Indian used car marketplace Cars24 just raised a USD 200 million Series E round that catapulted it into the country’s unicorn club, underlining a bright spot in the Indian mobility space, which is one of the hardest-hit sectors in the South Asian country.
DST Global led the round, while existing backers including Exor Seeds, Moore Strategic Ventures, and Unbound participated in the round.
As the healthcare pandemic grounded millions of Indians for the better part of the year, demand for cab-hailing platforms as well as car and bike rental companies was crippled. However, after the country lifted the two-month nationwide lockdown in April and May, people started looking for get around options that could help them avoid public transports and shared cabs and bikes for the fear of catching the coronavirus. And buying used cars has emerged as one of the most suitable alternatives.
The change in consumer behavior has given a huge fillip to the used car or pre-owned car segment. And the VCs have been quick to notice that.
A Bloomberg report said the used car marketplace is on track to generate estimated gross annual revenue of USD 600 million.
Last year in October, Cars24 had closed a USD 100 million Series D round led by Unbound and KCK Global that valued the company at USD 500 million. A year later, the size of its funding round has doubled, and so has the valuation. The latest round brings the total amount that the company has raised so far to USD 400 million.
The Sequoia-backed startup reportedly plans to use the fresh funds in new business verticals like bikes reselling and consumer financing. The company had received a non-banking financial company license last year that enabled it to give out loans and advances to kick start its financing business, while it ventured into bikes verticals several months ago and claims to have sold over 3,000 of them already.
A part of fresh proceeds will be used in strengthening its product and technology capabilities, as well as the post-transaction servicing facility for all car owners. The startup also plans to scale its presence in lower-tier Indian cities next year.
The online marketplace for selling and buying used cars was set up by a former Sequoia investment analyst Vikram Chopra, Mehul Agrawal, Ruchit Agarwal, and Gajendra Jangid in 2015. It deploys an asset-heavy model, wherein it buys cars directly from the owners on behalf of the car dealers, and then sell them on its platform. It makes money from the cut it takes from each transaction. It has operations in over 130 cities in India, with an offline presence in over 10 cities.
The company said it saw a four-time more customer engagement on its website during the lockdown when public transportation had been suspended. Cars24 saw sales have reportedly risen 20% from pre-lockdown levels. Currently, its month-on-month sales stand at around USD 50 million with over 15,000 cars transacted every month, according to local media Entrackr.
According to an investor, who declined to be named, Car24 has benefitted from people downtrading from buying new cars to pre-used cars due to a weaker economy.
“In India, while the vehicle ownership is going up, used vehicle ownership is growing faster. This is the trend which we expect to continue to accelerate,” he said.
“In earlier days, people would buy a car and own it for 15 years, but now that has come down to 5 to 10 years. In the western countries, people churn their cars and buy a new one in a few years,” he added. “That behavior, we would start seeing in India. And platforms like Cars24 would enable this transition.”
He believes that the new-age used car platforms are building trust among the consumers, who are often unsure whether the product they are buying is good or not.
Things were not so rosy for Cars24 early last year when it had to cut over 300 jobs, as it struggled to raise a large round. However, this year, while it suffered initially, its fortune turned and landed it in the elite billion-dollar club.
Cars24 is the eighth startup to become a unicorn in 2020. The others which made it to the coveted club include Razorpay, Unacademy, Zerodha, Postman, Nykaa, FirstCry, and Pine Labs.
The company competes with a bunch of similar platforms like CarDekho, CarTrade, Droom, and Carwale, among others, in the used car market, which was valued at USD 24.24 billion in 2019, and was expected to register a CAGR of 15.12% during the next five years.