SaaS Interviews with CEOs, Startups, Founders
Shift Sells $200m Worth of Cars, Makes $30m, $225m Equity Raised, IPO Next?
26 Nov 2020
Chapter 1: What is the pre-IPO strategy for Shift?
This year is meant to be our pre-IPO year, right? Because if we do the revenue and the volume that we're projecting, we'd be in fairly good shape to go public next year. Now, again, who knows what happens and things might get delayed and changed and whatnot. You are listening to Conversations with Nathan Latka. Now, if you're hearing this, it means you're not currently on our subscriber feed.
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Or bootstrap founders like Vivek of QuestionPro. When I started the company, it was not cool to raise. Or Looker CEO Frank Behan before Google acquired his company for $2.6 billion. We want to see a real pervasive data culture, and then the rest flows behind that. If you'd like to subscribe, go to getlatka.com.
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He's the co-founder of Shift, an online marketplace disrupting the used car industry. An immigrant from Georgia and lifelong entrepreneur, he also co-founded the first on-demand mobile transportation booking technology called Taxi Magic, now known as Curb, as well as working for Google and BCG. George, you ready to take us to the top? Happy to. All right. So let's jump into the business model.
For people that haven't used Shift, explain exactly how they use it. Is this for renting cars or buying cars or all the above? It's for both selling and buying cars. So there's two parts of the business. If you have a car to sell, you come to our website, we price the car for you, and then we'll buy it from you. We'll pick it up from you at your location.
We can drop it off at our location, whichever one you want to do. That's available in all of California and all of Oregon. And then if you want to buy a car, you have three ways to buy a car. You can either have a test drive brought to you at your house or your office, or you can come to our warehouse to look around, kind of like you would go to Costco.
Or you can buy a car site unseen online, and then it'll be shipped to you anywhere in the country. And we sell a very broad range of cars, all used, but anywhere from one to 12 years in age.
buying a car if i want to go into the warehouse get a little test drive in i imagine that's restricted by location is that also only in california or oregon that that is yes so we ship anywhere but the delivery of the test drive to you um is available in about 80 percent of california and and in oregon uh and then coming to us is you know our locations in the same location same states Okay.
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Chapter 2: How does Shift's business model work for buying and selling cars?
because of everything that's kind of going on. Very interesting. Okay, before we jump, so we're talking like pre-sale up to the sale, we understand your margins. There's a whole other side of your business we'll get to in a second on the financing, the warranty, et cetera. Before we do that though, put this on a timeline for us. When did you launch the company? So Shift's been around since 2014.
We sold our first car in June of 2014. So we'll be about six years in sales since, you know, in a quarter or so. So tell the story here, 2015, how many car sales? I don't actually remember our numbers every year, but overall we've grown roughly 30 to 50% every year we've been around. Okay. And if you take our Tager in terms of volume, and we finished last year with 11,500 cars. 11,500 cars sold?
Yeah. Just in 2019 or all historically? No, no, just in 2019. We've serviced about 60,000 customers in the life of the company on both the sell side and the buy side. Okay, got it. So I could take 11,500 total cars sold in 2019, then just subtract 30% growth year over year and kind of backtrack back to the beginning. Yeah, exactly. That's interesting. Okay.
And then what's your, again, we have a lot of uncertainty right now. What's your target for 2020?
Chapter 3: What unique features does Shift offer for car buyers?
What do you think you'll grow 11,500 to? We were hoping to do, you know, something like 16 to 17,000 cars this year. Now we'll see what happens, right? Like some things are going to be positive and something's going to be really negative. I'm really hard to tell.
Like literally the, I was in a meeting just now planning on like what happens if the state tells us, Hey, business can't exist at all for a month. Like shut everything down. What do you do? So there's just like. Lost your audio, George. Now you're back. You're back. Yeah. By the way, look, nobody knows, right?
Even Wall Street analysts are saying this is the hardest quarter we've ever had to predict because you just have no freaking clue. So with, I mean, what did take me in that meeting to the extent you can? I mean, how do you think about our plan for this? Well, I mean, it's, so I think for a lot of, tech companies, it's a lot easier to plan.
And for us, because they just have like a very office-based workforce, right? That either is coding or is selling. And so when people start talking about work from home, that's a lot easier to arrange. We have a much harder time with that because we actually have to be in the retail business as well. So we have like a two-faceted workforce. And what happens on the retail side is very different.
And it's a different type of employee than typical Silicon Valley startup employee. And, you know, Unfortunately, they're the ones where that type of an employee is the one that's hit the most in times like this in terms of wages, et cetera, et cetera. So we don't have any answers yet. We're just trying to figure out what's going to happen and what our options are at this point.
That's what we're working on. We were still in business this weekend. We actually had a reasonably good weekend, better than I had expected that we'd have. which is good. Now, again, like if a test drive is brought to you, you don't really actually come in contact with that many people, right? So it's the same as if you're ordering delivery for food, et cetera.
So I think that piece is really positive. And then of course, by now, you know, literally you buy a car,
sight unseen you pay for it online or you know through digital means and then the car is delivered to you that we're going to keep going no matter what because we might not be able to fulfill those orders right away if the you know things get shut down but we'll be able to fulfill those orders later and in a world where a lot of people are sitting at home and kind of have nothing to do right they're shopping for cars online right yeah well and that's the other so we have noticed a jump in our traffic to the website
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Chapter 4: What does the future look like for Shift as it prepares for an IPO?
So our buyer-visitor, like we track buyer-visitors on our site and as well as seller-visitors. Buyer-visitors has definitely jumped over the last week. Yep. And just to get a simple here, you're like your kind of averages are dangerous. 25% to 30% of the business is less than a $12,000 sale. But what's your average car go for through the platform, 20, 30 grand?
Our average price ranges by time of year and kind of how we manage the inventory, but somewhere between $15,000 and $17,000. Okay. 15 and 17,000. Okay. Got it. I mean, so I can, I can take then, I can take then 11,500 car sales last year times the high of 17,000. I mean, you did, you almost sold $200 million worth of cars last year. That's right. Yeah. I mean, that's obviously impressive.
How do you, how does that, I just don't know this industry stats. How does that compare to other car sales folks? Yeah. I mean, the way I tend to think about it is like, Carvana, which is a public company, they've been public for about three years now. They got started out of a larger dealership chain kind of as a digital play. So they went public in 2017. In 2016, they did about 17,000 cars.
and about 300 million in revenue. So that kind of sets in context, like this year is meant to be our pre-IPO year, right? Because if we do the revenue and the volume that we're projecting, we'd be in fairly good shape to go public next year. Now, again, who knows what happens and things might get delayed and changed and whatnot.
Our unit economics generally have been a lot stronger than theirs were prior to IPO. So we've also kind of never really pushed for crazy, crazy growth because there's a balance between how fast you can grow and the unit economics story. You know, the industry as a whole is massive. 45 million used cars are going to be sold in the U.S. this year.
Yeah, it's about $750 billion in used and another $600 billion in new. So the industry is really, really massive, but it's super fragmented. So the largest car seller that sells new and used sells about a million cars a year. Who's that? AutoNation. Okay, got it. So... So like, and then CarMax is a used car only seller, also does about 750,000 used, right?
So the largest players have like sub 1% of the market overall between used and new. So it's a very, very fragmented industry unlike anything else in the US. And really kind of, you know, but in each kind of congressional district, dealerships are oftentimes some of the largest employers and some of the most profitable businesses.
So it's this kind of give and take that there's a lot of political influence obviously that comes with it. We have five minutes left. Let's shift to the other part of your business, which is very interesting. You sell the car. You're potentially putting a loan out. There's financing. There's warranties. Let's assume you sell me a $20,000 car. I have generally kind of okayed a good credit.
What are those loan terms going to look like from you? So we work with banks to provide financing. We don't do financing on our own. So we have almost a dozen banks on the back end, it's called, that are providing financing. And what we do is we have technology that's unique in the industry, does not exist anywhere else, that allows you to submit your information to us all digitally.
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Chapter 5: How does Shift determine pricing for cars?
I see. And of the 11,500 total cars you sold last year, about what percent will actually do financing? 65% do financing. Wow. Okay. I mean, that's higher than I would have thought. So you're talking, what, 7,000 loans? Yeah. Yeah. So 65% do financing, but that's actually low compared to a traditional dealer. Okay. A traditional dealer, that number is closer to 80%.
So we're still working on kind of being able to service every type of the customer that we get. Right. We don't have as good of a set of options for subprime, for example, as we do for prime. And so if you're a subprime customer, we might not be able to get you a financing product. And that's part of that missing piece between 65 and 80 percent.
Um, not all of it, but some of it, but you know, when I started ship, no one believed that he would get a loan online. And obviously, you know, we've kind of shown that very much do. And people actually like that experience a lot because they're in control and they're not waiting in a dealership for four hours trying to get financing done. Okay. So take me back. You did part of your series.
Series D was 70 million in debt, I think, or series E was 70 million in debt. What are you using the debt for? You're not doing your own loans. No, the debt is to buy cars, right? Because we own the cars and you'll underwrite those with a debt because there's an existing product that you can use to do that in a very low interest rate. But when we started Shift, we did want to do capital loans.
It was kind of a vision. My co-founder, Toby Russell, who's my co-CEO as well, he had actually been at Capital One before we started Shift. And part of the thinking was like, learn a lot about financial services to get a financial services company going. But what you learn over time is that until you're doing about $100 million of securitization,
every quarter, it's too expensive to do your own loans. So we need to get to about a billion dollars in sales of which then 40% would be doing on our own. So like $400 million of loans on our own to be able to do them in a profitable way. So eventually, you know, out in 2024, 25, we will do capital loans, but we just need to grow to be large enough before we can do that.
Otherwise, the costs are just way too prohibitive. How much, so again, your last round, correct me if I'm wrong. Well, actually, why don't you tell me? I won't guess. How much have you raised to date? We've raised about $225 million in equity and $75 million in debt, so about $200 million. Okay, and last round was what date?
We did the first close in September 2018 and then second close in December of 2018, so that was about a year and two quarters ago. Okay, and that was $75 million in debt and $70 million in equity? Yes. A hundred million equity, equity and 75 million in debt. Okay. Equity. Okay. Got it. And 75 debt.
So on the debt side, how much purchasing power is that actually for you based off what you know, your advanced rates are from your back leverage? I can't, I don't think I can get that answer, but it's way more than we need to, um, to finance where the business is today. Okay. Because one of the crucial things you're kind of managing for in this industry is time to sell. Yes.
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Chapter 6: What are the challenges of selling used cars in a recession?
Number four, how many hours of sleep you in every night? I try to sleep for eight. I don't actually ever sleep for eight, but I always try to be in bed for close to eight. I probably sleep six and a half-ish on average. We just had kids in the last six months. So married? How many kids? Two. We just had a son and a daughter in September.
um and so i've had to move my schedule forward i mean i get up much earlier than i used to because mornings are a great time to spend time with them so it's been a big adjustment for me because i usually go to bed like one and wake up at like you know eight eight eight thirty but now like they're up at six and so you have to go to bed like earlier and be kind of you know up at six married two kids how old are you uh i'm 42 42 last question what's something you wish your 20 year old self knew
Oh, I wish I knew that software was going to be like software development is going to be so important to my life. I probably should have studied at least like a little bit of CS. Um, kind of in college, that was a big kind of miss on my part that I didn't fully appreciate. I never thought I'd do anything in tech. It was like the last thing I ever thought about. I studied politics in college.
I thought I was going to be in politics my whole life. Uh, but yeah, like I actually use a lot of what I learned in politics and in building a business, having so much similarity, but you know, it definitely is a detriment for me not to having some semblance of technical knowledge. Um, and that's a big mess. And I wish I had gained that earlier.
Guys, there you have it shift an easy, very easy way to buy and sell cars and a no touch model launched in 2014. First car sold last year, 2019, 11,500 cars sold average price, 15 to $17,000. That's over 200 million, around $200 million in car sales of with George has optimized to somewhere around a 15% margin there. So 30 million, uh, they make on that.
Then in addition to that, about, uh, that's about two thirds of the revenue. The other one third comes from warranties and loans for about $45 million there as he bunkers down and prepares for whatever's going to come over the next couple months, potentially an IPO maybe once this settles out. George, we're rooting for you, man. Thanks for taking us to the top.
Thank you, and I hope everybody stays safe.
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