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Fraser McCombs Capital Bridges the Gap to AutoTech

November 29, 2016 0 Comments

Aaron Krane

Following the second annual AutoVentures Conference, we spoke with FMC and AutoVenture’s prize-winner, Aaron Krane – CEO of Drive Motors.

In the last decade, auto dealers – along with their manufacturers and vendor-partners – have become increasingly adaptive.

Reactive progress among industry relics has resulted in major strategic acquisitions, unexpected partnerships, and Silicon Valley-based think-tanks. New players and the unknowns surrounding the evolution of mobility have more recently lit a candle under the adaptors.

Fraser McCombs Capital (FMC), a venture capital firm focused on the automotive vertical, is focused on providing a very valuable bridge to the gap between the industry’s veteran-experts and the tools and innovators that will propel automotive into the future. Historically, traditional investment firms have generally rejected technology investments in the behemoth industry.

With two funds totaling $115 million under management, FMC’s managing partners view M&A in automotive technology as “healthy” and expect it to remain so for the next several quarters.

“We’re seeing roughly a deal a day,” Chase Fraser, Managing Director of FMC, told DrivingSales News. “Our deal flow has probably doubled in the last three years.” Fraser said many of these companies are investment-worthy.

Tech Investment Quick Facts

  • 6 years: median number of years between first institutional round and exit.
  • < $10 million: total amount raised by the majority of tech companies before exit.
  • 53 percent: number of exit valuations of less than $50 million.
  • In October, AutoTech financing reached a high of $874 million (see graph.)

Graph

But it wouldn’t be venture capital without tremendous risk, so FMC leans on the diverse roots of its managing partners and strategic limited partners to bring both capital and mentorship to the companies they come in to contact with. (Ninety-five percent of the most recent fund came from strategic LPs.)

Nowhere is FMC’s de-risking approach more embodied than at the annual AutoVentures conference, which took place last month in Las Vegas. In partnership with DrivingSales (and in conjunction with the DrivingSales Executive Summit), 16 early and growth stage companies had the opportunity to pitch their business plans and mingle with FMC’s elite invitees. Attendees came from around the globe and included innovative dealers, distributors, and key management in dealer-services software.

“AutoVentures is about providing an audience for great companies to begin introducing themselves to great customers and possibly strategic partners,” Mark Norman, Managing Partner at FMC, said. “Our LPs have been drawn to the opportunity to be at the forefront of the industry transition from hardware to software and from transactions to services.”

And the 2016 Winner Is…

At the culmination of AutoVentures 2016, one CEO impressed the audience beyond others with his ecommerce solution for auto dealerships, earning the AutoVentures first-place title.

Aaron Krane, CEO of Drive Motors, isn’t new to venture capital or designing solutions (and teams) from the ground up, but building Drive Motors is his first experience in the automotive vertical.

Drive Motors was the product of the founder’s own frustration with the lack of online checkout options on dealership websites. The product launched in the beginning of 2016, climbing from zero to $1 million in recurring subscription revenue for its service in just under 10 months. Krane says the tool delivers a 50 percent conversion to sale within 24 hours and even average dealerships are selling at least 10 or more cars per month via the simple “buy now” button and streamlined checkout. Interestingly, the buyers are also closing with above average finance PVR and multiple F&I upsells.

Krane’s resume includes experience as an Entrepreneur In Residence at the venture capital firm Khosla Ventures (over $4 billion under management), selling a fantasy sports company to Yahoo!, and most recently, his experience at Y Combinator, a “bootcamp” and unconventional funding model for early-stage companies.

“When I studied how to align with dealerships, I realized that one of the hidden benefits of working with them is they do all the hard stuff – and they’re really good at it,” Krane said. “Although it seemed it might be challenging to work with dealerships because I was a cultural outsider, it was the right strategic needle to thread,” Krane said. FMC was a realistic conduit to the experts he was looking for, and Drive Motors says it has already added dozens of new rooftops as a direct result of winning AutoVentures.

2016 AutoVentures Participants

*KeepsCorp is the only company (currently) with investment from FMC’s fund.

Following Up with 2015 Participants

DrivingSales approached presenters from last year’s event, to see how the exposure helped their businesses in the past year. Antonio Arocha, CEO of Nuve, said, “AutoVentures put us on the map at an international scale.” He shared that winning directly contributed to the closing of two key deals by end of year and resulted in a trip to London, which led to international distribution to Thailand, Angola and Mexico. The event gave the young company added credibility with its current customer base.

NuPark, a parking lot management application with license plate recognition, was a mid-stage category runner-up. Feedback on the event from their executive team uncovered that they weren’t looking for investment dollars at the time and weren’t even focused on a dealer-audience, but the visibility and networking led them to explore new applications for auto retailers with real potential for their business.

Chris Reed, an auto industry marketing strategist who was integral in planning the inaugural event, called it “a convergence of Silicon Valley and ‘old guard’ automotive,” identifying traditional barriers broken by the uncharacteristic diversity of gender, ethnicity, and age among audience and presenters.

“AutoVentures is not just a nice place to visit,” Mark Norman from FMC concluded. “It’s a critical place to do business.”

Next year, AutoVentures will take place October 24, 2017 at the Bellagio in Las Vegas.

About the Author:

The DrivingSales News team is dedicated to breaking the relevant and the tough stories affecting car dealers. Have questions for DrivingSales News? Reach the team at news@drivingsales.com.