Fall of Beepi: Did $149M Funding Fail or Was Mismanagement the Culprit?

Happy Wednesday! Welcome to another edition of "Founder Fuck ups"!

This is the fourth article in the “Celebration of Failed Startup” series. In the past, I deep dived into the failure of Juicero, Quibi and YikYak.

Today, I am diving into the rollercoaster ride of Beepi, the online car marketplace that had it all and then lost it all. It's a wild tale of massive funding, financial chaos, and some questionable decisions that led to Beepi's ultimate downfall. So, buckle up and join me as I explore the ups and downs of this startup's journey and uncover the valuable lessons every founder should take away!

Company Profile

Elevator Pitch

“Beepi is a forward-thinking startup that aims to disrupt the used-car sales marketplace. It strives to enhance the experience for buyers and sellers by offering a comprehensive service. Beepi connects sellers with buyers, providing a guaranteed price and a promise to purchase the car within thirty days. Buyers enjoy a simplified process as Beepi handles inspections, delivery, and paperwork.”

Founding Team

Beepi was founded by Ale Resnik and Owen Savir in 2013. Resnik, the Ex-Co-Founder & CEO, brings a wealth of experience as an entrepreneur and angel investor through FJ Labs, a venture capital and private equity firm.

Resnik's journey into the business world started in 2005 as an analyst at Techint, honing his analytical skills. He ventured into e-commerce and founded Global Vitamins, where he demonstrated business acumen as CEO until 2011. His academic achievements include degrees in Computer Science and Industrial Engineering, complemented by an MBA from MIT Sloan School of Management, equipping him with a versatile skill set for Beepi's strategic direction. You can check out more on Ale on his Linkedin profile. ?

Owen Savir, another Co-Founder, has been an integral part of Beepi's success since its inception. Prior to Beepi, Savir co-founded iContact Education Systems, showcasing his talent for driving technological innovation.

Savir's academic background includes degrees in Computer Science from the University of Pennsylvania and IDC, Herzliya, and an MBA from Stanford Graduate School of Business. You can check out more on Owen on his Linkedin profile .?

Together, Resnik and Savir formed a solid founding team, bringing a wealth of experience and knowledge to build a scalable company.

Funding

Total funding of $149M

• $1.3M Seed round
• $5M Series A
• $147.5M Series B? (seems like raised in three trenches)$60M Series B$12.7M Series B$70M Series B

Key VCs: SAIC Venture Capital, SVB, Foundation Capital, Sherpa Capital, Ridge Ventures, and RedPoint Ventures

Key Angels:? Fabrice Grinda, Yuri Milner, Scott Bommer, and Gil Penchina.?

Product

The process of buying and selling used cars can be arduous and frustrating, with cumbersome experiences at Department of Motor Vehicles offices. Beepi recognized the immense market potential and sought to revolutionize this space by "removing the friction from the process of buying and selling a car", as stated by one of the founders.

Beepi had ambitious goals in the used-car market. It aimed to eliminate middlemen by enabling direct transactions, ensuring quality and transparency through professional inspections, and streamlining the entire buying and selling process by managing paperwork and logistics for a more efficient and convenient experience.

https://www.youtube.com/watch?v=DfFCzdUUXTE

Beepi introduced a novel approach in contrast to traditional methods. Instead of the conventional direct purchase, Beepi deployed its team of over 100 inspectors to conduct a thorough 240-point, two-hour evaluation at the seller's location. If the car passed the inspection, it earned a place on the Beepi website. Once sold, the money was transferred to the seller, with Beepi taking a commission of up to 9%.

Buyers experienced a seamless journey through Beepi's app. They could effortlessly select their desired car, receive a comprehensive report on its condition from licensed inspectors, and conclude the purchase on their mobile device. Subsequently, the car arrived at the buyer's doorstep, adorned with a celebratory bow. While test drives were not part of the process, Beepi provided the flexibility for buyers to return the car within 10 days for a refund in case of a change of heart.

In providing value to users, Beepi tried to establish trust and credibility through its certification process, offered a hassle-free and simplified car buying and selling experience, and extended its reach nationwide for a wider selection. By cutting intermediaries and offering professional inspections, Beepi sought to ensure fair pricing and instill confidence in both sellers and buyers regarding the actual value of the vehicles involved.

Overall, I feel like there are a lot of solid thesis on product, customer value and market opportunities.?

Beepi Timeline

Rise and Fall of Beepi

Founded by Ale Resnik and Owen Savir, Beepi aimed to revolutionize the used-car market through its online peer-to-peer marketplace. The promise of seamless transactions, professional inspections, and on-site delivery set the stage for what seemed like a groundbreaking venture. Investors shared the enthusiasm, as the company managed to raise a staggering $149 million with a valuation of $560 million at its peak.

Beepi's vision was clear: eliminate the middlemen and create a trustworthy platform for buyers and sellers. However, the road to success was far from smooth. The used-car market proved to be a battleground, with stiff competition and deeply ingrained consumer habits. Building brand recognition and gaining trust in an industry dominated by traditional car dealerships posed a formidable challenge.

As an online platform, Beepi faced resistance from buyers who preferred the familiarity of test drives and in-person interactions. Although the company offered a 10-day return window, some customers remained skeptical of buying a car without first hand experience.

Operational risks further complicated Beepi's path. To ensure quality and safety, the company needed a talented team capable of conducting meticulous inspections. The costs associated with acquiring and holding inventory weighed heavily on its financial resources.

Organizational mismanagement compounded the company's troubles. Misallocated funds, particularly towards exorbitant salaries and unnecessary expenses, strained its financial stability. Inadequate financial management hampered Beepi's ability to navigate the hurdles it encountered.

Despite attempts to secure acquisition deals with competitors like Fair.com and DGDG, none materialized. The combination of financial missteps, logistical challenges, and failed acquisition negotiations spelled doom for Beepi.

In December 2016, Beepi's journey came to an end. The once-promising startup had to close its doors, leaving behind a valuable lesson for aspiring entrepreneurs. The rise and fall of Beepi serve as a reminder that not all digital transformations can gain traction in certain industries. Startups must diligently align their value-creation strategies with market realities and ensure efficient organizational management.

Learnings: Why Beepi failed

Ran out of Money

This is probably the biggest nightmare of any founders but most of the time founders are responsible for getting into a cash crunch situation. This was one of the critical reasons behind the fall of Beepi.?

The company burned through an astounding $7 million per month with a significant portion of that expenditure going towards inflated salaries, overtime, and unnecessary expenses. The ambitious growth of the company, with a workforce of 300 employees at its peak, contributed to its accelerated burn rate, rapidly diminishing the existing funds. Moreover, Beepi's aspiration for additional funding based on a lofty $2 billion valuation fell short, as the $300 million goal was not met.

We've all heard the saying, "Cash is king." Running out of cash can be a death sentence for even the most innovative ventures, and Beepi was no exception! Startups must prioritize budgeting and make strategic decisions about spending to ensure sustainability and weather the challenges that come their way.

But what caused the cash crunch at Beepi?

Mismanagement of Finance

The prime job of a CEO is fund allocation and management, and Beepi's founding CEO fell short in this critical area, leading to a terrible mismanagement of cash and a complete disregard for risk. Moreover, the Board's role in overseeing financial matters raises questions about their effectiveness.

A significant portion of Beepi's burn rate can be attributed to "grossly high salaries," putting immense strain on the company's financial stability. Instead of directing funds towards business growth, money was diverted to cover expenses unrelated to core operations, such as footing the bills for the founders' partners and indulging in extravagant purchases of furniture.

Adding to the financial strain were the disproportionately high salaries and overtime compensation granted to top management. This not only depleted the company's financial resources but also raised concerns about resource allocation and overall financial discipline within the organization.

The unfortunate truth is that startups must prioritize responsible financial management, aligning expenses with business goals and avoiding unnecessary extravagance. Without a sound financial strategy, even well-funded ventures can find themselves facing insurmountable challenges, leading to failure.

Key Strategic Investor Not Backing Anymore

While the company was running out of cash, the founders must have tried raising capital, but they failed. The key reason for their failure was the withdrawal of support from its key strategic investors in China. Although the specific investor was not officially confirmed, speculations pointed towards Chinese automaker SAIC, which had led a significant $70 million funding round in December 2015. Interestingly, the round was originally intended to be much larger, at $300 million, when Beepi began raising funds in May 2015.

Losing a key investor is a massive blow to any company. It becomes challenging to convince new investors when current ones are no longer backing the venture, making the fundraising job even more difficult. The withdrawal of such support can disrupt a startup's expansion plans, hinder further fundraising efforts, and create uncertainty among other potential investors. In Beepi's case, losing the backing of a strategic investor likely compounded the financial challenges it was already facing, making it difficult for the company to sustain its operations and ultimately contributing to its fall. This serves as a poignant reminder of the significance of strong investor relationships and the need for startups to diversify their funding sources to mitigate such risks.

Customers’ Unwillingness to Rely on a Third-party Entirely

While the idea of buying and selling cars online had existed since eBay Motors introduced it in 2000, completing the entire process on the internet remained challenging. The true condition of the car and its sufficient inspection remained elusive, making buyers hesitant to commit to such purchases entirely online. And, this was one of the critical hurdles that Beepi encountered.

Purchasing a car, even a used one, represents a substantial financial commitment, and many buyers were not entirely comfortable with making such an investment sight unseen. The tactile experience of physically inspecting a car, sitting in the driver's seat, and test driving it holds immense importance for most buyers, allowing them to gauge if the vehicle meets their needs and preferences. Beepi's focus on being a mobile app and removing what they deemed an unnecessary step, the in-person test drive, overlooked the essence of car buying—being a good retailer.

This resulted in a high cost of selling and a high return rate of goods, reducing their margins, and adding a lot of operational cost.

No Differentiation in the Market

Beepi's lack of a defensible strategy was a critical factor in its downfall. While the company initially offered unique perks and services in the online used-car marketplace, it failed to create a sustainable competitive advantage. As Beepi's innovative approach gained attention, other dealers quickly recognized the potential and began replicating similar offerings. However, these established dealers had the advantage of pre-existing, localized businesses, offering test drives, allowing them to operate with a significantly smaller cost base.

The absence of a defensible strategy meant that Beepi couldn't maintain a distinctive edge in the market. As competitors entered the scene, Beepi found itself facing intense competition without any significant barriers to protect its market position. The lack of a unique value proposition made it challenging for Beepi to stand out in an increasingly crowded space, leading to a struggle in maintaining a loyal customer base and attracting new buyers and sellers.

Startups must carefully consider how they can create sustainable competitive advantages and differentiation.

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