Cazoo: blood, sweat & gears
By: Manuel Lopo De Carvalho
Tags: Startup, Venture Capital, Unicorns, Investing, Portfolio

How the UK’s fastest unicorn was built.

dmg ventures is the largest investor in Cazoo, a company which has quickly become a giant in the auto sector and in broader consumer consciousness. Here, I give a short summary of our interest in the auto sector since the early 2000s, our relationship with Cazoo and how the business has achieved its remarkable growth.

🕐 Biding our time in a huge market ripe for disruption

Back in the early 2000s, through trends in classified businesses, we identified the auto industry as one which was nearing a major shift to online, alongside a handful of other sectors. This impending shift, combined with the sheer enormity of the industry (>60m global car sales in 2005) and a lack of trust in legacy propositions, made the space compelling.

However, following a sweep of the market for attractive investment opportunities, we decided to double down on the property sector instead, acquiring several assets which eventually rolled into the Zoopla Property Group.

💡 Honing the thesis

We continued to monitor developments in the auto sector and, fast forwarding a decade, we made a small investment into Carspring, a second-hand car marketplace, in 2015. Online business models were just starting to enter the mainstream, with the likes of Carwow in the UK and Carvana, which IPO’ed in 2017, in the US.

Carspring had a solid model but went into administration a couple of years later. Although disappointing, it augmented our belief in the size of the opportunity and refined our view on what a ‘winner’ would look like. Firstly, it showed us the importance of having a large inventory, and control of that inventory (Carspring was largely a conduit for buyers and dealers), which in turn makes deep pockets a necessity. Secondly, we realised just how complex the business model is, and the importance of finding a highly experienced management team.

Cometh the hour, cometh the man. In 2018, in steps Alex Chesterman, a serial entrepreneur whom we had worked with closely at Zoopla. His pitch was simple but powerful. Create a vertically integrated model, with a seamless buyer experience. His proposition also ticked the boxes around finding an experienced founder and, linked to his experience, he was able to raise the capital which the model required to successfully scale (initially £30m of seed funding, to be precise).

We quickly decided to invest, leading Cazoo’s seed round, alongside Stride VC. High profile investors, such as Octopus, joined the round.

📈 A masterclass in blitzscaling

Cazoo has gone from idea stage at the seed round in December 2018, to launch in December 2019, to unicorn status in June 2020, to a $7bn listing in August 2021.

For me, it has been remarkable to witness this transformation first-hand.

It’s achieved this by pulling various levers:

i) Hiring of world class team — the core tenet of any start-up success story, Cazoo rapidly built out the team, with many of the Zoopla management team joining, as well as top talent from the likes of Made.com, Farmdrop and MoneySuperMarket

ii) Heavy investment in inventory — 1,660 cars in inventory at launch, giving consumers a breadth of choice

iii) Rapid growth of brand awareness — 50% of UK population aware of Cazoo within a year of launch, driven by various high profile above the line marketing campaigns (TV, events, outdoor, radio, in addition to our own media channels) and below the line campaigns

iv) Optimisation of back-end operations — quickly built out an end-to-end process for acquiring, servicing, refurbishing, selling and delivering cars, supported by a gradual expansion of in-house capabilities

v) Strategic acquisitions — decisively acquired companies to scale up both the demand side (incl. Drover — UK car subscription platform, Imperial Car Supermarket — UK used car retailer, Cluno — German car subscription platform) and supply side (incl. Smart Fleet Solutions — UK reconditioning specialist)

🔥 dmg ventures adds fuel to the fire

dmg ventures’ partnership with Cazoo has encapsulated all elements of how we can provide value to our portfolio companies.

Firstly, we have backed Cazoo with significant funding from seed round through to public listing, with over £100m invested. This funding has fuelled Cazoo’s growth, through enabling it to ramp up the team, acquire inventory at scale and advertise aggressively.

We have also worked closely with Cazoo to fully leverage our media assets, helping turn Cazoo into the highly recognisable brand it is today. Cazoo runs regular high display campaigns across our titles (Daily Mail, MailOnline, Metro, etc.) to maintain and build their brand awareness levels.

Alongside this, we set out to find a solution that delivers exceptional editorial integration across the full portfolio. We created an editorially-led content partnership, enabling Cazoo to position themselves as a credible, honest and trusted motoring expert.

💵 Preparing to go Public

Cazoo’s rapid ascent saw it agree to list via a $7bn SPAC in March 2021, just 16 months after launch. The benefits of listing via a SPAC are two-fold; greater price certainty and quicker time to market.

At the time of writing (Q3 2021), Cazoo continues to experience rapid growth in the UK, and is expanding into the continent, supported by acquisitions like Cluno. The business has still only scratched the surface of the auto sector, which is worth >£50bn per annum in the UK alone. Cazoo is very much at the beginning of its journey and I can’t wait to see what the next few years hold.

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