Fund seeks car dealer investors for tech

A new venture capital fund will invest in early- stage technology intended to help dealerships operate more efficiently — using money raised from dealers themselves.

Automotive Ventures, which provides consulting resources and venture capital to automotive entrepreneurs, is launching DealerFund, with plans to raise $50 million from about 50 dealer investors who ideally represent at least 1,000 dealerships, Automotive Ventures CEO Steve Greenfield told Automotive News.

To date, it has raised slightly more than $10 million from 11 investors, and Greenfield expects to close a first round of funding by the end of April and begin making investments at that point.

Much of the new technology on the market today aims to help dealerships sell or acquire more vehicles, grow market share or spend marketing dollars more efficiently, Greenfield said. But he said he believes new companies will emerge over the next five years that will help dealerships cut costs from their businesses. That will be particularly important as record dealership profitability during the coronavirus pandemic and inventory shortage eventually returns to an era of increasing margin compression — and that could be one area of focus for DealerFund.

"There needs to be a wave of new technologies that come out that spend time at dealerships and, with a fresh set of eyes, say what roles need to take place and how do we make those roles more efficient?" Greenfield said.

"No offense to anybody, but we don't need a new [customer relationship management tool]. We don't need a new [dealership management system]. And we don't need a new dealer website or digital retailing tool. That's been done. But let's go — like we're hoping to do — spend time with dealers understanding what the biggest friction points are."

Examples could include technology that reduces the need for employees to manually scan documents, he said, or that audits in real time that a customer has provided every required signature for a vehicle purchase to proceed to the next step.

Greenfield started Automotive Ventures in 2014. His career includes time at auction giant Manheim and AutoTrader.com, owned then by Cox Enterprises and now under the company's Cox Automotive umbrella. He also worked at vehicle listings company TrueCar.

DealerFund follows an earlier Automotive Ventures fund focused on global mobility-related technology that launched about a year ago, Greenfield said. That fund has raised about $7 million from 67 investors, including 21 dealer principals, and has made 12 investments to date. Companies in that portfolio include Privacy4Cars, which deletes personal information stored in vehicles, and WarrCloud, which uses technology to process warranty claims.

Stu Berkley, a DealerFund investor and general manager of Middletown Honda in Middletown, N.Y., said he would like to see technology assist the vehicle walkaround process during a trade-in appraisal. He said he hopes that participating in DealerFund will bring him closer to the software development process and allow him to provide input on how new tools can improve the dealership's workflow.

"Stuff that helps us build process in the store, improves our staff's ability to help a customer, makes a transaction go quicker — those are the things that I'm looking for, so that we can make the place be more efficient and the customer be happy," said Berkley, who declined to disclose the amount he invested into DealerFund.

Dealers will provide money to DealerFund, and the Automotive Ventures team will vet and select the companies in which to invest, Greenfield said. Dealer investors, in turn, can test the early-stage technology in their stores, provide feedback to improve the tools and potentially benefit financially if the companies succeed.

Automotive Ventures will target companies for DealerFund investments based on the resilience of the entrepreneur and his or her team, whether the addressable market for the technology is large enough and whether the company takes a unique or novel approach to solving a problem, Greenfield said.

Dealer and early DealerFund investor Jason Tamaroff said he doesn't have the budget to build technology tools for his own stores. Investing in DealerFund is a way to outsource innovation, he said, "and then the upside is that I get to participate financially in the success of the company."

It also could give emerging tech companies a pool of dealership customers willing to serve as beta testers, said Tamaroff, vice president of Tamaroff Motors and Jeffrey Automotive Group, which combined represent Honda, Nissan, Kia and Acura across six dealerships in suburban Detroit.

It's hard to know today what kind of technology might emerge that doesn't yet exist, said Sam Slaughter, whose Sellers Auto Group in southeastern Michigan invested an amount he didn't want to share publicly into DealerFund. He said he is excited to collaborate with other dealer investors about their operational pain points and how technology might alleviate them.

"Steve's got a really unique ability to bring people together and generate conversation," Slaughter said. "The idea is that that conversation would drive investment, but even if it just drives, 'Hey, I've never thought about that. Let me hear more,' then I think that will be great."