Vehicle marketplace startup Carbar has raised $5.75 million for its virtual car dealership and subscription model for motors in what founder and chief executive Desmond Hang has termed pre-Series A funding.
Launched as a virtual car dealership in late-2016, Melbourne-based Carbar was designed to address the major pain point in buying a car through traditional channels, “where you’re haggling with the price”, Hang tell StartupSmart.
In the early days of validating the idea, Hang says the team tested out a few models, taking inspiration from similar virtual car dealerships in the US and Europe. However, they found that “in the Australian market, people are not fully ready to transact completely online.”
“Most of the market are not willing to drop $20,000 across the internet without looking at the car”, Hang says.
So, Carbar introduced its three-day-trial model — this involves dropping off the vehicle to the prospective buyer and leaving it with them to test-drive for three days (or 300km), at which point they decide whether to buy it or have it picked up again.
With this model, Carbar has an 87% success rate, Hang says, selling almost 1,000 vehicles to date and turning over $10 million in the last year.
Carbar represents “a change from the traditional way you’re buying vehicles,” Hang adds.
Now, the startup is also moving into a subscription model, launching Carbar+, which allows drivers to hire cars on a month-by-month basis, and only requiring a two-week notice period if they want to return it.
“Globally, there’s a trend towards not owning your vehicles,” Hang says. “People want that flexibility [and] a fully-managed service.”
Carbar+ launched in April this year, and since then there have been between 30 and 50 subscribers at any given time, Hang says.
Debt to fuel growth
Hang doesn’t reveal who led the latest raise, but he says it’s partly comprised of debt funding from peer-to-peer lender BigStone, pegged to boost the startup’s inventory.
“The business model is quite unique,” Hang says. “It’s pretty easy to sell cars; if you price them correctly people will realise.”
However, “to boost growth you have to pump debt into the company,” he says.
That way, “the trading side of things will grow exponentially,” he adds.
The rest of the funding has come from equity finance from existing investors — most of which the founding team met through their stint in the Melbourne Accelerator Program (MAP) last year — along with additional investment from the founders themselves.
This funding will be geared towards “pushing growth in terms of numbers,” Hang says.
“We’ve built a pricing algorithm that can predict the transactional prices of cars,” he says, creating a central database of the value of vehicles, “like there is with houses”.
Eventually, the plan is to integrate that database into Carbar, allowing customers to get an accurate and transparent valuation on the vehicle, taking into account its age and condition.
Accelerate, and accelerate again
The funds will also go towards pushing “localised marketing” in the South Yarra and Prahran areas, where Carbar will test out a 24-hour pick-up and drop-off point for people wanting to buy and sell their vehicles, in conjunction with Caltex.
Having completed the MAP accelerator last year, Carbar took part in the Caltex Spark accelerator program this year, as a scaleup.
Now, Hang and his co-founders are making good use of an industry contact, also partnering with the fuel company on a post-purchase care package for Carbar customers, Carbar Connect.
For a year after purchasing a vehicle through Carbar, drivers have access to roadside assistance, accident management, $0.04 per litre off fuel at Caltex fuel stations, and reminders when a service is due.
Vehicles are also fitted with a telematics device that monitors for any error or fault codes, and alerts drivers if necessary. If a car has to be serviced or repaired, Carbar also provides a complementary courtesy car.
“There are a lot of pain points around owning a vehicle,” Hang says.
“Everyone has a busy life and you don’t want to be scheduling your morning around your car service.”
Having been through two accelerators, and now his first major capital raise, Hang’s advice for other startup founders is to try out this type of route, but not just for the sake of it.
It’s about having “clarity and focus around what your objectives are,” he says.
“Don’t just join an accelerator for the hell of it.”
Through the MAP accelerator, Hang was out to make contacts in order to raise funds. Spark was about doing commercial deals and scaling up, or “funding synergies to supercharge”, he says.
Accelerators can be good routes for growth, but “a lot of work still needs to be done on your part,” Hang says.
“You can get the right introductions, but the success of what you do is still in your hands,” he adds.
A lot of it might come down to being in the right place at the right time, meeting people at networking events and through contacts of contacts.
“But if you’re not there, then you will definitely miss out on the opportunity,” he says.