How HiCarByeCar uses ‘crude behavioural analysis’ to disrupt used auto market

When car owners sell a car through a dealership, the vehicle changes hands two to three times — moving from one middleman to the next, before it is finally acquired by the vehicle intended owner — the driver. This all adds to the cost of the final sale price.

It’s something that HiCarByeCar founder Michael Zahariev sees as a value loss — and he claims his startup has come up with an innovative solution to this.

In January the two-year-old Johannesburg-based startup concluded a funding round with an undisclosed Swiss private-equity investor involving what Zahariev described as “an eight-figure valuation and a seven-figure investment”.

The deal will see the Zahariev retain a majority share in the company and the startup intends to use the investment to fund expansion across the Gauteng region.

His pre-owned motor sales platform aims to match car sellers and dealers to ensure consumers are able to get the highest possible price when selling their cars.

To do this the platform uses an algorithm that employs what he refers to as “crude behavioural analysis” of dealers — basically drawing on data on what dealers have bid in the past to see who can pay more.

The company generates revenue through commission (Zahariev would not disclose the amount) as well as through other monthly fees.

He singled out a case study that the startup conducted which illustrates that by using the platform sellers can sell their vehicle for about 45% more than the average price in the pre-owned car market.

HiCarByeCar grew by 100% between January and February. Founder Michael Zahariev now aims to grow the startup by 300% by the end of the year

“Another client was told the most he could get for their car was around R42 000, however when he came to HiCarByeCar we got him R60 000,” he says, adding that the only “negative thing” about the platform is that it takes three days to sell a car.

Aiming for 300% growth

Zahariev says the startup currently has over 150 users, all of whom are registered car dealers. He says HiCarByeCar grew by 100% between January and February and adds that the company is now looking at 300% growth for the rest of the year.

He says what makes the startup stand out from its competition is that it represents the seller as an agent through its platform. As a result, the company manages to keep its margins thin. HiCarByeCar’s margin is a fifth of the regular margin of other online car sellers in the country he says.

“We return value back to the market,” he says adding that improving efficiency through technology should come with a decreasing margin. He adds that the startup has three developers who “are constantly working on it”.

Didn’t approach local investors

So just how did this two-year old startup manage to raise that much funding?

For one, Zahariev says the company “chose not to approach local investors”.

The problem with local investors, he says, is that they ask you to fill out a standard investment form, which he says would not have worked for the startup given its unique case and business model.

He says he decided to make the business work without the need for external funding. At the time, the company was bootstrapped by Zahariev’s other venture, B Online, a full-service digital agency that he co-founded with Luke Calitz while in university.

However, he says he realised that they were working with a business model that needed to scale. Eventually a Swiss partner of the digital agency introduced them to their investor.

“We don’t want to be stuck in a model where you are raising funding and managing investors,” says Zahariev.

He says the startup was looking for one investor who would go forward with the startup in future rounds. “The investment plan is to look for one or two investors per round, where we can manage them,” he says.

“At the end of the day it’s important to remain business people,” he adds. “Our goal was to find as few investors as possible to build growth at the company. Our primary goal is to build a sustainable business model,” he says.

He adds that startups are forgetting this and are instead focusing on growing their startup’s valuation, which he thinks is great in the short term but believes that it’s difficult to gain value from valuations alone.

When development on the platform started in 2016, it’s business model was initially “more virtual”. The HiCarByeCar algorithm and platform were developed in-house by B Online.

“We weren’t as involved as we currently are,” he says, explaining that the company did not, at the time, engage in activities it does now like going out to inspect cars.

Then during the platform’s six-month test period, HiCarByeCar sold over 150 vehicles.

Staffing issues

One of the main challenges the business has faced is the use of a different business model. Sellers are wary, he says, and they always ask what the catch is. “Some say it is too good to be true and ask us how we make money,” he adds.

The second main challenge the startup has faced is around staffing. He says the general sentiment is people are wary of working for startups or new companies.

He adds that even young people are hesitant to join new companies and would rather join big corporates. “Yet those are the people that we want,” he adds.

Featured image: HiCarByeCar CEO and founder Michael Zahariev (Supplied)