When it rains, it pours. And these days in Los Angeles the thing falling from the sky is venture returns. The first 100 days of 2014 have been the most prolific in the region’s history, seeing a half dozen companies exit for nine-figures or more.
Today, nine-year-old automotive pricing comparison website TrueCar joined the mix, filing for a long-awaited IPO that could see the company raise as much as $125 million. Unlike most recent tech listings, which in the wake of the Facebook IPO debacle have preferred the human touch of the NYSE, TrueCar will list on the technology focused NASDAQ.
The Santa Monica company has yet to price the offering. Considering that TrueCar has raised more than $189.5 million in venture capital to date (approximately $50 million of which remains), and grew revenue 67 percent year-over-year to $134 million expect the company to command a high nine or low ten figure market cap. TrueCar is EBITA profitable, clearing $2.1 million for the year.
(Editor’s note: The above paragraph originally stated that TrueCar was not profitable, posting a net loss of $25 million and contradicting statements that CEO Scott Painter had made to Pando in November. This fact was corrected at on 4/4/2013 at 3pm PST after further inspection of TrueCar’s filings and comparison to Pando’s prior interview with Painter.)
TrueCar marks another win for Los Angeles VCs with Upfront Ventures owning 15.2 percent of the company and Anthem Ventures owning another 9.3 percent. The company also counts insurer USAA as a 26 percent shareholder, Jeff Skoll’s Capricorn Investment Group at 16 percent, and Microsoft co-founder Paul Allen’s Vulcan Capital at 9 percent. TrueCar founder and CEO Scott Painter owns 11.7 percent.
Certified TrueCar dealers must agree to honor the “fair price” set by the price comparison service, saving consumers the hassle of negotiating but also guaranteeing dealers a minimum price. As I wrote last fall:
Behind the scenes, the company collects auto transaction data from thousands of sources including the majority of insurers and automotive lenders nationwide – something it has been doing all along, even before the dealer revolt. With this data, TrueCar can see what prices consumers are actually paying, not what dealers label as “MSRP,” “Invoice,” or other industry standard terms of spurious meaning.
The company then takes this a step further by providing consumers a Guaranteed Savings Certificate based on real average sales prices across the industry. Each of the company’s 7,000 dealer partners is contractually bound to honor the prices on these certificates without hassle or negotiation. Consumers pay nothing for this service, and dealers pay TrueCar a flat fee on each completed sale, but nothing if a sale doesn’t close.
The service is growing in popularity, helping users purchase 400,000 cars last year, a third of the 1.1 million vehicles it’s helped sell since launching nine years ago.
“We estimate that users of our platform purchasing cars from TrueCar Certified Dealers accounted for approximately 2.0 percent of all new car sales in the United States in 2013,” a company spokesperson says.
The service is free to use for consumers, but requires registration. The company gets paid by its 7,000 dealer partners when vehicles are purchased. These pay-for-performance fees make up 89 percent of TrueCar’s revenue, with the other 11 percent coming from sales of data and consulting services.
TrueCar’s path to this point wasn’t without its bumps. The company lost 50 percent of its dealership partners in 2012 amit a revolt to its deep discount messaging. It almost killed the business. The year 2012 “really was hell,” Painter told me in November. “We went from 6,000 dealers to 3,000 overnight. And when your revenue comes from dealers, that’s pretty tough. It almost killed us.” But Painter righted the ship and now 18 months later the company is preparing its Wall Street pitch.
In many ways, TrueCar is the type of startup story LA was known for prior to the hype-filled last three years. The company launched with a monetization strategy from day one and has been slowly growing its user-base with little fanfare. Many members of the local tech community don’t even know TrueCar is based in LA, that it has 250 employees here (and 350 total), or scale of its success.
If Wall Street hops on the TrueCar bandwagon, LA might soon be adding Painter’s company to its short list of billion dollar tentpole technology companies.