The traditional and typically unpleasant car dealership experience is being replaced by technology. Sitting at the center of this behavioral change is Vroom, the national online auto retailer that offers thousands of reconditioned vehicles in peak condition, delivered directly to the consumer with a few clicks. Vroom’s private-seller acquisition model enables sellers to receive cash offers for their vehicles with free pickup of their car at their homes while buyers benefit from a range of products including warranty, financing, and insurance. Leveraging an easy to use interface and data, Vroom makes the car buying and selling experience a pleasant experience and novel in the industry; a $750B+ market.
AlleyWatch sat down with CEO Paul Hennessy (former CEO of Priceline) about Vroom’s success, widespread popularity, and the company’s latest round of funding. Vroom has now raised an impressive $440.25M across seven rounds since its founding in 2013.
Who were your investors and how much did you raise?
Vroom has raised a $146M in Series G funding round led by AutoNation. 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.
Vroom is a national online auto retailer that offers thousands of low-mileage, reconditioned vehicles for sale, with delivery directly to consumers. Beyond the simplified purchase process, Vroom’s private-seller acquisition model allows customers to receive cash offers for their vehicles in minutes, with free pickup of their cars at their homes. Vroom’s end-to-end experience also includes financing, warranty, and insurance products.
What inspired the start of Vroom?
Vroom was founded as a way to modernize the car-buying experience and allow customers to buy and sell vehicles from the comfort of their homes. Less than 1% of Americans are happy with the current car buying process. It’s an overwhelming and costly chore that takes hours of dealership visits. By bringing technology, transparency, affordability, and trust to the experience, we are making buying and selling a car convenient and easy.
How is Vroom different?
Vroom has turned the traditional dealership experience on its head, allowing consumers to buy and sell vehicles without ever leaving home. Unlike some competitors in the online auto retail space, Vroom is an e-commerce experience that has operated nationally from the beginning. We have the benefit of data and insights from buying, selling and delivering vehicles across the US for the past five years and we are continually leveraging this information to optimize our business.
What market does Vroom target and how big is it?
The pre-owned car market is worth more than $750B and it is extremely fragmented. The top 20 used car dealer groups in the country make up less than 6% of the market, leaving a lot of room for disruption by other players.
What’s your business model?
Vroom buys, reconditions and sells tens of thousands of cars per year. By leveraging extensive market data, Vroom is able to acquire and sell cars at prices that bring great value to our customers and drive profitability. In addition, Vroom helps arrange financing and warranty insurance programs that provide convenience for customers and drive unit profitability.
What was the funding process like?
We’ve been fortunate that when we expose potential investors to our business plan and results to date, the response is extremely positive. We had such extensive interest in this round that it was actually executed in two parts. A first piece closed in September and the full round closed in November. We were very pleased to continue to receive investment from key firms that have been with us from the beginning, as well as bring on new investors, including AutoNation, the country’s largest auto retailer.
How has the business changed since we last spoke in 2016 after Vroom’s Series E round?
Earlier this year, we launched a new ad campaign in collaboration with Anomaly, along with a rebranding done by Pentagram. We’ve been running TV, radio, and billboard ads in two of the largest used car markets in the country, Dallas and Orlando, to drive demand at scale and we’re seeing great success. We’re planning to expand our advertising efforts in 2019.
What are the biggest challenges that you faced while raising capital?
Honestly, our biggest challenge has been containing the interest in our business. This round was executed in two parts for just that reason — the more investors that are exposed to our business plan and results, the more they want to be part of it.
What factors about your business led your investors to write the check?
Our investors are interested in helping us disrupt the car buying industry at scale and are excited to join us in taking the company to the next level. They’ve told us the fact that the largest auto retailer in the country, AutoNation, is now backing Vroom speaks to our team’s quality of execution and Vroom’s ability to become much larger over time.
Michael Farello, Managing Partner at L Catterton discusses what made Vroom a compelling investment
Where do you see the company going now over the near term?
In the coming months, we plan to focus on enhancing key technologies and processes, expanding customer acquisition efforts and continuing to build a world-class management team. We recently expanded our C-suite by hiring Chief Financial Officer Dave Jones, who spent over a decade at Penske Automotive Group; Chief Supply Chain Officer Dennis Looney, who brings experience from Office Depot and Home Depot; and Chief Technology Officer Mitch Berg, who brings a wealth of experience in building seasoned technology and engineering teams.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Don’t spread resources too thin. Remain focused on initiatives that are core to your business and prioritize work that will have the biggest impact on your bottom line.
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