Why We Invested in BacklotCars
We finally met a used-car salesman we liked. Justin Davis is CEO of Kansas City-based BacklotCars, and while he’s not selling cars directly, BacklotCars’ marketplace has made it much easier for auto dealerships to buy and sell used cars between each other.
Car dealerships have long bought and sold used cars from each other directly, usually at live auctions. For example, Carl’s Cars, based in Milwaukee, can’t find buyers for a 2007 Camry he took in on trade, so Carl puts the car up for auction to other dealers who think they’ll have better luck selling it. Alice’s Autos, based in Chicago, thinks she can sell it for a profit, so Alice drives up to the weekly live auction near Milwaukee, outbids other dealers, and buys it from Carl. She then transports it back to Chicago to sell at her own dealership.
But what if, in the example above, Alice didn’t win the auction? She would have just spent 8 hours between driving, researching, and competing for cars only to walk away empty handed. What if the auction was in Kansas City, where Alice would have burnt a whole day hoping to get lucky at the auction? In the world of used car dealerships, both of these scenarios happen quite frequently. So as an industry insider, Justin saw an opportunity for disruption.
BacklotCars is an online marketplace where auto dealers can transact, replacing the need for physical auctions. Importantly, BacklotCars inspects every car on the platform, to ensure expected quality. They also offer transportation services to get the cars from seller to buyer, and extend lines of credit to buying dealers to increase their buying power.
BacklotCars expands the number of potential buyers for Carl’s Cars to those well beyond traveling distance of his dealership. Likewise, Alice may be able to find a better deal on a 2007 Camry using BacklotCars than she would be able to within driving distance of Chicago. It also saves her the time she would potentially waste if she were to get outbid for the car at the live auction.
We made this investment for a number of reasons:
BacklotCars is solving a big problem in a large market. Auctions are time-consuming and take car sellers off their showroom floor.
Backlot Cars opens up new trading lanes for dealerships. By providing a transportation network, “Alice” can buy inventory from adjacent markets – not just the attendees at a physical auction.
Justin and the BacklotCars team have deep domain expertise and built a great platform.
Origin has been the lead investor in several very successful online marketplaces with geographic expansion components, like GrubHub. Our list of current marketplace investments has grown, and we’ve increased our thought leadership on marketplace startups.
We love the authentic Kansas City BBQ meals at the company board meetings!
Since we invested in BacklotCars, the company has grown significantly, increasing revenue and expanding into new markets in Texas, Illinois, Colorado, Tennessee, and New Mexico. Justin and his team have capitalized on a large opportunity in a huge market, and executed their vision extremely well. We’re glad to be along for the ride.
