Singapore car startup Carro seeks value over US$1.5 billion ahead of IPO

SOUTH-EAST Asia’s used-car marketplace Carro is raising about US$100 million 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 (pre-IPO) funding round which could raise its valuation to more than US$1.5 billion, chief executive officer Aaron Tan said.

The firm, which has about 4,500 staff and counts Japan’s SoftBank Group as well as Singapore’s GIC and Temasek Holdings 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 is resistant to change. Tan, who founded his startup in 2015 with two fellow Carnegie Mellon graduates, is betting on innovations to stand out from the pack.

The CEO 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. And the startup 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.

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“We are ready for an 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. South-east Asia’s technology industry has been plagued by job cuts, CEO resignations and falling startup valuations, making it difficult for companies to debut on public markets. Shares of regional tech peers Grab Holdings, Sea and GoTo have waned as they work to balance growth and profitability in a region that is losing its lustre.

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 its main rival Carsome have invested hundreds of millions of 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$100 million 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 says it takes about 45 days to sell a vehicle to a consumer. That compares with about 46 days for Carvana, their US-listed peer.

“It is 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$33 million for the year ended last month, from US$4 million a year earlier.

Yet, a narrative for an IPO will need to go beyond being profitable and the top platform in South-east Asia, said Yinglan Tan, founding managing partner at Insignia Ventures Partners, one of Carro’s early investors.

To fuel its growth, Carro is planning further expansion in Japan and Hong Kong, two markets which CEO Tan says have big potential.

“It is important that Carro wins a few more markets in Asia-Pacific, as the institutional investors in the US will find these Asia-Pacific markets such as Japan and Hong Kong more sexy,” Insignia’s Tan said. “Technology without discipline can lead to an early head start but also an early crash.” BLOOMBERG