Startups rev up to get under car hoods

Hedge fund managers aren’t exactly the most popular people in the world, especially after the Wall Street collapse. But since David Sturtz gave up his hedge fund gig to start a website that helps consumers avoid getting ripped off on car repairs, he’s making lots of new friends.

Auto websites like Sturtz’s RepairPal have become popular as a growing number of consumers try to make their old cars last longer. New car sales in the United States plummeted from 16 million units in 2007 to an estimated 9 million units this year.

“From the owner’s perspective, there is much greater interest in how to take care of their cars and manage the asset more effectively,” says Bob Ackerman, managing director of Allegis Capital.

Earlier this year, Ackerman led a $5.3 series B investment in, a startup dedicated to helping consumers with all aspects of car ownership, including free advice from mechanics and information on parts and accessories.

“This is a very large sector of the U.S. economy, over and above the buying and selling of autos,” says Ackerman. “It measures in the hundreds of billions of dollars, but has never really been penetrated.”

Sensing a similar opportunity, like-minded car sites such as High Gear Media, Mota Motors, RepairPal, TrueCar and vLane have also landed venture and angel funding. Market conditions have served as a catalyst for their near-simultaneous arrival on the scene.

Since the start of 2008, at least 11 auto-related Internet companies have raised a combined $60 million, or an average of $5.5 million each, according to Thomson Reuters (publisher of PE Week).

“I’ve been in this business for 10 years, and I really can’t think of any startups that became a raging success,” says the founder of a technology-oriented auto company that was launched in the dot-com era and is still in business today. “Honestly, I’ve met a lot of entrepreneurs in the auto sector who start out with high hopes for their business models, but a few years later, they realize that things didn’t pan out like they imagined.”

The big problem, says the founder, who asked not to be named, is that the auto industry moves very slowly. Yes, consumers have gone online in a big way. But the auto industry supply chain, and the people who work within it, remain very resistant to change. “If I was starting a business again, I would really think twice about the auto sector,” the founder says.

That said, startups probably have a slightly better chance of survival today because they have launched in a recession. If times were better, says Mark Silverman of Catamount Ventures, another investor in DriverSide, there would be 15 or 20 companies all trying to do the same thing, instead of just half a dozen.

One company that stands out—not least because it has passed up offers of venture money—is RepairPal. The startup, as its name implies, is focusing almost exclusively on car repairs. In fact, it aims to become the Kelley Blue Book of the auto repair industry.

It has developed the first consumer database of its kind, providing estimates on the 125 most common car repairs. RepairPal spits out prices depending on the make and year of any given vehicle. All told, the database can generate 70 billion individual price points.

RepairPal lists 170,000 shops and dealers in its online directory. In just three months of selling, the company has signed more than 800 service shops as subscribers, paying between $50 and $200 per month for preferred placement on the site.

“Until now, the only form of lead generation for service shops was the Yellow Pages or the newspaper,” says RepairPal CEO Sturtz. “We are defining an entirely new channel of customer acquisition for a very large industry.”

Sturtz says he’s been up and down Sand Hill Road, home of many VC firms in Menlo Park, Calif., but ultimately decided not to take venture funding because he couldn’t see eye-to-eye with any of the venture capitalists he met. Instead, he raised $3 million in seed capital.

Sturtz previously ran a small hedge fund and was able to leverage some well-heeled connections in that community. He is currently on the verge of closing another $2 million round from angel investors, but does not rule out taking venture money. “I am always open to discussions if I find the right institution,” he says.

Not every auto website site is shifting into top gear. VLane, which raised $1 million in angel financing last year, has had to scale back during the recession. The company has developed an application that leverages social networks like Facebook and Twitter to help consumers decide what kind of vehicle to purchase.

For High Gear Media, the opportunity isn’t just that consumers are holding on to their cars longer. It’s that they’re becoming more passionate about their vehicles. High Gear publishes more than 30 auto-related websites for car aficionados, including and It raised $5.5 million in July from Accel Partners, DAG Ventures and Greylock Partners.

“High Gear has the opportunity to aggregate the best of what is available on the Web from not just a few good sites, but thousands of them, and do it in a very targeted manner,” says Andrew Braccia of Accel.

Despite the inherent risks of the auto business, investors in the current crop of car sites remain optimistic, primarily because the various startups are relatively inexpensive investments that could potentially yield big dividends.

“There are car startups spending hundreds of millions of dollars to develop power trains that get 200 miles to the gallon,” says Mark Silverman of Catamount. “That’s not what we’re interested in. With a deal like DriverSide, we still have a chance to impact a huge market, but without a huge investment.”

A longer version of this story recently appeared in Venture Capital Journal, an affiliate publication.