Car startup seeks funding ahead of IPO

On track: A file photo of a Carro refurbishment centre. The company’s earnings have improved significantly in the past year, through tech and larger vehicle volumes.

SINGAPORE: South-East Asia’s used-car marketplace Carro is raising about US$100mil as it gears up for a stock market debut, betting that new funds will cement it as the region’s top player.

The company is speaking with investors for a pre-initial public offering funding round which could raise its valuation to more than US$1.5bil, chief executive officer Aaron Tan said in an interview.

The firm, which has about 4,500 staff and counts SoftBank Group Corp as well as Singapore’s GIC Pte and Temasek Holdings Pte among its investors, just posted its first annual operating profit.

Carro, whose platform allows consumers and dealers to buy and sell vehicles, is trying to win over investors scarred by an implosion in startup valuations over the past two years.

The Singapore-based startup is also operating in a highly competitive market, one that’s resistant to change. Tan, who founded his startup in 2015 with two fellow Carnegie Mellon graduates, is betting on innovation to stand out from the pack.

The chief executive demonstrated a tool for instance he called the “Shazam” of engines, which analyses the health of a second-hand car from the sound of its motor. The startup also offers a five-day no-questions-asked return policy, unheard-of in many parts of Asia.

To top it all off, Carro intends to expand its operations in Japan and Hong Kong this year.

“We are ready for an initial public offering (IPO),” Tan said. “Whether or not we list depends on the broader macro environment.”

Carro is raising capital during one of the hardest possible times for fledgling firms.

The South-East Asian technology industry has been hit by job cuts, resignations of chief executives and falling startup valuations, making it difficult for companies to debut on public markets.

Shares of regional tech peers Grab Holdings Ltd, Sea Ltd and GoTo Group have waned as they work to balance growth and profitability.

Meanwhile, used car prices are in retreat, making it harder to flip vehicles at a gain. Elevated interest rates and inflation are pushing up the prices of car loans, making them less affordable.

Over the past nine years, Carro and main rival Carsome have invested hundreds of millions of US dollars to acquire inventory, build out delivery networks, set up refurbishment centres and fit out used-car showrooms.

To get shoppers more comfortable with buying online, the upstarts have also introduced Amazon-like features, such as no-quibble returns and delivery within a few days.

As a result, more consumers in South-East Asia are starting to skip traditional dealerships in favour of buying used cars online.

But for Carro and Carsome, a big test lies in how well they can leverage technology to better predict the prices and conditions of vehicles, shorten the time taken to get cars ready for their new owners and push a suite of products including loans and insurance.

To move tens of thousands of cars each month, as Carro and Carsome do, they have to oversee over a hundred trailers each day, plan efficient routes to drop off vehicles from one city to another and manage more than US$100mil in inventory at any given point.

To help with that, Carro built a QR code dashboard to track cars at each stage of the trading, refurbishment and delivery process.

On average, cars stay with Carro for about 26 days, while Malaysia-based Carsome said it takes about 45 days to sell a vehicle to a consumer. That compares with about 46 days for Carvana Co, their US-listed peer.

“It’s easy to do this at a mom-and-pop shop level,” Tan said. “But if you want to do this at scale, you need investments, you need a lot of space, you need the manpower and of course the tech and systems.”

The efficiencies achieved through tech and larger vehicle volumes have helped Carro reach profitability on an operating basis.

Earnings before interest, taxes, depreciation and amortisation jumped to over US$33mil for the year ended last month, from US$4mil a year earlier. — Bloomberg

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