(Bloomberg) — Southeast Asia’s used-car marketplace Carro is raising about $100 million as it prepares to debut on the stock market, betting that new funding will cement it as the region’s top player.
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The company is in talks with investors for a pre-initial public offering financing round that could boost its valuation to more than $1.5 billion, CEO Aaron Tan said in an interview. The company, which has about 4,500 employees and counts SoftBank Group Corp. as well as GIC Pte and Singapore’s Temasek Holdings Pte among its investors, just reported its first annual operating profit.
Carro, whose platform allows consumers and dealers to buy and sell vehicles, is trying to win over investors spooked by the implosion in startup valuations over the past two years. The Singapore-based startup also operates in a highly competitive and change-resistant market. Tan, who founded his startup in 2015 with two colleagues who graduated from Carnegie Mellon, is betting on innovations to stand out.
The CEO demonstrated a tool he called Engine Shazam, which analyzes the health of a used car based on the sound of its engine. And the startup offers a five-day no-questions-asked return policy, unheard of in many parts of Asia. To top it off, Carro intends to expand its operations in Japan and Hong Kong this year.
“We are ready for an IPO,” Tan said. “Whether we list or not depends on the broader macro environment.”
Carro is raising capital during one of the most difficult times possible for startups. Southeast Asia’s tech industry has been hit by job cuts, CEO layoffs and falling startup valuations, making it difficult for companies to debut on public markets. Shares of regional tech peers Grab Holdings Ltd., Sea Ltd. and GoTo Group have declined as they work to balance growth and profitability in a region that is losing its luster.
Read more: Uber Asia’s 70% drop shows the limits of Singapore’s tech dream
Meanwhile, used car prices are falling, making it harder to sell vehicles profitably. High interest rates and inflation are driving 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 delivery networks, create renovation centers and equip used car showrooms. To make shoppers more comfortable when shopping online, the new companies have also introduced Amazon-like features like hassle-free returns and few-day delivery.
As a result, more consumers in Southeast Asia are starting to abandon traditional dealerships in favor of buying used cars online. But for Carro and Carsome, a big test lies in how they can leverage technology to better predict vehicle prices and conditions, reduce the time it takes to prepare cars for their new owners, and promote a suite of products, including loans and insurance.
To transport tens of thousands of cars per month, as Carro and Carsome do, they must oversee more than a hundred trailers per day, plan efficient routes to get vehicles from one city to another, and manage more than $100 million in inventory at any given time. time. to point. To help with this, Carro built a QR code dashboard to track cars at every step of the trading, refurbishment and delivery process.
On average, cars stay on Carro for around 26 days, while Malaysia-based Carsome says it takes around 45 days to sell a vehicle to a consumer. That compares to about 46 days for Carvana Co., its U.S.-listed competitor.
“It’s easy to do this in a mom-and-pop shop,” Tan said. “But if you want to do this at scale, you need investments, a lot of space, labor and, of course, technology and systems.”
Efficiencies achieved through technology and increased vehicle volumes have helped Carro achieve profitability on an operational basis. Earnings before interest, taxes, depreciation and amortization jumped to more than $33 million in the year ended last month, up from $3 million a year earlier. Carro on Monday updated a 2023 press release to revise the previous year’s EBITDA number to below $4 million, following an audit.
However, a narrative for an IPO will have to go beyond being profitable and being the leading platform in Southeast Asia, said Yinglan Tan, founding managing partner of Insignia Ventures Partners, an early investor in Carro. To boost its growth, Carro is planning further expansion in Japan and Hong Kong, two markets that CEO Tan says have great potential.
“It is important for Carro to conquer some more markets in Asia-Pacific, as institutional investors in the US will find these APAC markets such as Japan and Hong Kong more attractive,” said Insignia’s Tan. “Technology without discipline can lead to an early advantage but also an early fall.”
(Updates with the previous year’s audited EBITDA value in the 13th paragraph.)
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