San Francisco - In the last few years, venture capitalists
got really excited about used cars. They thought selling cars online or through mobile apps
could upend the pre-owned auto market and make dealerships irrelevant.
Investors pumped more than $860 million into four companies Beepi,
Carvana, Vroom and Shift Technologies from 2013 to 2016.
But then Beepi abruptly closed most of its operations in
December. The start-up had spent $150 million before investors realized it
was a clunker. Beepi began selling itself for parts early this year to
repay creditors, the Wall Street Journal reported.
Carvana, which took $460 million from private backers,
pushed ahead with an initial public offering last week, hoping investors
wouldn’t be deterred by the implosion of its closest competitor. The stock has
declined 28 percent since going public recently. Vroom remains private.
Now the youngest and smallest of the four companies is
hoping to convince VCs there’s still an opportunity. George Arison,
the chief executive officer of Shift, wrote an email to his investors last
week, saying the company is growing faster and has better profit margins than
Carvana. In the email seen by Bloomberg, Arison said Shift is making
10 percent more per car sold.
In an interview, he said the company increased net
revenue fourfold last year to $9.5 million. This was slightly less than
half of Carvana’s comparable figure, which the company reports as gross profit.
Both businesses are unprofitable. A spokeswoman for Carvana declined
to comment.
Carvana’s bumpy debut may be a by-product of an overheated start-ups
market. IPOs and acquisitions of venture-backed tech companies are up 26
percent from last year, according to the Bloomberg US Start-ups Barometer, an
index tracking private market deals. However, several companies held
IPOs at discounts to their private valuations. Cloudera went public
recently, alongside Carvana, at about half the value of its last private
investment.
Despite the pall over the market, Shift’s CEO was optimistic
about the long-term prospects of the business and commended Carvana’s decision
to float. “Going public sooner is a good thing,” Arison said. “In the past,
that’s how most companies did it.”
Arison said he’s taken a more cautious approach than
Beepi and Carvana since he founded Shift in 2014. Shift has raised about
$74 million from Goldman Sachs, Highland Capital Partners, Draper Fisher
Jurvetson and other investors. Arison said he’s focused on fighting for market
share in a handful of cities.
“We have chosen to be kind of quiet and careful about our
growth,” he said.
Arison said he anticipated Beepi’s demise but was surprised
at how quickly it collapsed. “We’ve been saying internally, ‘Don’t worry.
They’re not going to last,’” Arison said.
Read also: Buying a used car? 12 things to look out for
As Beepi’s business was stalling a few months ago, Shift
took steps to rein in spending at the recommendation of its board.
“They realised the markets were changing,” he said. The company
halted its operations in Washington, DC, as it applies for a dealer’s license
required by law.
Today, Shift operates in the San Francisco Bay area, Los
Angeles and San Diego. The company tries to stand out from competitors by
selling primarily less expensive cars and offering to deliver vehicles for
customers to test drive. Shift sold $85 million worth of cars last year, Arison
said.
Carvana sold far more, totalling $342 million. Vroom said it
sold $1.1 billion worth of cars last year. Shift takes an average of $783 for
each car it sells, including revenue from financing and insurance, after
marketing costs. Arison suggested that Shift may be back to the private markets
to fundraise this year.
BLOOMBERG