pleasant for them to buy their supplies online as it is for customers to buy from Wayfair or Etsy. “Our challenge from Day Zero was to bring customers who were, for the whole lifetime of their business, buying offline, and convert them to buying online,” said Cortes. “With COVID, that became much easier—they realized they had to be more efficient to survive in this world.” 

Cortes said that for retailers on Faire’s platform as a group, fall sales have bounced back to levels comparable to last year after a tough spring and summer. It hasn’t been easy. “To get there, they’ve had to work that much harder—maybe 10 times harder—to get those sales,” he said. 

To help make that happen, Faire ramped up hiring. It grew its engineering team from 55 when the pandemic started to over 100 today—that’s about 40 per cent of the Kitchener workforce that’s been onboarded remotely. Individual productivity increased by 60 per cent in the first two months, on average, said Marcelo, based on metrics like the number of lines of code engineers were writing and new products and features the company rolled out. The CTO said that after eight months apart, though, the team is keen to get back together and, for many of them, meet face to face for the first time. But he said the company’s split headquarters made working from home an easy transition at the start. “The company was already fully set up to be remote.” 

Cortes insisted on launching with two headquarters after starting Square’s Kitchener-Waterloo office in 2013 and building out the company’s Canadian team. At the time, Square—a mobile-payments company run by Twitter’s CEO Jack Dorsey—was reluctant to launch in Canada, but Cortes refused to move to the U.S., telling the recruiter they could have him in Ontario or not at all. Square now has more than 270 employees in Canada, according to LinkedIn.

It was his experience at Square that gave Cortes confidence that the Kitchener-Waterloo talent pool could sustain the new venture he and two of his Square colleagues, Max Rhodes and Daniele Perito, were dreaming up. “When we started with these two headquarters, some of our investors were skeptical,” said Cortes. “We questioned it, as well. I had meetings with my co-founders where they said, ‘Maybe it would be better for us to all be in the same location.’ Today, it’s the opposite. We’re very happy to have this office here.”

That office started in 2017 as three desks at Velocity, the University of Waterloo tech incubator and early Faire investor. (Golden Ventures is Faire’s only other Canadian investor; it participated in the firm’s Series D last year.) A month and a half later, the company needed more space and moved to an office above Shoppers Drug Mart in downtown Kitchener. “We thought that office would last us two years because there was space for 18 people,” said Cortes. “But four months later, I was looking for new space.” Today, Faire has 115 employees, most of them engineers, in an office across from Kitchener’s City Hall. Virtually all of the company’s engineers are in Kitchener—there’s just one in San Francisco. Cortes said engineers in the community tend to stay at one job for longer, rather than bounce from startup to startup, as he said is common in Silicon Valley. “Being able to build a successful company with the people we have here reinforces that we’re doing things right.” Cortes said the local team’s response to the pandemic—how it rallied in March to help retailers and brands get online and stay afloat—was testament to that. 

Cortes estimates that most of Faire’s retailers could only survive a few months with severely depressed sales. So even before lockdowns began rolling through the U.S.—where the majority of Faire’s customers do business—the company told its retailers to stop buying inventory through its platform. “It’s a weird thing for a company like ours to do, but we were really focused on helping [retailers] survive,” said Cortes. After helping retailers pause their orders, the Kitchener team built a financial calculator to help its stores understand how much runway they had, and what to do to extend it. They told them to renegotiate rent, consider furloughing or laying off staff if they had to, and apply for any government programs offering pandemic relief funding to small businesses. If shops weren’t selling online, the Kitchener engineering team helped them get there. The company partnered with Square and Shopify to integrate their e-commerce and payments products for its stores. The team also built a separate online marketplace called Neighborhood, where stores could sell their products directly to consumers, similar to Etsy. (The vertical closed last month as Faire refocused on its main B2B business.) 

“So much has moved online, and subsequently, a lot of companies are looking to get their product closer to the consumer,” said Emily Pfeiffer, an e-commerce analyst at Forrester, noting that supply chain challenges in the spring have accelerated the trend that had started pre-pandemic. “It might mean a brand, a supplier, a retailer—anyone selling direct to consumer on a marketplace—but more and more, it also means these B2B marketplaces are where businesses can sell directly to each other.” 

E-commerce sales in the U.S. have been growing about 1.5 per cent annually since 2009. In the first eight weeks of the pandemic, that rate increased to 11 per cent, bringing e-commerce in the U.S. from 16 per cent of total sales at the end of 2019 to 27 per cent in April. Still, just four per cent of B2B sales are done online, with 49 per cent done either in person, by phone or through fax, and the rest happening through electronic data exchanges and e-procurement arrangements, cumbersome systems specifically for B2B transactions. 

Cortes and his team aren’t the only ones who have caught on to the opportunity in the niche online commerce space. In September, New York-based VTEX raised a US$225-million Series D, bringing its valuation to US$1.7 billion. A smaller competitor, San Francisco-based Tundra, closed a US$12-million Series A in June 2019; a month earlier, Shopify bought Handshake, a New York-based direct competitor to Faire, for an undisclosed amount.

Joe Cicman, a Forrester analyst focused on B2B e-commerce, said at this stage in the market, “there’s room for multiple Faires.” But Pfeiffer said Shopify’s Handshake deal could help the firm clinch a lead in the space. While Faire may be the top startup in the sector, its $3.6-billion valuation pales compared to Shopify’s $160-billion-plus market cap. “I don’t know exactly what Shopify plans to do with Handshake and can’t say whether it will certainly eat into the market for others, but it makes a lot of sense to me that this is a meaningful opportunity for Shopify,” said Pfeiffer. “Shopify has simply changed the set of expectations in the market for ecommerce vendors because it’s so easy. It’s so inexpensive, so simple.” 

So far, any threat of a larger Canadian company encroaching on Faire’s territory hasn’t slowed down Cortes’s team. The company is hiring more engineers in Kitchener, as well as Toronto, and is expanding its Canadian workforce to include more designers and marketing staff. The company—which already works with brands from 250 countries—plans to expand its retail business into the U.K. next year, and is eyeing other European markets for soon thereafter.

As head of the Kitchener office, its growth is a personal feat for Cortes. Before joining Square, he had launched his first startup, something he knew he always wanted to do. “We didn’t really have a plan; we just wanted to start a company,” he said. He and a former Google colleague built Pictoreo, an app that he describes as Instagram but for sharing animated videos. “The app worked and people were joining,” he said. “I learned that I knew how to build an app, I knew how to build technology, but there’s a lot more to building a company, to build a team, to build a business.”