Clutch, a Toronto-based startup, wants to become Canada’s largest online used vehicle marketplace.
The firm, which was founded in 2016 and just completed an $80 million Series B round to expand its staff, broaden its logistics capabilities, and increase its inventory as it prepares to enter new Canadian markets, recently closed out a $80 million (CAD $100 million) Series B round.
“We want to be servicing 90% of Canadians by the end of 2023,” Dan Park, CEO of Clutch. “And that involves launching in a few more key cities across Canada. Cities like Montreal or Winnipeg are some of the larger cities in Canada which we will eventually go to.”
Clutch is one of a few online automobile dealers to launch in recent years, each with a specific area of interest. The most significant players in the United Kingdom are Cazoo and Vroom, while Kavak is doing excellent business in Mexico.
Clutch is based in Toronto and serves the provinces of Alberta, British Columbia, Nova Scotia, New Brunswick, Ontario, and Prince Edward Island.
The firm plans to increase next year by focusing on the Canadian market rather than international development. By concentrating its efforts on the Canadian market rather than abroad, Clutch aims to create a multi-billion dollar opportunity ahead of rivals like Canada Drives.
According to Park, Clutch has sold hundreds of used automobiles on its website and currently has about 1,250 more in inventory.
It uses previous debt financing to acquire vehicles from auctions, private sellers, and fleets before putting them through a rigorous 210-point reconditioning process during which Clutch mechanics ensure safety and quality of the vehicle.
After receiving their brand-new vehicle, drivers are taken to a “concierge service” location where they receive assistance in unpacking and navigating the new car.
A freshly built automobile is then delivered straight to the end consumer on a flatbed, with Park claiming that the process feels “as magical as possible – simply click a button and have a car appear at your property!”
This most recent funding round – which was brought to life by D1 Capital Partners, Flight Deck Capital, Canaan Partners, Upper90, Real Ventures, GFC, BrandProject and FJ Labs – will not only allow Clutch to expand their team from 160 people to over 250 throughout the course of next year but also to develop the infrastructure and logistics network required for growth.
Clutch has numerous warehouses across Canada where vehicles are kept until they are ready to be transported, generally the next day.“Building inventory and building a selection of vehicles that is wide and diverse is a massive focus for next year,” said Park.
“We know that as much as you might be a fan of Clutch, if you’re really looking for that blue Subaru Outback with 50,000 kilometres on it and newer than 2018, and we don’t have that model in stock, the chances of you buying from Clutch are pretty low. We want to cater to as many Canadians as possible. And so building that inventory and building that selection is a big focus and indirect of use of proceeds as we think about next year.”
Clutch’s revenue comes from a number of services, including e-commerce. E-commerce is just one aspect of Clutch’s business strategy. According to Park, about half of Clutch’s income comes from FinTech products such as warranties, insurance, and loans.
“What we’re trying to do here is really provide this streamlined experience and historically there hasn’t been a lot of vertical integration on that side either,” said Park. “If you can deliver not only a great car buying experience, you can offer this amazing ownership experience as well, which includes providing these financial products that you know can help the consumer, in some cases, rebuild credit, but also provide them with a better ownership experience from the vehicle.”
As Clutch grows, the company hopes to see improved unit economics. The most costly components of the business are vehicle acquisition and the logistics required to get a car from start to finish.
In order to get efficiency on purchasing components, delivery trucks used, lift usage, and other expenses that may be amortized over more units in the future, the firm must expand across Canada.
Because Clutch is a used automobile marketplace, only a tiny proportion of its inventory are electric vehicles, but Park believes that will change in the future.
“We believe that our model is better suited to EVs,” he said. “EVs generally require less reconditioning. There’s 2,000 moving parts in a gas powered vehicle and there’s 200 in an electric vehicle and so naturally, this requires less maintenance.”
Not only does Clutch generate a higher profit margin than traditional dealerships, but it also invests more in the vehicles it sells. Many conventional dealerships rely on parts and services to earn a crucial profit margin; this is where Clutch makes its money.
Margins aside, Park stated that when Clutch sells an ICE vehicle, the company donates three trees to the region that car is being sent. According to Park, today’s Clutch has planted nearly 8,000 trees.
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