Carro eyes IPO after SoftBank-led US$360m unicorn round

USED car marketplace Carro has raised US$360 million in Series C funding led by SoftBank Vision Fund 2, which the company says gives it a valuation of more than US$1 billion.

This is more than three times the startup's valuation from February last year, when it was valued at US$289.1 million after investments from Mitsubishi and MS&AD Ventures, data platform VentureCap Insights showed.

EV Growth and other prominent Indonesia-based funds also participated in the Series C round.

SoftBank Group first invested in Carro through SoftBank Ventures Asia, its venture capital arm, in 2016. The group has also backed Chinese used car platform operator Chehaoduo and Mexican used car startup Kavak.

Singapore-based Carro now has its eyes set on the public markets in the next 18 to 24 months, with the Nasdaq as a potential listing destination. Whether an initial public offering (IPO) materialises depends on the company's growth rate, Aaron Tan, founder and chief executive of Carro, told The Business Times.

For one thing, it needs to continue to be Ebitda (earnings before interest, tax, depreciation and amortisation) positive. Mr Tan said Carro recorded positive adjusted Ebitda for the financial years ended March 31, 2021 and March 31, 2020. Adjustments were largely made for share-based compensation, he added.

According to a regulatory filing of Trusty Cars Pte Ltd, Carro's legal entity, adjusted Ebitda was S$636,913 in FY2020 after excluding about S$1.6 million of share-based employee expenses and other adjustments.

Revenue rose 78.2 per cent to S$117.8 million, and that figure has since more than doubled to over S$300 million in FY2021, according to Mr Tan. He said Carro will need to maintain a yearly growth of about three times to be IPO-ready and maintain a take rate of 8 to 10 per cent or higher.

Operating loss for FY2020 was largely flat at S$4.9 million, but net loss deepened to S$5.2 million from S$3.1 million. The company booked a foreign exchange loss of S$960,073 in contrast to a gain of S$1.5 million a year ago.

On how the company plans to achieve its desired growth rate, Mr Tan said Carro will expand deeper into its existing markets of Singapore, Indonesia, Malaysia and Thailand, and possibly enter Vietnam and the Philippines. Indonesia now accounts for the largest volume of transactions processed by the company.

The bulk of Carro's revenue comes from car sales. According to the revenue breakdown for FY2020, S$102.8 million came from the sales of goods, S$8.8 million from interest income, and S$4.7 million from leasing income.

Carro faces stiff competition from other well-funded startups in the region such as Malaysia's Carsome and Indonesia's OLX Autos, formerly known as BeliMobilGue. Long-time industry players include sgCarMart, owned by Singapore Press Holdings, and ASX-listed iCar Asia.

In recent years, Carro has tried to distinguish itself by becoming an end-to-end platform that includes financial services. It has lending licences across its four markets.

Regulatory filings indicate that the group's fintech subsidiary, Genie Financial Services, is profitable. Its revenue grew 46.5 per cent to S$10.5 million for the full-year ended March 2020, while net profit rose 48.4 per cent to nearly S$4.5 million.

Mr Tan said Genie's loan book, which comprises only secured loans, currently stands at more than S$200 million. "(Despite the pandemic), we have been able to keep NPL (non-performing loan ratio) well under 1 per cent. In fact, this has now gone back to somewhere north of 0.3 per cent," he said.

Carro intends to expand its automotive insurance offerings. It already has tie-ups with NTUC Income and Mitsui Sumitomo Insurance Group.

The company's staff size now stands at over 1,000 with the bulk in sales and car inspection. It has about 50 people in its data science and engineering team, working on initiatives ranging from artificial intelligence-aided car inspection to credit and pricing models based on machine learning.

Tan Yinglan, managing partner at Insignia Ventures Partners, an early backer of Carro, said the startup achieved its rapid growth in valuation after prioritising the use of technology and its business-to-consumer (B2C) sales and distribution.

"They coupled tech initiatives with strengthening their distribution and B2C sales touchpoints across the markets they are in, be it through partnerships with e-commerce platforms and auto manufacturers or setting up an automall (car showroom)," he said.

"As for what Carro can become moving forward, the reality is that while they have reached an annualised billion-dollar gross merchandise value run-rate, used car marketplaces have only penetrated a small percentage of the potential market in South-east Asia. The same speed and flexibility with which they built up their tech and distribution advantage will also be key to Carro's growth in the next few years."

READ MORE: Carro confirms new funding; claims to be on track for S$1b run rate by 2022