SINGAPORE – South-east Asia’s used-car marketplace Carro is raising about US$100 million as it gears up for a stock-market debut, betting that new funds will cement it as the region’s top player.

The company is speaking with investors for a pre-IPO (initial public offering) funding round which could raise its valuation to more than US$1.5 billion (S$2.04 billion), chief executive officer Aaron Tan said in an interview.

The firm, which has about 4,500 employees, counts SoftBank Group as well as Singapore’s GIC and Temasek among its investors.

Carro, whose platform allows consumers and dealers to buy and sell vehicles, is trying to win over investors scarred by an implosion in start-up valuations over the past two years.

The Singapore-based start-up is also operating in a highly competitive market, one that is resistant to change.

Mr Tan, who founded the start-up in 2015 with two fellow Carnegie Mellon graduates, is betting on innovations to stand out from the pack.

The CEO demonstrated a tool he called the Shazam of engines, which analyses the health of a second-hand car from the sound of its motor.

And the start-up offers a five-day no-questions-asked return policy, unheard of in many parts of Asia.

To top it all off, Carro intends to expand its operations in Japan and Hong Kong in 2024.

“We are ready for an IPO,” Mr Tan said. “Whether or not we list depends on the broader macro environment.”

Carro is raising capital during one of the hardest possible times for fledgling firms. The South-east Asia technology industry has been plagued by job cuts, CEO resignations and falling start-up valuations, making it difficult for companies to debut on public markets.

Shares of regional tech peers Grab Holdings, Sea and GoTo Group have waned as they work to balance growth and profitability in a region that is losing its lustre.

Meanwhile, used-car prices are in retreat, making it harder to flip vehicles for a gain. Elevated interest rates and inflation are pushing up the prices of car loans, making them less affordable.

Over the past nine years, Carro and main rival Carsome have invested hundreds of millions of dollars to acquire inventory, build out delivery networks, set up refurbishment centres and fit out used-car showrooms.

To get shoppers more comfortable with buying online, the upstarts have also introduced Amazon-like features, such as no-quibble returns, and delivery within a few days.

As a result, more consumers in South-east Asia are starting to skip traditional dealerships in favour of buying used cars online. But for Carro and Carsome, a big test lies in how well they can leverage technology to better predict the prices and conditions of vehicles, shorten the time taken to get cars ready for their new owners and push a suite of products, including loans and insurance.

To move tens of thousands of cars each month, as Carro and Carsome do, they have to oversee more than 100 trailers each day, plan efficient routes to drop off vehicles from one city to another and manage more than US$100 million in inventory at any given point.

To help with that, Carro built a QR-code dashboard to track cars at each stage of the trading, refurbishment and delivery process.

On average, cars stay with Carro for about 26 days, while Malaysia-based Carsome says it takes about 45 days to sell a vehicle to a consumer. That compares with about 46 days for Carvana, their US-listed peer.

“It’s easy to do this at a ‘mom-and-pop shop’ level,” Mr Tan said. “But if you want to do this at scale, you need investments, you need a lot of space, you need the manpower and, of course, the tech and systems.”

The efficiencies achieved through tech and larger vehicle volumes have helped Carro reach profitability on an operating basis. Earnings before interest, taxes, depreciation and amortisation jumped to over US$33 million for the year ended March 31, from US$4 million a year earlier.

Yet, a narrative for an IPO will need to go beyond being profitable and the top platform in South-east Asia, said founding managing partner at Insignia Ventures Partners Tan Yinglan, one of Carro’s early investors.

To fuel its growth, Carro is planning further expansion in Japan and Hong Kong, two markets which Carro’s Mr Tan said have big potential.

“It is important that Carro wins a few more markets in the Asia-Pacific, as the institutional investors in the United States will find these APAC markets such as Japan and Hong Kong more sexy,” Insignia’s Mr Tan said.

“Technology without discipline can lead to an early head start but also an early crash.” BLOOMBERG