Online Canadian car seller Clutch gears up for competition with $100-million funding led by hedge fund D1

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Dan Park struggled early in the pandemic to find backers for his online used car sales startup, Clutch Canada Inc. Now, with revenue up four-fold in the past year and rivals rushing in, Clutch has raised $100-million led by one of the most experienced investors in the space.

On Tuesday, Toronto-based Clutch is announcing the equity financing, led by hedge fund D1 Capital Partners, an investor in three other auto e-commerce companies: Carvana Co. in the United States; Britain’s Cazoo Group Ltd.; and Mexico-based UVI Tech Sapi de CV, which operates the Kavak platform.

Other past Clutch investors in the deal include Canaan Partners, Upper90, Real Ventures, Global Founders Capital, BrandProject and FJ Labs, plus newcomer Flight Deck Capital. About $80-million will go to Clutch, and the rest to investors.

“We believe consumers are seeking to buy higher-quality preowned cars with greater convenience and more transparent pricing,” D1 investor Scott Baxter said in a statement. He added D1 was excited to invest in Clutch and “help improve the car-buying experience for Canadians, and continue to back leading auto e-commerce franchises across global markets.”

It’s the 38th nine-figure private funding of 2021 by a Canadian company, according to Refinitiv, in a record-smashing fundraising year for Canadian tech companies. It also makes Clutch the latest in a string of Canadian companies to raise funds twice in the space of a year – typically after receiving unsolicited offers for a second helping of capital. (Clutch raised $20-million in equity early this year.) That reflects record levels of private capital investing globally, plus growing foreign interest in Canada’s technology sector.

It’s been a busy funding year in the nascent Canadian online car sales market. Several other companies – including Vancouver’s Canada Drives Ltd., Toronto-based CarDoor Inc., VINN Automotive Technologies of Victoria and Saskatoon’s Curbie Cars Inc. – have raised capital to deliver digital alternatives to visiting dealers or private sellers in pursuit of used vehicles.

“The message we wanted to send was that there are three or four investors globally that have made [large] bets in this space and they’ve picked winners,” said Mr. Park, Clutch chief executive officer. “If there was a reason we chose D1 it was for that stamp of approval that we are one of the global leaders” in automobile e-commerce.

Matt McKenzie, CEO of CarDoor and former general manager of eBay’s Kijiji listings business in Canada, said in an interview, “I don’t believe there’s a winner-take-all” in Canada. “This is an enormous industry” with used car sales totalling about $40-billion annually in the country.

Janet Bannister, managing partner of Real, the sole investor willing to lead Clutch’s $4-million seed financing in early 2020, and also a Kijiji alumnus, said: “The fact other companies are getting funded indicates people recognize the current used car buying experience in Canada is broken and there is a massive opportunity to completely change it.”

Clutch, like its peers, is trying to replicate the e-commerce experience common in other categories by enabling buyers to effortlessly browse, inspect and buy cars entirely from their screens. “While we’re still far away from being the Amazon of cars in Canada, that’s our aspiration,” Mr. Park said.

The company offers non-negotiable prices, next-day delivery and 10-day money back guarantees to convince buyers to commit to cars they don’t see until delivery. While that’s a novel concept here, consumers have grown comfortable buying items once considered hard sells over the web, including couches and shoes. Meanwhile, online car selling has taken off elsewhere: In the U.S., publicly traded Carvana sells hundreds of thousands of vehicles a year and is valued at more than US$50-billion.

While some rivals act as middlemen between dealers and buyers, Clutch has taken the more challenging path of building a fully integrated platform. It sources and buys cars from auctions and private owners using data science to inform what it pays. Clutch inspects and fully reconditions them at its own facilities. It posts listings on marketplaces and its own site, featuring photos, maintenance history, Carfax and inspection reports.

Clutch must get to far greater volumes than the thousands of cars it now sells annually: The biggest vertically integrated players sport gross margins in the low 20-percentage-point range and make operating profits at half that level. Clutch started in Atlantic Canada in 2017 and now sells in Ontario, B.C. and Alberta.

To compensate for its lack of showrooms and salespeople, the 160-person company invests heavily in customer service.

Mona Loones, a nurse from Barrie, Ont., said she’s “been telling anybody who will listen” about her positive experience buying a 2020 Subaru Outback SUV from Clutch a month ago, including outreach from a customer service representative who “immediately put me at ease that this was legit” and offered her a good price for her trade-in.

“I had never done this before, but we’ve bought so many things online,” and the 10-day return policy sealed the deal, she said. “I think it creates an integrity in the automotive business that has been lacking.”

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