• Sponsor approached Button about partnership
• Expects e-commerce M&A to remain hot

PSG Equity got an unexpected assist from one of its existing portfolio companies when it decided to invest in the burgeoning e-commerce firm Button.

The Boston-based sponsor announced its strategic growth investment in Button in June but has been monitoring the e-commerce space for years, looking for the right opportunities, having already invested in e-commerce software solutions provider Pacvue, which is led by Executive Chairman Sandeep Kella, back in 2019.

This existing relationship would prove crucial in its pursuit of Button, as it was Pacvue’s Kella that introduced PSG to Button’s co-founder and CEO, Michael Jaconi, according to Alex Glavan, senior vice president at PSG.

“We view [Button] as the missing link between the supply side – the affiliates, publishers, and influencers – and the demand side, which is your retailers like Amazon or your individual brands,” Glavan said. “They connect those two, so they have a lot of insight into customer journeys and preferences, data analytics, and just general insight into what’s converting and what isn’t.”

Investment talks

Founded in 2014, Button uses AI and reinforcement learning to analyze user behavior and optimize the path a user takes when interacting with commerce links.

PSG’s due diligence on Button led them to speak to numerous market participants, including Kella, and Jaconi was always named as one of the key factors in its success, said Glavan.

“He knows the space in and out, he’s built out Button from the ground up, and he’s delivering new products that are creating value for the entire supply chain,” he said.

Following Kella’s introduction, Jaconi and PSG met in 4Q last year and began exchanging ideas on what a partnership would look like. As the holiday season approached, both parties agreed to pause discussions to allow Button to focus on the seasonal surge in business it experiences at the end of each year, Glavan said.

Talks soon resumed, with the transaction closing in mid-1Q and the official announcement of their partnership coming near the end of 2Q.

All of Button’s largest institutional investors – Redpoint Ventures, Norwest Ventures, and Icon Ventures – rolled over their investment, with PSG bringing in new capital, Glavan said.

While Glavan declined to reveal the size of PSG’s investment and stake in Button, he noted that Jaconi had been looking for a new capital partner to support both the company’s organic and inorganic growth plans for the company.

The sponsor did not use a financial advisor during the process, he added.

Growth goals

The company currently processes over 250 million “customer journeys” – transactions supported by Button’s optimized links – a month, and announced in March 2024 that its platform users had surpassed USD 1bn in combined monthly revenue.

Going forward, PSG will support Button’s continued expansion by implementing several growth levers, including expanding its traffic sources, controlling more brand and retailer spending, and developing innovative products, such as the recently announced Creator Media.

Creator Media will integrate retail media strategies into content creation platforms, allowing brands, sellers, and the manufacturers of products to connect their performance budgets to creators, according to a press release.

Aside from organic growth, PSG could also look to acquire new platforms and tools to continue building out the Button platform, Glavan said.

“That’s either finding new traffic sources that we can put our technology on, or controlling more brand dollars and retailer dollars, where that spend is going,” Glavan said. “If you look at general e-commerce trends, affiliate and influencers are definitely a hot space. It has been for a while, and we believe those are durable growth trends.”

While there is no specific timeline for add-on acquisitions, Glavan said he and PSG managing director Matt Stone are in constant discussions with the sourcing team and new companies.

“It’s a matter of finding that right fit,” said Glavan. “What we’ve learned over our time is that the first acquisition can often times be the hardest, so making sure you get that first one right is critically important.”

Generally, PSG prefers to invest in companies with single-digit annual recurring revenue and above.

PSG invested in Button from its PSG VI flagship fund, Glavan said. The firm announced in February that its PSG VI fund had closed at USD 6bn. Glavan declined to disclose how much of the fund has been deployed to date.

Looking ahead

Despite the initial Covid boom gradually fading, the e-commerce sector will remain durable as consumer preferences continue to shift towards online and mobile shopping, according to Glavan.

While some segments in the sector are facing headwinds, this has opened up opportunities for growth in other segments, which are receiving increasing attention from big brands and retailers, Glavan said.

“We think Button fits in that latter category of the general e-commerce space – one with extremely high value, high intent traffic, strong ROI for both the brands and the affiliates, and a place where more and more ecosystem participants are looking to put money to work,” he said.