Home / Companies / Start-ups /  Online car firms woo VCs in a dull market

Online car retailing startups, particularly in the used car segment, are continuing to attract investors despite the domestic automobile industry experiencing its worst sales slump in nearly two decades.

For instance, online used car retailer Spinny is currently in talks to raise $35 million in a funding round led by Fundamentum, a fund set up by Nandan Nilekani and former Helion Ventures partner Sanjeev Aggarwal, along with existing investors—Accel Partners, SAIF Partners and Blume Ventures, said two people directly aware of the matter, requesting anonymity.

Graphic by Paras Jain/Mint
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Graphic by Paras Jain/Mint

Similarly, Sequoia Capital-backed Cars24 and CarDekho, and Kalaari Capital-backed Truebil are either closing fundraises, or planning to hit the market to raise funds.

CarDekho, which raised $110 million in January this year, is in talks to raise up to $100 million more, while Truebil is planning to launch a formal process to raise about $30 million, said a person directly aware of the matter. Cars24 has already raised $52 million as part of its Series D round from Dubai-based cargo company KCK FZE and existing backer Kingsway FCI, according to a report by Entrackr, a digital news portal.

Cars24 is a seller-focused platform, which sells used cars to dealers, while CarDekho has a used car and new car section. Truebil and Spinny are both buyer-focused platforms which cater to used cars exclusively.

Funding activity in the online car retailing space comes at a time when local car sales have been falling for the past 10 months. Passenger vehicle sales plunged 41% from a year earlier in August to 115,957 units, while two-wheeler sales, a key indicator of rural demand, fell 22% to 1.5 million units.

Confirming its fundraising plans, Truebil co-founder Shubh Bansal said the used car market is growing at about 18% year-on-year. He estimated sales of used cars in India at 3.1 million, 3.5 million, and 4 million in the last three fiscal years.

Truebil claims to sell 12,000 used cars a year. Bansal said he expects growth in used car sales to accelerate since it is still a nascent industry.

Investor interest in car retail startups is also driven by continued strong growth shown by these firms and headroom for future growth given the small base currently.

“Demand for new cars, online at least, is quite strong for us right now, and the entry of new players is making the industry far better and more organized," said Amit Jain, chief executive and co-founder, CarDekho, adding investor interest is high due to brisk market growth.

Fundamentum and Spinny did not respond to messages for comment. CarDekho did not reply to an emailed queries on its fundraise.

To be sure, investors do expect challenges ahead until there is consolidation. “Margins on the transaction side of the business will remain under pressure in the medium term, as it’s a supply constrained market with many players fighting it out," said Ashish Sharma, CEO, InnoVen Capital India, which provides debt to startups.

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