Online Car Startup Vroom Raises $95 Million And Buys A Competitor
Online used car sales startup Vroom has raised $95 million in equity and is using some of those funds to acquire Texas Auto Direct, a competitor known for developing software that significantly reduces the time it takes to process and recondition used vehicles.
Vroom didn’t disclose the acquisition price.
Vroom’s success hinges largely on speed. Unlike other online car retailers that create a marketplace for people to sell cars to each other, Vroom handles the entire transaction. The company takes possession of the used car from the seller, reconditions it and then delivers it to the buyer’s door.
One of it’s primary goals is to ship cars to customers throughout the U.S. within 48 hours of purchase. Those cars, however, have to be in tiptop condition since Vroom also provides a seven-day money back guarantee, has a no-questions-asked return policy, and a 90-day bumper-to-bumper warranty.
The New York-based startup has managed to speed up delivery times by hiring staff and expanding its footprint. The company now has two facilities in Dallas and Houston—where cars are reconditioned and warehoused before they’re sold. Vroom is also opening a new 500,000-square-foot facility in Indianapolis in early 2016.
However, the process of reconditioning the cars it buys from consumers has remained a challenge.
Vroom CEO Allon Bloch told Fortune that Texas Auto Direct, or TDA, has developed software to turn this highly complicated task—some cars have as much as $1,000 of work put into them before resale—into an efficient, fast process.
“The faster you can get the car in shape, the faster you can sell it, and deliver it to customers,” Bloch says. “And you need to do it without cutting corners because otherwise the customer will end up sending the car back.
“Texas Direct has developed a workflow that allows you to efficiently route these cars. I don’t think there’s anyone even close in capability of the reconditioning software and services they’ve built.”
TDA’s software will shave two to three days off the process, says Bloch, who estimates that about 100 cars are reconditioned each day between the two companies. Houston-based TDA was founded in 2002 by Mike Welch and Richard Williams, two tech entrepreneurs who previously started software company Medianet together.
If the deal is approved by regulators, the two brands will co-exist at Vroom’s New York headquarters and operate separately online. Once combined, the company will have 500 employees.
The remaining funds from this latest venture round will be used to accelerate growth and expedite delivery, according to Vroom. The company wants to buy more trucks to ship cars. It also plans to open several more reconditioning facilities to better serve customers on the two coasts.
In terms of sales and software expertise, TDA is the leader. The company says it has more than $500 million in annual sales. Meanwhile, Vroom hopes to crack $300 million in sales this year. But Vroom has some high-profile backers.
This latest equity round brings Vroom’s total venture funding to $168 million—and about $35 million in debt funding—since it launched in 2013. Vroom didn’t name the investors in the Series C round.
Catterton, which backed Restoration Hardware and P.F. Chang’s, led the Series B round in July. General Catalyst Partners, T.Rowe Price Associates, Jeffrey Boyd, the chairman and former CEO of The Priceline Group, and Bob Mylod, former CFO of The Priceline Group also invested in the last round. About 15 to 20 wealthy individuals, including former pro football player John Elway and former Autonation and Blockbuster CEO Steve Berrard, invested in Vroom during a Series A round of funding that raised $19 million in equity.
Vroom has a number of rivals in the online car sales space, including Beepi, Carvana, and Shift Technologies—each one putting its own spin on white-glove or concierge-style service.
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