There is a mushrooming of startups that sell second-hand cars across developed markets like Europe and the US. This is affecting the already established marketplace that has not been touched for many years. Berlin-based startup Frontier Car Group has developed a marketplace that mainly targets countries situated outside North America and Western Europe. The startup has announced funding worth $58 million out of which $17 million are debt funding and equity worth $41 million.
The funding is aimed at continuous expansion of its business into Asia, Africa, and Latin America. The startup has sold 50,000 used vehicles in those regions since its launch in 2016. It is looking forward to recording $200 million revenue annually. The Series B of funding saw the participation of TPG Growth and Balderton Capital. The two also took part in the previous Frontier’s round that generated $22 million. Fraser McCombs Capital and Autotech Ventures also took part in the round of funding.
Frontier has declined to disclose its valuation after the round. However, reliable sources from the startup say that there was a high demand to take part in that round. This led to two undesired Series C term sheets. Both had a pre-money valuation worth more than $200 million with each valued at around $100 million.
Many tech startups put much of their focus in the developing markets in case their home countries turn to be too competitive for them or the rate of growth starts to decline. The situation has forced startups to venture into the markets from the word go. Frontier’s American CEO Sujay Tyre attended Harvard University at the age of 15 where he graduated with a degree in Economics. Furthermore, he has served as a Thiel Fellow. TYle together with André Kussmann (CTO) and Peter Lindholm (COO) co-founded Frontier startup. Tyle says that there were a number of reasons that lead to the launch of the company into Nigeria and Mexican markets.
He adds that he developed strong love for the Auto1 Model. This is a Berlin-based startup that secured the highest venture round raised by a startup from Europe earlier in 2018. It got 460 million pounds from Softbank. He, later on, looked at how the model can be introduced in new markets. Markets in countries like Europe and the US have been simplifying means through which people can get the used cars. For instance, they have used platforms like Fair.com, Auto1 and Carvana. Services of Frontier have been modelled based on the three platforms. It is important to know that the services are branded differently depending on the market. The services first offer the sellers the price quotation on the price at which their vehicles will sell it. After which it inspects and purchases the vehicle at the quoted price. The sellers then use the web or an app to check on the stock and arrange for payments.
According to Tyle, there are a lot of price competitions in the emerging markets. These are brought by lack of different models in the market and this is the main problem affecting the new markets. Contrary, Frontier does not operate only in less crowded markets. The startup bases its operations on the idea that alternatives are not better compared to what it offers. The firm is also offering products that were not there before. The firm has brought in some better deals that have placed it on top of other dealers in some countries. For instance in Mexico Frontiers got a contract to supply ex-Alamo rentals.
However, the used-car business and automotive startups have not been an easy thing. There are many startups that have not succeeded in the market. For example, Beepi Vroom decided to close down some of its operations and reduced its staff. The UK based Hellocar and Carspring are some of those that have not left to see their success. Tyle expects her startup to gunner Ebitda profit by the first quarter of 2019.
According to a partner at Balderton Capital Daniel Waterhouse, the firm’s first investment was in FCG roughly two years back and it has not yet picked up. But he said that the startup is still dedicated to supporting FCG and aims at reaching the milestone together. Fraser McCombs Capital’s Managing Partner Mark Norman said that his company was happy to support the FCG.