A two-year-old startup, GoZoomo raises US$7 million from top VCs, has more than half of it left in the bank, but decides to return the money to its investors.
Used car marketplace GoZoomo, which had shown much promise in tackling the problem of mistrust in this space, is shutting down. The founding team of three IITians decided that the unit economics were not adding up, despite several iterations in the business model. They looked at the data objectively and took the tough decision to shut shop instead of burning VC money on an unsustainable business.
“The right thing to do is to treat the capital respectfully and deploy it where there is a better chance to create huge value,” GoZoomo CEO and co-founder Arnav Kumar tells Tech in Asia. “We tried to build a fast-scaleable business, but realized that the business model does not work. So it is better that this capital gets deployed elsewhere instead of us hoarding it and hoping that something good happens.”
All the employees are getting seven weeks of pay as severance and help with landing other jobs. As for Arnav, he wants to take time off to focus on the learning from this experience. “We couldn’t solve this problem and eventually had to take this call. But we learned so much,” he says bravely.
What they tried to solve?
GoZoomo started out a couple of years ago with the idea of solving the lack of trust in the Indian used car market.
In the US, three used cars are sold for every new car. In India, it’s only one used car for every new car, although this is a more price-conscious market.
The reason is that the Indian used car buyer has no clue what he’s getting – it could be a car done up after an accident or even a stolen car with fake documentation. Buyers are better off in more regulated markets where insurance processes and credible certification leave a paper trail. Carfax, for example, provides vehicle history reports in the US and Canada.
Arnav, who is a postgraduate in applied mathematics from IIT Kharagpur, and his two co-founders, Himangshu Jyoti Hazarika from IIT Kharagpur and Ankit Behera from IIT Bombay, decided to tackle this core problem of trust.
Unlike other car portals, they did not open up their marketplace to used car dealers – only cars inspected by GoZoomo would be listed for peer-to-peer transactions. They knew the market for used cars would grow in India, where car sales really took off only about a couple of decades ago. If they could crack the trust factor – with people who transact on the site feeling confident of getting value for money or their car – they would be on a roll.
And that’s what happened initially. “We raced to 100 transactions per month within just three months of operations – that means a million dollar monthly transaction value on the platform,” recalls Arnav.
But there was a missing link. And this got glossed over in the excitement over seeing the interest in the product and wanting to build on it fast, what with Saif Partners and Yuri Milner pumping in a series A round of US$7 million in July last year. That was on top of the US$600,000 seed funding earlier.
What they failed to solve and Why?
GoZoomo was clear from the outset that it had to be an end-to-end transaction marketplace, and not a classifieds, listings, or hybrid site. Buying a used car on it had to be as easy as buying a book on Amazon.
For that to work, there had to be standardization – such as in the quality of every car on the portal, which was assured through verification of papers and physical inspection. “That is why over the course of the last two years, we have had more than 3,000 customers buying great vehicles, with an average ticket size of US$7,500,” points out Arnav. “Our complaint issue rate was less than 0.1 percent in an industry where there are a lot of returns, issues with quality, cars breaking down, etc.”
What GoZoomo could not standardize, however, is the price. The inspection team would suggest a fair price to a seller, but they would want to see if it would sell at a higher price. The buyer would see a similar model of car listed on a classifieds site like OLX or Quikr at a much lower price – and not take into account there might be a hidden problem with that car.
Haggling is second nature to Indians because of an environment where marketplaces are disorganized. GoZoomo wanted to offer something better – a place where you were assured of a standard quality, standard price, and quicker transactions. But the behavior of users takes time to change.
“What typically happened with us was people looked at the cars, liked the quality, but were just not able to decide on the price,” says Arnav.
He also points out that India is a relatively young market for cars. Buying a car became commonplace in urban India only about 15 years ago. So most of the people buying or selling used cars are doing it for the first time.
It’s a big deal for them, and they’re feeling their way. When they do it the second time, they would have a better idea about the pricing and quality standards, and probably realize the costs of prolonging the decision-making time.
“I think this is a function of the market maturing,” says Arnav. “It will take its own time.”
To read more please check the source at TechinAsia Magazine