August 24, 2017 — (Originally published on LinkedIn) Since July, venture capital firms have invested $159.2 million into the automotive retail industry. And all of the capital is going into five companies whose solutions focus on online transactions.
Overall, there have been 20 total deals since January in the industry — eight investments, 10 acquisitions and two public offerings.
(A recap of each of the deals in the first half of 2017 and an industry outlook for the next 12 to 18 months is available to subscribers of The Banks Report).
Of the five investments since July, three are firms that provide solutions to dealers that enable customers to complete transactions online, including matching customers with lenders. The companies are AutoFi, AutoGravity and DriveMotors.
- AutoFi announced this morning it has secured another $10 million investment, bringing its total to $29.5 million since November 2015. Investors in the latest round, which was a Series A investment, included current partners Crosslink Capital, Ford Motor Credit and Lerer Hippeau Ventures.
- Drive Motors announced last month it has secured $5.2 million in seed money in a round led by Bullpen Capital that included Y Combinator, Khosla Ventures, Perkins Coie LLP and Emagen Entertainment Group. Founder Aaron Krane started the company (launched out of Y Combinator) in 2015 to provide dealers with true e-commerce solutions that enable them to sell cars online. Asbury Automotive Group, one of the country’s top 10 dealer groups (publicly traded) has installed the solution on all of its stores’ websites. Drive Motors says it is now processing 1,000 monthly car orders for dealers, with more than $250 million in annual orders.
- AutoGravity, an online mobile app that lets customers compare and select financing options, announced last month Volkswagen Credit invested in a Series B round of financing. Terms were not disclosed, but sources indicate the investment was $30 million. An interesting note — AutoGravity is a wholly-owned subsidiary of German automaker Daimler (at least, until the latest investment from Volkswagen). Daimler Financial last year invested $30 million into AutoGravity in a Series A round. That investment followed a $20 million seed financing from DA Investments (a Daimler investment arm) in 2015 when former Daimler Financial executive Andy Hinrichs founded the company. It now has more than 1,400 dealers and 500,000 users across 49 states on the platform.
The other two companies receiving investments are stand alone online automotive retailers enabling customers to buy used vehicles online.
- Vroom announced a $76 million Series F financing round led by Israeli venture capital fund PICO Venture Partners. Other investors included General Catalyst Partners, L. Catterton and funds and accounts advised by T. Rowe Price Associates, Inc. With this latest round, Vroom has raised $295 million since its founding in 2014.
- Shift Technologies obtained a $38 million investment led by BMW iVentures, bringing its total raised to $110 million. Other investors in the latest round include DCM Ventures, G2VP, DFJ, Highland Capital and Goldman Sachs Investment Partners.
These five companies have raised a total of $521.2 million since 2013. Add Carvana, which had raised $300 million before going public earlier this year, and the failed startup Beepi, which had raised $150 million, the total in the online transaction space invested since 2013 is $971.2 million. (We did not include Carvana’s acquisition of Carlypso earlier this month).
Other startups in the space include Blinker, an online app that allows people to buy and sell vehicles online. GetaLease and Honcker are online apps that enable customers to find and secure vehicle financing through leasing.
Meanwhile, look for news from Scott Painter soon, as it appears his latest venture, Fair, is through its pilot stage. Fair is an online fintech app that provides micro-financing to used car buyers. It reportedly raised $16 million more than a year ago.
These investments are part of a bigger story of how automotive retail is evolving. Although the conventional wisdom among vendors and investors argues customers want to transact the vehicle purchase online, the jury is still out.
Public dealer groups are also into the game. AutoNation and Sonic Automotive have built their own online transaction platforms (Asbury Automotive, mentioned above, is using DriveMotors).
Cox Automotive predicts about 10% of all car sales will happen online by 2019. But, despite all of the investment, the predictions and the headlines, the number of customers actually buying cars online is still small. Carvana is tracking to sell approximaely 44,000 cars on its mobile platform this year — compare that with the 14.2 million used cars sold by franchised car dealers alone last year.
Nevertheless, these apps ultimately will shorten the length of time customers spend in the showroom and should ease some of the friction in the process.
For investors, the windfall could be huge. Franchised car dealers (not counting independent used car dealers) sell between 30 and 32 million new and used vehicles each year. Even if online transactions get to only 20% of the market, the return on investment will be there.
For your reference, other investments in 2017 included:
- Work Truck Solutions (Autotech Ventures — Lead investor)
- Car360 (BIP Capital – Lead investor)
- ACV Auctions (Bessemer Capital – Lead investor)
(I admit this is a shameless plug, but you are invited to join The Banks Report in Austin, TX, December 7th and 8th (changed from November 9th & 10th due to the hurricanes) for AUTOVATE 2017 as explore new technology and how it will impact the automotive retail industry.)