Used-car marketplace Droom last week raised $30 million (Rs 204 crore) in a Series D round led by Toyota Tsusho Corporation, existing investor Digital Garage of Japan and others. The company said it would use the funds to develop its artificial intelligence and machine learning capabilities on its platform. It also plans to list on the NASDAQ in 2019 and intends to expand internationally in Southeast Asia.
The company counts Lightbox India Advisors Pvt. Ltd, Beenos Asia Pte. Ltd. Hong Kong-based Integrated Asset Management as well as institutional investors and family offices from China, Hong Kong and Taiwan as its investors.
It was founded in April 2014 by Sandeep Aggarwal, who also co-founded online marketplace ShopClues. Besides being an entrepreneur, Aggarwal is also an active angel investor, with investments in startups like WittyFeed, LionBird Ventures, Dekoruma, Wydr, Shopsity, Duriana, Curo Healthcare, Dataguise, and GiveClub among others.
In an exclusive conversation with TechCircle, Aggarwal, Droom’s chief executive, talks about the firm’s revenue model, future projections and plans to go public in 2019. Edited excerpts:
Could you expand on Droom’s revenue model?
We have four revenue [streams]. Our main source is a service fee for every successful transaction. We are a performance-based marketplace, so when a transaction takes place successfully on our platform, we charge anywhere between 1.75-2.5%. This may vary by type of vehicles from a two-wheeler or a car, and [also] by seller. This is our main source of revenue.
Then we have a subscription plan [for] large auto dealers, [which is] a software-as-a-service (SaaS) model where we [provide] them online tools and services, and for which they sign up for a pro-seller subscription plan.
The third source of revenue is premium tools—orange book value, economic history and credit discovery. You can have a very detailed pricing report where you can see how much 3,000 people are willing to pay for the same car, at what price a car was sold, etc. [The platform can] give you so much information about pricing that you will never suffer from buyer confusion on pricing.
The fourth [revenue source] is advertising, where we advertise from Toyota to JK Tyres to Ceat. We get double the traffic [as compared to] any other portal and we get 13 million monthly searches.
How do you find new areas for monetisation?
We are very fortunate to have four revenue sources, whereas most companies have only one and that too not properly monetised. But we are still in the first innings in terms of monetisation. Our value creation is innovation, launch, adoption, mass market and monetisation. Like orange book value accounts for one-third of my traffic but one-tenth of my revenue. So I see that as an opportunity.
Is the margin improving?
Yes, absolutely. For the first six months [when Droom launched], we spent 12% of gross revenue to run the entire company, and for the next six months, we spent 9%, followed by 7%, 5%, 4% and then 3%. Today, we spend less than 2.5% of the gross revenue to run the entire company. So basically, margins are improving and we are less than a year away from turning fully profitable.
Your cash burn grew over three times, while revenue grew a little over two times in 2016-17. Could you explain this trend?
If you think about this, it is just a mathematical illusion, because everything we invest in, is for the future. We are growing six times faster than the automobile industry and four to five times faster in e-commerce. Also, Droom is no longer one company anymore—it is six companies under one holding firm. Investments are growing faster than net revenue because I have not stopped investing in new areas yet. We can do $20 billion in gross revenue by 2022.
Could you tell us more about the newly added customised bike segment?
We like to add one-two new categories per month. We recently added custom bikes. Before that, we added commercial vehicles, electric vehicles, and last monsoon, we launched doorstep services to check tyres, brakes, wipers, etc. Right now, we are launching top-up service where someone can come to your doorstep to check brake fluid, wiper fluid, engine oil or anything regarding that.
What are the number of unique customers, transactions and growth rate of the company?
We have done five lakh transactions to date worth about $1 billion. Currently, we do 25,000-30,000 transactions on our platform and we have 13 million in traffic.
Do you have any plans to list on the stock exchange?
We are currently doing $700 million in gross revenue and roughly $20 million in net revenue. We think we will exit 2018 with $1.4 billion in gross revenue and $40-45 million in net revenue. By the end of next year, we will do $3.5 billion in gross revenue and roughly $115 million in net revenue. By then, we would like to be listed on the Nasdaq. We think that in less than a year's time, we will be fully profitable.
What’s your take on the competition in the used automobiles car space?
We watch our customers more than our competition because we are essentially a product technology and data science company, not a commerce or automobile company. With our current gross revenue, we own roughly 65-70% of online transaction of the automobile business which takes place in India. We will continue to innovate in the market [and to] invest our money very thoughtfully.
We have no direct competition and I am not in denial because Olx and Quikr are newspaper classifieds and they don't compete with me. Online discovery platforms like CarDekho, CarWale, CarTrade, and Gaadi.com essentially provide rich content for automobiles for someone who is thinking [about whether to buy a] new or old car.
What partnerships are you eyeing going ahead?
For the last 18 months, [we are aiming] not just for growth but [to augment our] technology and [build our] talent. [We also want to expand in] new areas like data science, artificial intelligence, and IoT. We have earmarked several million dollars to acquire two companies. We will look for partnership as we expand internationally. As of now, nothing specific.
What are Droom’s future strategies?
[When] we started Droom, [we] primarily [sold] used cars through a mobile phone in New Delhi. Today, we [sell] used cars, used motorcycles, buses, helicopters, planes and yachts in Delhi and the rest of India on Android, iOS, and the website. We are India's largest marketplace for active sellers and active listings in [over] 500 cities, and out of them, 114 contribute to Droom every month.
During the last three years, we have also made a solar system approach ecosystem. We have Droom, the marketplace, and then orange book value for pricing, eco for inspection, history for vehicle history, and credit for vehicle financing and discovery, [where] buyers [can find vehicles].
[We have now added six services as part of our growth strategy]. One, we want to create more sellers per city, more listings per seller, more orders per listing, and more transaction per order. The second one is to increase the attach rate and to make some of our tools national de facto standard. Orange book value, for example, is so successful that 200 million people have used it in the past three years, making us the third largest search engine in India after Google and Just Dial. And this product is a book. It has its own codes and you can buy it from Flipkart and Amazon. The third is to increase the attach rate of services. [Besides] selling vehicles, we sell warranty, door-step test drive, insurance and RTO registration.
Another leg of growth that we have is called enterprise, [where we partner with] insurance companies, banks, and original equipment manufacturers [and even Ola and Uber drivers who want to buy cars]. We take care of everything [from car] inspection to insurance.
The last leg of growth is international expansion. From this year [onwards] to the next two-three years, we will expand into Indonesia, Philippines, Kenya, Malaysia, Thailand, UAE, South Africa and many more.
Besides running Droom, you are an angel investor. You invested in media content firm Wittyfeed last year. Could you elaborate more on your investment strategy?
As a two-time entrepreneur, I like to be associated with startups. So far, we have disclosed maybe 13 investments. I do not have exact count this year but I will continue to invest in consumer internet in India and Southeast Asia as well as food-tech, ed-tech, health tech and various models around Internet of Things and artificial intelligence.
Primarily, I can write the first cheque or can participate in a seed or angel round till Series A. That is where I like to invest. From $50,000 to half a million is the amount I usually write a cheque for. Many times, I also partner with a couple of my other fellow entrepreneurs and can do the whole round.