Mobilizing Emerging Markets with Sujay Tyle (Frontier Car Group)

Okay Hello so this is a fitting next Interview because you were all just Listening to Emerging Market talk in Africa and Frontier car group that's Sort of what you that's what you do That's where you right your expertise is In Um so Frontier launched about three Years ago right And in that time you've gone from an Upstart to a company that has what 750 Million in annual revenue right To now being owned or strategically Invested in still Independent by a Pretty huge company uh naspers Essentially Um that's pretty fast yeah I know it's Been uh it's been a whirlwind we Incorporated in April of 2016. we Launched our first Market in December of 16 so about exactly three years actually Was December 19 and uh yeah we've been Very lucky to to grow how we have are You Rised by the rate of growth that you've Experienced was it something that you Expected You know I think that I think that the rate of growth Is we've obviously been very pleased but Where the model Works we've been we Expected it if it was going to work it's Going to work quickly what I think has

Been the most surprising part is how Ubiquitously successful it's been across The countries where we've tried it you Know when we started fcg I mean fcg is a Used car Marketplace very succinctly and We operate now in 10 markets but when we Started we operated in four Emerging Markets Mexico Nigeria Pakistan and Indonesia and we thought hey maybe two Three of these ecosystems would be Conducive to the model and all four and Now 10 have just been magnificent which Uh has proven a thesis of Emerging Markets being right for disruption but I Think that's been the most surprising Part we're in that in that first four Were there any of those markets Yeah you Mentioned Mexico Indonesia that were Um either surprisingly easy to enter or Surprisingly difficult I think Conventional wisdom as we think emerging Markets going to be difficult right What was what was the that that first Year in those markets like You know I think I think the I'll take a I'll give you two answers to it number One is operationally I think that there Is a There's a entering a country like Indonesia or Mexico just understanding Local regulation around tax Incorporating a company you know there's Such there's Hoops that you have to jump Through that are ridiculous and much

Harder than I thought in some much Easier than others easiest for example Mexico it's even easier to set up a Company in Mexico than it was in the U.S But Indonesia you actually have to go Physically in person and present to a Board on why you should have a company Incorporated and so there's different Ends of the spectrum The second answer I'll give you is Actually in terms of topco fundraising Because one of the biggest difficulties That I found is that raising and Attracting capital for emerging markets What in the very beginning of the Company before we have a proven business Model was very difficult because Investors in the US and Europe are not Keen on investing in these markets or We're not keen should I say that's Changed quite a bit and number two is There isn't really an ecosystem of Capital in the markets we were in so What would your since we probably have Some you know budding entrepreneurs in The in the audience so what how did you Convince these companies companies VCS in the US and Europe who might have Been apprehensive to go into Emerging Markets especially with the unproven Company uh what how did you what did you Do I mean are you that convincing I Don't know about I don't know about that I mean we've uh we've been luckily very

Successful in fundraising now I think Then you know I think it was two things Number one was diversification of risk You know we basically the fact that we Would be spread across a few different Markets and frankly if you could build And own the used car ecosystem of one of The countries in totally Non-competitively ecosystems It would justify the valuation times 10. And so I think investors got okay not With the Emerging Market story but Actually would the diversification risk Story and then number two is frankly the Way we're legally structured I mean We're a U.S company and money goes into The US company and then we hold Subsidiaries I think it made investors Feel comfortable and then number three Is this obviously they just Market Opportunity is massive I mean these are Four of the top countries in the world Market size growth rate used car markets Whatever metric you want to use and so Um I think that was a no-brainer for Investors you're a U.S company but You're based in Berlin correct we're Based just down the street yeah okay Um the most recent Capital rage raise Was 400 million Strategic investment From OLX Group which is Really owned by prosius essentially Naspers what was the back story on that I mean have they been interested in you

For a really long time or what what can You tell us that maybe no one knows of How that deal came about yeah so I mean Let's take one quick step back I mean You know where are used car Marketplace We actually transact vehicles OLX for those who don't know is the Largest classifieds company in the world There are listed our listing site and so They are operating in 50 countries you Know they're owned by naspers which is 110 billion dollar company Um and you know our products were hand In hand as people sell cars through us And if they don't sell instantly they Usually list and we operate in very Similar markets if not the same most of The world And so they had invested they had come To us about 18 months ago Um for our series C and they you know Basically said Hey listen let's work Together for customers who can't Transact through you let's have them List and vice versa so they ended up Investing 100 million dollars for our Series C and then now Um said listen this is working so well In the various countries we overlap Let's put in another 400 and so Um yeah they they're a larger Shareholder obviously by far and um and We've just had to put it's been a Pleasure working with them all right but

You're still an independent company Correct they own about what 70 percent Of the company why did acquisition ever Come up as an option yeah it was an Option I mean when we were we've raised Now about 550 million 575 million Dollars and the You know when we were thinking about This latest Capital raise we wanted it To be our last hopefully obviously There's interesting things we could do With more capital in terms of m a etc But We said should we Do an external round from a normal VC Growth investor and we ended up getting A few term sheets to do that Or we said listen let's double down with OLX and it was a big debate amongst our Team amongst our board everyone and um You know what we said is there's there's Two decisions here one is financial and One is operational Financial These guys naspers has under the radar As much capital a soft think does I mean The two largest investors in the world I Think and so we said these guys are Going to be our financial partners for Life if we go with them but more than That operationally there's hands down no Better partner you know we can reduce Our marketing costs we can get access to A number one brand and so it was worth

Getting somebody to take a majority for All of those upsides Um than taking a term sheet and by the Way we have term sheets at higher Valuations yeah but um we decided still To work with OLX you said you um you Mentioned in terms of you hope this is Your last raise which to me is like a Hint that you're either on the verge of Profitability or or profitable so are You profitable and are you profitable in Certain markets as opposed to others Because you're in 10 markets now we're In 10 markets we're in uh five countries In America's we're in Nigeria we're in Three countries in Asia and then we just Launched Poland in Europe Um you know a lot of our earlier markets Are profitable I think the You know we're similar to a country that Expands to more country or a company That expands to countries where our Earlier countries will be profitable Well that we launched for example Poland Last week and so of course Poland is not Profitable but um you know so I think I Think that that story is a little Nuanced but um net fcg is profitable on An operational level Um and you know we have a headquarters Here in Berlin that's not but over time We hope to surpass that The second answer is that we probably on To be very honest we probably will raise

More Capital with OLX but the reason is More opportunistic you know we are Probably going to be expanding to more Countries with them as said we're in 10 Countries they're in 50. and over time We want to bridge that Gap and so as Part of that there's opportunities to Buy or there's opportunities to build so A year from now are you going to still Be an independent company or do you Think that you will actually end up Being you know fully acquired by OLX Um or maybe some other exit I'm not sure What what do you think where do you Think you're going to be a year from now I mean I think I think it'll be very Similar where they're going to be our Chief Partners around the world we're Going to work deeply co-create products Have unique Blended customer experiences In our operational countries but from a Legal and governance perspective you Know I think we're still going to remain An independent empowered team so your Focus is on Emerging Markets but I Thought it was interesting that you went Into the us which I you know most of us Wouldn't think of as an emerging market So why did you shift that strategy It's a good question Um so we launched in the U.S about one Year ago and we did that through an Acquisition our first ever acquisition Which was a business called we buy any

Car and Um it was a very large acquisition for Us at the time still is and it's a Highly profitable company yeah so we Don't so it's just opportunistic and no It was it was actually for two reasons Number one Is We do the quote-unquote emerging cities Of the us what we do in the US we have 77 locations and growing whereby we are In tier two tier three tier four cities In the US where we help consumers within An hour transact sub five thousand Dollar cars so that's well below the Average price point of a car in the U.S So we don't compete with the carvanas The carmaxes the vrooms we're very much In kind of the emerging car lower end Car category The biggest reason we actually did this And this was a little bit of inspiration From Auto one here in Berlin it's for The first time we started cross-border Trading what we do in all of our markets Is we're an auction house right we take Cars and we allow buyers to bid on them And a lot of these buyers in West Africa And Latin America they craved Supply From the U.S and what it turns out that There is no good way for emerging market Dealers and Emerging Market consumers to Access vehicles from emerging from the Developed world because you know insofar

As somebody may have a cousin in the U.S Who buys a car and then somehow finds a Way to ship it and that's really how It's done So what we do now for example is we sh We trade millions of dollars of cars Every month from the U.S to West Africa We have our same dealers bidding on cars That are being sold in Nashville Tennessee and then we do the n10 Logistics from Nashville all the way to Lagos Nigeria that seems like it would Really crush your margins bringing Something all the way to it between the U.S and in West Africa I mean I I live On the border of Mexico and in the US so To me I see a lot of you know Cross-border traffic that would seem to Make more sense so how does that We make more money on those cars than The cars we trade locally really I mean Net of everything yeah the uh because if You think about it The quality of these cars is Extraordinarily better than the quality Of a car for the exact same spec you'll Find locally and so a 2010 Camry That's been driven on the US Road versus Been driven on a Nigerian road is going To be vastly different and so it goes For a much higher price net of logistics And by the way Logistics isn't actually That expensive and so it's just about Coordinating the process

Financing putting insurance on that Um but if you can coordinate all of that There's there's a lot of money to be Made so essentially the us is operating As almost like a feeder Market Feeding other Emerging Markets it's not Going the opposite way I would no no Yeah we don't spend we don't send Anything uh to the us we only go out of The US uh so is Poland going to act as a Similar strategy for you where because It was interesting to me that you went To Europe right uh again not something I Wouldn't consider as an emerging market So is Poland going to be this sort of Feeder market so it's going to be Bringing cars to African nations it Could be it could be you know when we When we Define the word Emerging Market Of course there's the the definition we All you know a developing world but for Us we really think about Emerging Markets as the characteristic of the Used car industry there rather than if It may just be traditionally an emerging Market so you know for example The consumer pain point in these markets Is that it's just a terrible way Experience selling your car you can list On classifieds you could try to Negotiate with a dealer that's really it And so if that pain Point exists in a Developed Market that's still an Opportunity for fcg and what we found in

Poland is because so many cars are Imported already to Poland from Western Europe that there's not really a good Way for consumers to sell their vehicles Um you know dealers have enough Supply Classifieds aren't great to work with so We uh you know that's the opportunity we Saw in Poland is actually a domestic Market where about a million used cars Are sold every year so uh we actually Want to consider that a domestic Market First but over time we probably will do Um mostly to Africa Trading With the with this Capital raise is 400 Million injection that gives you I would Think a lot of Runway to expand into Other markets so are you going to be Focusing on I mean are you going to go To Canada next or some of these other Like what you would think of as Non-traditional are you going to focus On Africa again uh Asia or or Latin America So our fcg's really core core group of Countries is Latin America Africa Asia period and we've always Operated under let's be focused let's Not expand too quick let's be reasonable I mean we could do the spray and pray Approach in open 40 countries and see Which what works but we've been very Level-headed and I don't think this Investment will change that

That being said we have an unfair Advantage with OLX now which is when we Enter a country where OLX is present we Instantly have a group of consumers a Marketing engine a dealer database a Brand everything set up for us so that Being said we'll probably launch one to Two new countries in 2020. Um one of them will most likely be Brazil and so Brazil will probably be Our next foray Um it's a massive Market top 10 country Top 10 used car market we have a there Is some nascent players that have Started there and so we're considering Buying versus building right now okay But uh that would probably be the next And then maybe a little bit of expansion In Southeast Asia Brazil is an Interesting choice because in terms of New car sales Brazil and some other Countries in South America have been Have just crushed automakers they've Completely pulled back so you know kind Of a two-layer question what's the used Car market like in Brazil and also What's this startup market like in Brazil since you're looking at an Acquisition I I'm assuming maybe Incorrectly that you're going to be Buying up maybe some smaller companies Not some big one so what what is Brazil Like what's the status well I think let Me answer your first question on the

Used car markets because frankly the new Car markets and a lot of Emerging Markets are just getting crushed I mean Crushed and you know they're so Expensive if you think about a car just A car is such a large piece of Somebody's income it's somebody's net Worth in an Emerging Market because it's Not like the price of a car changes in Fact the price of a car is typically More expensive in Emerging Market than The developed worlds like for example Our average car costs in Indonesia is About twelve thousand dollars I mean That's for a 2008 Toyota And because there's a lot of import Taxes on new cars so then the value Carries through so people can't afford New cars but used cars are rising in Terms of growth of the industry at the Fastest clip in Emerging Markets because You have this middle income population That's getting more and more empowered Like GDP per capita is going up and up And up and so more people can buy cars But they can't afford new cars they can Afford used cars and so what we find in Particularly in a place like Brazil is That the growth rate of used cars is Nearly double digits and um you know I Think that's spectacular that's a Spectacular opportunity for us Um to be in the trade of used So the second question is doing work in

Brazil Brazil is a notoriously hard country to Do startup work in I mean payment Cycles Are broken Etc but It's such a large ecosystem it's such a Large Market there's so much Venture Capital activity there that Um you know that that's it's a great Opportunity and frankly the The Dynamics of why it makes building in A country is hard gives us a competitive Advantage that's the case around the World no one builds in Nigeria I mean I Shouldn't say no one but very few people Build in Nigeria we do and therefore We're the only used car player that Exists So to wrap things up you have sort of Set a course to do three different types Of businesses the buy to sell Consumer model the selling and buying For fleets right but then there's a Third layer this kind of trying to be The next Kelly Blue Book which is this All these Services layer is that gonna Is that the next big opportunity you Know in the online used car Marketplace To go after that third piece I think It's huge I mean financially it's also Amazing because if you think about it in The U.S or in Europe if you want to know How much your car is worth you can Pretty much easily find out there's a

Lot of tools at your disposal but in Emerging Markets you don't know because There's no definitive pricing guide Because pricing guides people may not Know but are usually built on top of Real live trading data but if there's no Trading data how do you get that and so If you can be the de facto way cars are Traded which we are in most of our Markets already you can build the Biggest portal of actually pricing Information and these by the way Financially are pure ebitda businesses Because there's no cost and so you know Yes I mean I think once we once we're Ready to build that and monitor monetize It Etc we will launch it we probably Already have the data for it but um yeah I think that's going to be that's what We look in five seven years as being our Biggest opportunity okay great thanks so Much for joining us I really appreciate It