By: David S. Bennahum, Venture Partner
@dbennahum
“Used car salesman.” It’s an insult.
Well, AVP just invested in a used car salesman! A big, disruptive, trustworthy used car salesman. Meet Vroom.
Selling or buying a used car? It’s down there with “root canal” on the list of things not to put in our bucket lists. Ever.
Yet it’s a $500 billion a year industry in the U.S., and $1.5 trillion globally. The unpleasant nature of the used car market has helped to keep it fragmented, and unreformed. The biggest player in the States is Carmax, with about 1.5% of the market. Much of the other 97.5% is sliced and diced into, well, the unpleasant shopping experience we all think of.
So why Vroom, and why now?
A key factor driving customer satisfaction in used car sales is the experience of fairness and transparency. The closer a used car purchase can feel to say a no-questions-asked Amazon purchase, with the ability to return the product if unsatisfied, the better. Historically, delivering on this promise to consumers in the used car market has been next to impossible. How could a used car salesman truly stand behind the quality of the vehicle on the lot, to the point of offering a no-questions-asked money-back guarantee?
They couldn’t.
With Vroom, one used car salesman can make this promise: “Buy a Supremely Certified car online with free nationwide delivery and a 7-day in-home test drive.” That’s right. Buy a used car sight-unseen, have it delivered to your door, try it, and if you don’t like it, give it back within 7 days for a full refund. No questions asked.
The secret sauce behind this promise is Vroom’s ability to engineer what might be called “positive selection” in the used car market, by only taking in cars that they can stand behind. The company, as part of the $95 million Series D financing AVP participated in (alongside Catterton, General Catalyst, T. Rowe Price and Allen & Company), acquired Texas Direct Auto, a large and profitable online car retailer, with a proven ability to recondition used cars in its Houston-based plant. The combined entity can accurately acquire used cars in good condition thanks to many years of accumulated data science, with a high probability of predicting the underlying condition of a car from external factors. From there, the vehicles are efficiently reconditioned, ensuring that Vroom can stand behind the vehicle with a 7-day return guarantee. The end result is a kind of Zappos for used cars: try and keep it, or send it back.
Consumers are responding.
The combined entity did close to a billion dollars in sales in 2015, with profitable margins. Vroom is expanding its reconditioning capacity to an additional four regional facilities (next: Indanapolis), to increase shipping speed and further lower costs, ultimately covering 80% of the population with 48-hour delivery.
Vroom isn’t the first attempt at “disrupting” the used car market– Beepie, Shift, and Caravana are all at it as well. But none of these have the scale of Vroom, a company that after this most recent financing will be approximately ten-times larger than its nearest online competitor.
In addition to having cracked the code on reliable used car sales online, Vroom is led by an outstanding CEO, Allon Bloch, formerly of Wix and mySupermarket. The AVP team has known Allon since his days at Jerusalem Venture Partners. And as a New York company– Vroom is possibly the largest tech deal of 2015 that no one’s heard of– the company is in AVP’s home town.
“Used car salesman’– it’s no longer an epithet. With Vroom, it’s a big, growing opportunity, and AVP’s excited to be a part of it.
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