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Death by Overfunding: Beepi Towed Off-Market

Posted on Tuesday, Mar 7th 2017

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According to a report by car auction company Manheim, the US auto industry has seen a bullish trend over the past few years. Used car sales grew 6% in 2016 and the trend is expected to continue in the next few quarters. But despite the market conditions, online player and a former Billion Dollar Unicorn expectant Beepi recently shuttered operations.

Beepi’s Journey

Beepi’s failure is tagged as a classic case of a good idea, but poor execution. The idea behind the Los Altos-based firm came to its co-founder Alejandro Resnik who had to go through a legal battle with a used car dealer who had sold him a car that broke down within two days of the sale. Inspired by the idea of improving the used car sales space, Alejandro teamed up with Owen Savir to set up Beepi in 2013. The online platform connected buyers and sellers of used cars using a smart algorithm and delivered a sales process that was transparent.

Once a sale was listed, Beepi would send out a mechanic to inspect the car, set the price, and add to Beepi’s inventory. If a buyer bought the car, Beepi’s driver would then take the certified car to the buyer’s address along with a ten-day money back guarantee. Gradually, Beepi added other features such as a price based on the geographic market, completing the paperwork for the car sale, and enabling the sale through bitcoin, direct debit, financing or credit cards.

Overall, the idea was well liked by the market. Beepi ensured that the sellers got to sell the car within 30 days of the listing for at least $1,000 more than what they could get at a dealership. Beepi earned revenues by charging a commission on the sale made. Last year, Beepi also diversified into car financing. It tied up with Chase and credit unions to offer traditional financing and with Ally Financial to offer leasing.

Beepi’s Financials

But Beepi’s monetization efforts were not enough. It did not publish detailed financials, but according to analysts, it was delivering a gross merchandise value (GMV) of $350 million for 2015 compared with GMV of $100 million in 2014. Beepi’s net revenue details are not known. Analysts estimate that it charged as much as 9% of the sale price as its commission. Considering this commission, its revenue come in at $31.5 million in 2015, growing from $9 million in 2014. Despite the strong growth in revenues, Beepi was struggling with profitability. Reports suggest that the company wasn’t very cautious with usage of funds and was spending money on high salaries, overtime, perks for relatives of founders, and in making its office look pretty. The expenses led to the company running out of cash.

Till the start of the year, Beepi was venture funded with $149 million raised from investors including AngelList, Comerica Bank, Gil Penchina, Philippe Suchet, Scott Bommer, Sherpa Capital, Yuri Milner, Brett Rochkind, Brian Sharples, Fabrice Grinda, Foundation Capital, Redpoint Ventures, Richard Boyle, Shervin Pishevar, Silicon Valley Bank, Tina Sharkey, Fabrice Grinda, Alec Oxenford, Jose Marin, Rough Draft Ventures, and TA Ventures. Its last round of funding was held in August 2015 when it raised $70 million from China’s largest domestic automaker SAIC Motor Corporation at an undisclosed valuation. An earlier round in October had valued it at $200 million. Back in 2015, Beepi was confident that it would be able to raise $300 million at a valuation of more than $2 billion.

But that was not to be. Earlier this year, Beepi put its assets up for sale. It managed to line up two sellers – Fair.com and DGDD, but both deals fell through due to mutual disagreements on the terms of sale. According to more recent reports, the company is now being sold off in parts to repay its creditors.

As in prior Death by Overfunding stories, we observe a lack of focus on fundamentals, unit economics, and fiscal discipline. Instead, we repeatedly see reckless spending and an obsession with GMV growth, profitability be damned. This, in our experience, is a terrible way to build a business.

Photo Credit: JOHN LLOYD/Flickr.com

This segment is a part in the series : Death by Overfunding

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