Honk raises a stout $12M Series A to free stranded motorists from their auto-club shackles
Honk, which might be the greatest thing to happen to stranded motorist since run-flat tires, has raise a massive Series A round of funding.
The Santa Monica-based on-demand, mobile towing and roadside service startup now has an additional $12 million in its war chest with which to disrupt the legacy towing industry. The round was led by Altpoint Ventures, with participation from existing investors Structure Capital, Karlin Ventures, Expansion VC, and Venture51. The round brings Honk’s total funding to $13.8 million.
Much like the taxi industry being disrupted by Uber and Lyft, the towing industry remains largely unchanged over the last half-century. But as new generations of smartphone-powered drivers hit the roads, membership-based institutions like AAA, which by this point are synonymous with long wait times and unreasonable pricing, could not be more of a foreign concept. Consumers want to be able to push a button on their phone and have help arrive, and to have their service delivered in a trackable, transparent way.
“I’ve been saying since our launch: Uber is the app you need when you don’t have a car,” says Honk founder and CEO Corey Brundage. “We want Honk to be the app you need when you do have a car. Obviously that’s not the case today with just towing and road-side service on the platform. But we have a vision that extends well beyond that.”
After launching its nationwide service in November with a then remarkable installed base of 20,000 trucks, the company has grown significantly since then and is on pace to surpass market-leader AAA’s 40,000 total by year’s end, according to Brundage. The company is adding more than 1,000 new drivers many days and was recently featured as a hot new company in Tow Times Magazine (yes, that's a real thing). Last month the company served consumers in every major city and state in the country, Brundage adds, stating that the company is well ahead of its (undisclosed) revenue targets. It doesn’t hurt that the company offers arrival times less than half that of industry averages, and promising prices 50 percent below retail. A basic roadside service costs $49, and the company can handle tows, jump starts, fuel deliveries, tire changes, and locksmith services.
Given the magnitude of the opportunity and the pace at which Honk has entered the market, it’s unsurprising to hear that the company’s Series A was hotly contested. Brundage explains that the round was competed in just two weeks and saw several termsheets submitted by top Sand HIll Road firms. The choice of Altpoint Ventures to lead may come as a surprise, but the new firm, which spun off of Altpoint Capital, is quickly making a name for itself in the on-demand services sector – including a high-profile, late-stage investment in Lyft earlier this month. Brundage also has a pre-existing relationship with the Altpoint team from a prior venture. He adds that the team’s automotive experience and channel relationships played a major role in his ultimate decision.
Honk has yet to spend any money on marketing, growing the business entirely through word of mouth to date. But with the fresh injection of capital, expect the company to ramp up its brand building efforts significantly, according to Brundage. He also notes that the 10 person team today will likely reach 100 within a year’s time.
Notably, unlike on-demand industry leader Uber, Honk has no plans to open regional offices around the country (and world). Rather, Brundage believes technology and the dynamics of its unique market mean the company can be run entirely from a single, centralized office – a fact that proved decisive during the fundraising process, he adds. As successful as Uber et al have been, these category pioneers have done so under a cost-intensive model that demands large amounts of capital and large teams of people to manage. If Brundage can manage to expand the Honk platform to a similar degree with less human capital expenses, then it would be a major advantage for the company.
While Honk has remained largely heads down and focused on internal operations to date, business development and channel partnerships will likely play a major role in the company’s next 12 months. Brundage recently hired Co-Loft co-founder Avesta Rasouli to lead business development for the company and notes that Honk has been recieving unsolicited inquiries from the likes of insurance companies, auto manufacturers, vehicle recycling companies, and other potential partners. Relatedly, Honk has apparently been inundated with resumes from current and former AAA executives that seemingly see the writing on the wall and want to join the disruptor, rather than stick with the disrupted.
As big as the on-demand road side services market is, its not surprising that Honk is not the only startup targeting this opportunity. The company is competing against DC-based Urgently, Candada’s Rapitow, and Honolulu-based Tow Choice, not to mention rumors of other similar ventures emerging in the Bay Area. Honk has the clear lead in the market today, but is far from establishing itself as the category winner. The next phase of the company’s growth will be about building mainstream consumer mindshare, shoring up its fleet of drivers and service partners, and refining an operating model that can be exported to new markets around the globe.
The on-demand market at large has been plagued by regulatory challenges and lawsuits from contract workers and the legacy industries they’re disrupting. Honk drivers are towing professionals, rather than newly minted drivers looking to make a few bucks on the side. In this way, the platform has more in common with the early Uber Black service than the more controvercial and regulatorially-suspect UberX (UberPOP internationally). Brundage has also taken cues from sharing economy pioneers like Uber, AirBnB, and Task Rabbit and as such requires all drivers to carry adequate commercial insurance and add Honk as an additional insured. One area that the company could still do better is to implement comprehensive background checks on individual drives, rather than relying on its tow company partners to undertake this task.
Sadly, there are 42 million highway accidents alone in the US each year, meaning this market isn’t going away. But the way consumers access road-side cervices is guaranteed to change. Mobile-first, services are taking over nearly every consumer services industry and roadside assistance should be no exception. Whether it’s Honk or one of its competitors, it’s unthinkable that in two years consumers will still be paying an annual fee for the privilege to pick up a telephone and call a central dispatcher when their car breaks down.
With a fresh $12 million in the bank and tremendous momentum on the ground, Honk is well on its way toward putting AAA out to pasture and freeing consumers from the shackles of the outdated auto-club membership model..
“Peace of mind should be free in today’s day and age,” Brundage says.
(Image via David Dennis, flickr)
[Disclosure: Michael Carney has accepted a position as an associate at Upfront Ventures that begins in April. To the best of Pando’s knowledge, the companies in this post and their competitors have no affiliation with Upfront. This post went through Pando’s usual editorial process.]