Scalability can be a challenge for any startup, and that certainly is evident in automotive, where the business of selling cars has a lot of moving parts — both metaphorically and within the vehicle itself.
With $295 million in equity funding (as of mid-July), national vehicle delivery capabilities and a 2015 purchase that drove vehicle fulfillment and reconditioning resources, Vroom appears to have the structure for, if not outright, scalability.
In addition to each of the Lower 48, the online car retailer has delivered vehicles to Alaska and Hawaii. And while chief executive officer Paul Hennessy said such deliveries are not core areas of focus for the company, Vroom aims to meet consumers demand wherever they might be.
It hurdles the logistics of this by working with local, regional and national carriers, he said.
Hennessy spoke with AuSM by phone in early August, a few weeks after Vroom announced a $76 million round of funding that brought its total equity funding up to $295 million.
“We’re investing in growth,” Hennessy said when asked about plans for this funding. “And our investors are excited about our opportunities for growth. This is a ... very capital-intensive business.”
Vroom CEO Paul Hennessy
That includes broadening inventory, not just in terms of numbers of vehicles in its coffers, but the selection and choice available for consumers. Vroom also has plans to invest in its platform and technology as well as marketing — both online and offline, Hennessy said.
“We want to make sure we’ve got exactly what they’re looking for, so we’ll invest in expanding our vehicle footprint,” he said. “Our platform is a perpetually evolving system and so we’re investing in all levels of our platform, whether it’s the customer-facing side of the platform, in people and resources” or the technical execution of Vroom’s fulfillment, website and recon processes, where the company would need to invest in technology and engineers.
Benefits of national reach
In a July news release announcing the latest equity funding, Hennessy said the company’s nationwide car delivery business has shown close to triple-digit growth.
So what’s the advantage to having a national reach?
“Given that Vroom is so customer-centric, the idea of forcing customers into our geographic footprint or into a retail location versus expanding our offering to wherever the customers want to have their car delivered, I think that’s honestly the secret sauce of model, but more importantly, of solving this pent-up consumer desire to avoid the traditional process,” Hennessy said in the August interview.
“So by being able to satisfy demand in New York or California or Hawaii or Alaska … I think that’s at the essence of our customer-centric DNA,” he said.
“And then that gives customers, in my opinion, maximum flexibility to be able to do their research on the Vroom website at home, and then ultimately have the car appear in their driveway,” Hennessy said. “It gives us, I would say, a distinct advantage, mostly just because we’re listening to our customers.”
Wanting to have a national reach and actually achieving it are two different things. Vroom has been able to achieve national scalability, Hennessy says, due to its processes at the top and bottom of the purchasing funnel.
That includes utilizing such sites as eBay, Cars.com, TrueCar, CarGurus, Autotrader and others on the listing side, according to Vroom, and then at the end of funnel, fine-tuning the company’s recon and fulfillment processes.
“If you start at the top of the funnel with the customer, one is just making sure that our inventory is communicated out there in online marketplaces,” Hennessy said. “And we’ve got what I would consider to be an absolutely top-notch group of folks that understand performance marketing and bringing customers into the funnel.
“And then if you think all the way at the other end, having a world-class factory reconditioning center, a fulfillment process at the opposite end of that, with a, I think, emerging and improving end-to-end customer experience, both online and offline,” he said
“It’s putting all of those pieces together that gives us the ability to leverage … a great process in demand, a great process in supply, a great process in reconditioning and logistics. When you put that all together, it becomes just a great experience for our customer and then that’s what ultimately scales,” Hennessy said.
“We couldn’t do this if we didn’t have a factory that can bring in, process and turn used cars into a customer’s next new car at scale.”
Most of the volume comes through the facility in Stafford, Texas (Houston-area), which is in Vroom’s hands thanks to its acquisition of Texas Direct Auto in late 2015.
“I think of Vroom as a vehicle platform for research and discovery, but also buying and selling of vehicles. And the Texas Direct Auto acquisition gave us expertise in buying cars, in reconditioning cars and, then, in ultimately fulfilling cars,” Hennessy said. “And so that business gave us scale and process … a center of excellence around the reconditioning factory.
“That continues to evolve and we continue to expand and bring levels of quality to that process because our customers are demanding it. And while that was more of a regional business, we built on top of Texas Direct Auto a national ecommerce business, and that’s why suddenly we’re shipping cars to every state in the country.”
IPO on road map?
After nationwide growth, the next question or step in the thought process for a startup might involve an initial public offering. Rival online marketplace Carvana, of course, had its IPO earlier this year.
Hennessy counts that IPO along with fellow rival Shift’s $38 million Series C funding in July as wins for the space. Those moves along with others in recent months point to the enthusiasm for this type of business, both from consumers and investors, Hennessy said.
“First of all, I think that the Carvana IPO and the latest Shift raise and, quite frankly, the level of enthusiasm around the Vroom raise underscores the opportunity in this market for disruption … Investors in a broad base set of categories are saying, ‘Wow, I think these companies are on to something here,’” he said.
As for his own company’s prospects for an IPO, Hennessy said: “Is a public offering on Vroom’s road map? Certainly. I think over time, we’ve got investors that would like to gain a return on their investment, both through growth of our underlying business and through a public offering.
“So I think that’s kind of standard fare. But we believe that the most important thing that we could do is to put ourselves in a position of readiness, and in a position of quality and excellence,” he said.
“And so we don’t have a magic date in mind on how we’re rushing to take advantage of a public market or a macro environmental time frame,” Hennessy said. “What we’re really doing is saying, let’s build the best business that we can that’s designed for and by our consumers, and in doing that, a public offering will be, kind of, at our discretion. And given the signals of interest, I think that will be available to us when we’re ready and able to do that.”
There are the typical benefits to going public, he said, like having a vast array of public investors to raise capital.
“The counter argument to that right now is, we’re invested right now in the very long-term sustainable quality business for our customers,” Hennessy said. “And the minute we go public, we’ll start to have to focus on a quarterly forecast, quarterly guidance, and that always raises the risk of, ‘are we shrinking our views to land a quarterly guidance that we just gave or are we still working on a long-term business model?’
“So, there’s not a lot of upsides or downsides that are material in the way that we think about it,” he said. “We’re just trying to build the best possible business we can, and I believe that will take care of itself down the road.”