So much for fighting the Uber fight. Today Karhoo — a company that wanted to take on Uber by pulling together prices and offerings from competing car services into a single app — announced that it is shutting down its service and looking for “the next steps for its business” after running out of money and failing to raise more. The full statement is below.
Update: One day later, Karhoo has officially gone into administration. “After considering all options, Karhoo Limited and Karhoo Technologies Ltd have today been placed into administration,” said a statement provided by a spokesperson. “Paul Cooper and Paul Appleton of David Rubin & Partners Ltd, a firm specialising in restructuring have been appointed as Joint Administrators.” [Original article continues]
We’d been hearing for about a week now that times were tight at the company, with employees skipping paychecks as times got lean.
Then yesterday Sky posted an internal memo that stated the company had to shut down its R&D operations temporarily in Israel after being unable to pay workers, but that it was close to securing an emergency round of funding from a backer that was willing to support the company to profitability.
It looks like that never came to pass, however.
It’s a pretty significant crash and burn for the startup. Karhoo, founded by Daniel Ishag (who stepped down as CEO several days ago), had never publicly disclosed how much it raised. A report in the FT last year written with cooperation from the company claimed it was around $250 million with ambitions to raise $1 billion in total. (CrunchBase further notes two rounds, with an undisclosed amount coming in January.)
We’ve had tips from sources disputing that funding figure, however, saying it was much lower.
Investors according to that FT article included David Kowitz, co-founder of Indus Capital Partners, the US hedge fund; Jonathan Feuer, managing partner at CVC Capital Partners, the European private equity group; and Nick Gatfield, former chairman and chief executive of Sony Music Entertainment. Eric Daniels, the former chief executive of Lloyds Banking Group, was a board director at the company.
Karhoo was active in London with starting trials in New York and ambitions also to extend to Singapore. It also had an R&D operation in Tel Aviv, Israel.
In London, Karhoo claimed a network of 200,000 cars, with partners including the likes of Addison Lee and ComCab in the UK. In its New York trial, meanwhile, it had some 10,000 cars and its partners included Carmel. Competitors in London included Kabbee, which works also with fleets, like Karhoo. (We’ve reached out to Addison Lee for comment and will update as we learn more. The company has confirmed to us that it was not an investor.)
Karhoo’s business model was based around it taking a 10% commission on rides booked through its platform, providing a competitive edge on Uber’s 20-25%.
But ultimately, that structure — which by definition would bring in less returns for Karhoo than Uber’s — is based on very large economies of scale to have any kind of reasonable margin. And building out any transport service before it can get to that scale is extremely capital intensive — as Uber has demonstrated — which would deteriorate those margins even further.
Karhoo, however, didn’t appear to have the reach with consumers to achieve anything like enough scale. The company, according to Google Play, only had between 50,000 and 100,000 downloads of its Android app. It doesn’t look like it was faring much better on iOS, where, according to AppAnnie, it last ranked at number 86 in transport apps in the UK and didn’t even make the charts in the U.S. at last check.
As Uber, which has raised at least $10 billion and is valued at $60 billion, continues to grow globally, many smaller regional competitors have fallen by the wayside, consolidated or been snapped up by strategic backers who have the capital and reach to grow them (or at least only get slightly bruised trying).
In Europe, competitive movements have included Minicabster filing for insolvency; Gett picking up strategic investment from VW to work on a service together; and Hailo getting majority-acquired by Daimler and merged with MyTaxi.
It’s not just a European story, though: we have even heard through the rumor mill that Lyft in the U.S., which trails Uber by some way in the growth stakes with just $2 billion in funding, has considered acquisition offers in recent times.
More to come. Full statement from Karhoo below.