Major investors in Custom Ink, Washington’s homegrown online T-shirt company that began 19 years ago in a Bethesda basement, are cashing out their shares under an agreement with the private-equity firms Great Hill Partners and HarbourVest, people familiar with the deal confirmed Wednesday.
The exiting shareholders include Revolution Growth, co-founded by sports mogul Ted Leonsis, and SWaN & Legend, led by Fred Schaufeld. Those two entities are selling stakes in the business alongside backers who date to the T-shirt company’s early days. Custom Ink co-founder and chief executive Marc Katz, 42, will continue to run and own a significant stake in the company.
“It’s a great outcome for existing investors, many of whom have been in for 19 years,” Katz said in an interview.
Katz quit Wall Street two decades ago in pursuit of an idea that would make the simple T-shirt into something more. Custom Ink customers go online and design T-shirts for family reunions, small businesses, youth sports teams, religious groups or student associations online. Imagine 50 T-shirts emblazoned with “The Smith Family Reunion” or 150 baseball caps marking the local 5K fundraiser.
The company emerged as Internet-based e-commerce companies were just beginning to transform the retail industry. And it pioneered a form of interactive shopping ― in which customers could design specific one-time purchases ― that has been imitated by other online retailers.
“The business reinvented the way T-shirts are made and it single-handedly created a category that has been copied but never successfully,” Schaufeld said. “Marc realized the uniting power of his product and group, and how T-shirts could ignite the power of those groups.”
At first from a basement in Maryland, Katz and others built a company with 1,700 employees based in the upscale Mosaic District in Fairfax County, Va. The company also has facilities in Charlottesville, Dallas and Nevada. Custom Ink has contract print partners all over the country to fill other orders. It has shipped more than 125 million T-shirts since 2000.
”We are doing for custom apparel and other products what Starbucks did for coffee,” Katz said. “That’s getting people in touch with something. When everyone puts on the T-shirt of their company, cause or special occasion, they feel a sense of community, a sense of identity and end up cherishing that shirt or item for decades.”
Katz said Custom Ink is “nicely profitable” and financially healthy, and there was no need for a cash infusion. He said the transaction was a “liquidity event” that allowed investors and some employees to cash out options and stock. The sale will be accompanied by some bonuses.
“There isn’t a need to put capital into the company,” Katz said.
Schaufeld, who invests in everything from films to sports teams to restaurants, has held a personal investment in Custom Ink in addition to the shares owned by SWaN. Schaufeld, who is one of Leonsis’s partners in Monumental Sports & Entertainment, will roll his personal shares into the new deal and retain his seat on the Custom Ink board of directors.
Katz called Great Hill “a great partner for our next chapter. They have the capabilities and expertise that you would expect of growth and digitally oriented private equity firms.”
The purchase, which is expected to close before summer, is not Custom Ink’s first outside investment. Revolution Growth, whose co-founders include Steve Case and Donn Davis, in addition to Leonsis, invested $40 million in Custom Ink in November 2013. At that time, Custom Ink had less half the revenue it does today.
Leonsis said he first heard about the company from his son, Zach, who had used the online service to order T-shirts for his college fraternity’s softball team at the University of Pennsylvania in Philadelphia.
“I always used to drive by it, and I thought it was some sort of tattoo parlor,” Leonsis said in a recent interview.
For Leonsis, the business offered a unique way for people to engage in what he called “social shopping.” He said the next phase of the company’s growth will probably be driven by a new expansion into brick-and-mortar retail, following a surprising transition that Amazon and other e-commerce firms have taken in recent years.
Some investors have made several times their money, according to people familiar with the deal.
The near two-decade journey hasn’t been a completely smooth ride. Katz, a Harvard physics major, said in a 2016 interview with The Washington Post that in the company’s early years, “we made some bad technology choices that took years to extricate ourselves from.”
Katz said he is sticking with the company in hopes of expanding growth.
“I am focused on the forward-looking picture,” Katz said. “I want to create a lot of value. There’s a ton of potential still in the business. Obviously, our new partners agree.”