Startups

Investors Park $146M In Vroom, An Online Delivery Platform For Used Cars

Buying a car online is not the norm. But one startup is hoping to make buying a used vehicle and having it delivered to your home as commonplace as ordering laundry detergent or apparel.

To that end, Vroom, which operates an online auto retail platform, has raised $146 million in a Series G funding round led by publicly traded AutoNation.

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In addition to funds and accounts advised by T. Rowe Price Associates Inc, L Catterton, General Catalyst Partners, Fraser McCombs Capital, and individual investors also participated in the round.

AutoNation’s portion of the funding actually closed in early September and was announced at that time as part of its earnings announcement, according to Vroom CEO Paul Hennessy.

The round brings New York-based Vroom’s total raised to date to $440.25 million since its inception in 2013, according to Hennessy.

Vroom sells used, reconditioned cars directly to consumers via its website and app. Vroom will pick up cars from sellers, and deliver to buyers via what it describes a “private-seller acquisition model” built on a mobile-enabled user interface. It also offers financing, warranty, and insurance products. (It charges a flat shipping fee of $499 in the lower 48 states.)

“Everything that a traditional offline dealership can do we can do online,” Hennessy told Crunchbase News. “We live in an e-commerce world where people can get everything delivered to their homes. It makes sense that the next logical step is that larger, higher-ticket items like cars can also be delivered to their homes.”

The company, through a December 2015 acquisition of Texas Auto Direct, operates a 500,000 square foot reconditioning facility and store in Stafford, Texas (just outside of Houston). The facility sits on 70 acres, so there’s still room to grow, Hennessy said.

The used car market is a $776 billion industry, according to calculations by Vroom based on the 2018 Cox Automotive Used Car Market Report & Outlook’s estimate that 39.5 million used cars are projected to sell in 2018 with an average sale price of $19,657 (according to Edmunds’ Q1 2018 Used Car Report).

Personally, I found the idea of someone purchasing a car they’d never test-driven to be a little daunting. But Hennessy assured me that the company offers a 90-day warranty and a seven-day “test drive” on all its cars.

Vroom is not alone in the space. Competitors include Carvana (which has raised $960.1 million in funding), CarMax, and CarGurus (which has raised $1.8 million).

“We recognize we’re disrupting an industry, and in many instances, people are used to the traditional model of buying a car just like they were with clothes, shoes, and electronics,” Hennessy said.

While Vroom would not reveal its revenue figures or revenue growth, the company said it has sold more than 250,000 cars since inception in its “combined business” and currently has more than 600 employees.

It plans to use the new funds toward product development, technical execution, and continued hiring, according to Hennessy. The company has been building out its executive team as of late, most recently hiring Dave Jones, formerly of Penske Automotive Group, to serve as CFO; Dennis Looney, who worked at Office Depot and Home Depot, to serve as Chief Supply Chain Officer; and Mitch Berg to serve as CTO.

Vroom also plans to ramp up its marketing efforts, with plans to advertise on TV, radio, Facebook, Youtube, and other distribution channels, according to Hennessy. And overall, investors find disrupting the used car market appealing.

“Vroom continues to demonstrate progress towards truly disrupting this industry at scale,” said Henry Ellenbogen, portfolio manager at T. Rowe Price Associates Inc., in a written statement. “The fact that the largest auto retailer in the country is now backing Vroom speaks to the quality of the execution of the company’s management team and what we believe is the company’s ability to become much larger over time.”

Illustration: Li-Anne Dias

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