The used car market seems ripe for disruption, not least in terms of customer service and creating a better experience online. However, if recent events are anything to go by, it is a hard nut to crack. Following Carspring going quiet after Rocket Internet pulled its funding, another U.K. car buying startup looks to be shutting up shop.
According to sources, London-based Hellocar has creased trading, and hasn’t listed any available cars for sale since at least late October. The startup was incubated by Founders Factory before being “spun out,” and in February announced that it had raised £1 million in a funding round led by JamJar Investments (the venture capital fund ran by the Innocent Drinks founders) and Zoopla founder and CEO Alex Chesterman,.
A spokesperson for Hellocar has since confirmed that the company “is closing,” issuing the following statement:
“We can confirm that Hellocar is closing. This was a bold, ambitious concept – the team sold cars, had no returns and received excellent customer reviews, but ultimately the model proved too complex to scale at this time. A significant amount of money will be protected and returned to Hellocar’s investors.”
Founded in 2016 by Founders Factory and car industry entrepreneur Nic Carnell, Hellocar was described as a new website for buying used cars online without the need for a dealer. It was akin to a classic marketplace play that moved the car buying process online to better match supply and demand, and in doing so create an improved customer experience.
To that end, like Carspring, the startup aimed to disrupt the £45 billion U.K. used car market by bringing what it said was more transparency and convenience to the car buying experience. All Hellocar vehicles had to pass a comprehensive 168-point inspection by the AA, were home delivered and if the customer changed their mind in the first seven days Hellocar would give them their money back.
“We’re focusing on the quality of the cars and less about throwing as many on the site as possible,” Carnell told TechCrunch in February, in response to how the company compared to competitors. That doesn’t look to have been enough.
Zooming out further, however, my understanding is that although the opaque used car buying industry would seem a prime candidate to be upgraded with a more consumer-friendly and transparent online marketplace, unlike other marketplaces, the supply side is quite challenging. Specifically, it requires significant working capital to get to stock levels that can match demand, something that traditional dealers have a tight grip on. Quite a lot of risk also has to be taken on in terms of pricing stock correctly and moving it on before it depreciates.
Undoubtedly that makes it hard to scale a pure marketplace model for used cars, without a large amount of funding and plenty of headroom, something that Hellocar didn’t have. And even then there are no guarantees — see much better-funded Beepi in the U.S., which shuttered its doors at the start of the year.