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Dan Park,left, CEO of Clutch, a Canadian startup that is an online marketplace for buying cars, with Stephen Seibel, COO and Founder, with their delivery flat-bed truck, in Toronto on March, 19, 2021.

Christopher Katsarov/The Globe and Mail

Dan Park has had a wild ride since becoming CEO 18 months ago of a startup trying to sell Canadians on buying used cars over the internet.

Clutch Canada Inc.’s launch into Toronto in January, 2020 – its second market after Halifax – met with fierce resistance from used car dealers in Ontario, which accused it of breaking the law. Then the pandemic hit. Sales fell 80 per cent in April. Clutch desperately needed funding to survive.

“I didn’t know if there would be a future for this company,” said Mr. Park, who previously led Uber Eats Canada.

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Then, just as quickly, everything shifted into place. Real Ventures, the lone venture capital firm that was interested, led a $4-million financing last spring. People eschewed public transport and ride-sharing and considered buying cars instead, according to surveys. Sales rebounded rapidly; in June, Clutch doubled its previous monthly peak. By fall it was beset by offers from financiers.

Now the Toronto-based company is gearing up for national expansion. The 75-person company has raised $20-million in venture capital, led by Silicon Valley-based Canaan Partners, an early backer of Instacart, and $40-million in debt from New York’s Upper90. The financing, valuing Clutch at around $100-million, is twice what Mr. Park thought he could raise. Other backers include Engage Venture Partners, Azure Capital Partners and FJ Labs.

Clutch has expanded into Vancouver and plans to enter two more Canadian cities in 2021.

The goal is to transform the onerous, stressful and at times dodgy process of buying a used car into a seamless Amazon-like online experience with non-negotiable prices, next-day delivery and a 10-day money back guarantee. That requires building a brand as a dependable source of good used cars and convincing buyers to make a large purchase without setting eyes on the product until it arrives in their driveways.

Mr. Park notes that shoe and furniture e-tailers overcame similar hesitancy. Buyers already research cars online; his task is to convince them to buy them online, too.

He’s not reinventing the wheel: Selling cars online is a fast-growing concept in the United States and Europe. The biggest U.S. player, Nasdaq-listed Carvana Co. , sold 244,111 cars in 2020 and has a US$45-billion market valuation. Vroom Inc. and Shift Technologies Inc. both went public in 2020 and sold another 47,600 combined last year. The trio account for less than 1 per cent share of U.S. used car sales.

“What intrigued me was the opportunity for Clutch to build a category-defining brand in Canada,” where there are no online-only rivals and innovation lags the U.S., said Canaan partner Laura Chau. “In the U.S., people are buying and loving the experience. I don’t think the Canadian consumer is that different.”

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Clutch sources cars at auctions and from private owners, using data science to inform what it pays. It typically buys cars that are seven years old or less, have under 100,000 kilometres of mileage and no or only light accidents in their past. It spends about $1,000 a vehicle on reconditioning and ensures each passes a 210-point inspection.

Each Clutch listing, posted on marketplaces such as Kijiji and AutoTrader, as well as its own site, features dozens of photos, maintenance history, Carfax and inspection reports and details all scratches.

There are no salespeople or showrooms – Clutch stores and refurbishes cars at low-cost suburban industrial locations – and it offers financing and protection plans.

Ali Matthews, a singer-songwriter from Stratford, Ont., was looking for a car this year when her son suggested a 2019 Toyota Rav4 that Clutch listed for $26,000, or $2,000 cheaper than other listings. “At first I was so skeptical,” she said. “I thought, no, I have to sit in it, see it and drive it. But really, I didn’t have to. ... At the end of that transaction I thought, I’m going to be their biggest cheerleader. This is the future of car buying.”

Clutch was founded in 2016 by entrepreneur and former investment banker Stephen Seibel after his wife had a bad experience buying a used car. He launched in Halifax in 2017 and raised funds in 2018 from consumer products startup financier BrandProject LP when Clutch was selling 15 cars monthly. “I saw an opportunity for online car buying in Canada and thought Clutch could be the leader because nobody was doing this,” said BrandProject chief executive officer Andrew Black, who recruited Mr. Park in 2019. (Mr. Seibel is now chief operating officer.)

Clutch has a similar opportunity to other Canadian consumer-oriented digital startups that laid early claim to their home market-copying ideas that originated elsewhere. Food delivery service SkipTheDishes, e-commerce purchase financing provider Paybright and meal kit maker Chefs Plate all sold to foreign operators eyeing Canadian expansion.

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Clutch could, too, its funders agree. But given Canada’s $40-billion market for used cars, it could also become a large public company by winning just a couple of points of market share, they said. “This business can be worth billions of dollars even if it’s only in Canada,” said Real managing partner Janet Bannister.

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