Investment Highlights

Automobile e-commerce platform Droom has raised $3 Mn (around INR 24.75 Cr) in an undisclosed funding round co-led by India Accelerator and Finvolve.

The latest capital infusion represents a significant milestone for the company as it prepares for its next phase of growth and development in India’s competitive automotive marketplace. This strategic investment comes at a crucial time as Droom continues to strengthen its position in the online vehicle commerce space.

The round also saw participation from a clutch of angel investors, including Rayzon Solar founder Hardik Kothiya, among others.

The diverse group of investors backing Droom highlights the confidence in the company’s business model and future prospects within the automotive e-commerce sector. Their support further validates Droom’s approach to revolutionizing how vehicles are bought and sold online in India.

Strategic Allocation of Funds

With the freshly raised capital, the company seeks to bolster its tech infrastructure, accelerate customer acquisition and expand its footprint in India.

Droom plans to allocate substantial resources toward enhancing its technological capabilities, which form the backbone of its online platform. The company recognizes that robust tech infrastructure is essential for delivering seamless user experiences and maintaining competitive advantage in the digital marketplace.

Additionally, the funding will drive aggressive customer acquisition strategies as Droom works to capture a larger share of India’s growing online automotive market. Geographic expansion remains a priority as the company looks to establish a stronger presence across various regions within India.

The investment will also expedite Droom’s decision to refile its initial public offering (IPO) papers in the ongoing calendar year, it said in a statement.

Droom’s Second IPO Attempt

This will be Droom’s second attempt to go public. It initially filed a DRHP with SEBI to raise INR 3,000 Cr back in 2021 but later withdrew its IPO plans due to market volatility.

After withdrawing its initial filing during a period of market uncertainty, Droom is now strategically timing its return to the public markets with more favorable conditions. The company has likely incorporated lessons from its first attempt and refined its approach to better position itself for a successful listing.

It also plans to raise INR 200 Cr in a pre-IPO round from existing and new investors in a bid to increase domestic shareholding in the company, mimicking the approach taken by IPO-bound quick commerce unicorn Zepto.

This pre-IPO funding strategy indicates Droom’s careful market positioning and efforts to optimize its shareholder structure ahead of the public offering. Increasing domestic ownership could potentially enhance the company’s appeal to local investors and regulatory bodies.

Financial Performance

Droom reported a 35% decline in its consolidated net loss to INR 40.4 Cr in the fiscal year 2023-24 (FY24) from INR 62.1 Cr in the previous fiscal year due to lower expenses.

The significant reduction in net losses demonstrates Droom’s focus on financial discipline and operational efficiency. This improvement in the bottom line represents an important step toward profitability, which is increasingly valued by public market investors.

With the improvement in its bottom line, the Lightbox-backed company’s EBITDA loss went down to INR 37.2 Cr during the year under review compared to an EBITDA loss of INR 57.3 Cr in FY23.

The narrowing EBITDA loss further underscores Droom’s progress in optimizing its operations and controlling costs. This trend toward improved profitability metrics will likely be a key factor in attracting investor interest during the IPO process.

However, EBITDA margin fell 21 percentage points year-on-year to -44% in FY24 as Droom’s top line took a hit. Its operating revenue slumped 66% to INR 85.4 Cr in the year ended March 2024 from INR 253.3 Cr in the previous fiscal year.

The significant decline in revenue highlights challenges in Droom’s business model or market conditions that the company will need to address as it prepares for public scrutiny. This revenue contraction could raise questions among potential investors about growth prospects and market positioning.

Investor Perspective

“With this investment, we are looking forward to supporting Droom in entering its next phase of growth, towards an impactful IPO and continued leadership in the industry,” said Ashish Bhatia, cofounder of Finvolve.

The statement underscores the alignment between investors and Droom’s management regarding the company’s strategic direction and public market aspirations. Finvolve’s commitment reflects confidence in Droom’s business fundamentals and long-term potential.

IPO Landscape in India

This year, there is an increasing IPO activity in India’s startup ecosystem. Several major companies are preparing to go public in 2025, with quick commerce unicorn Zepto expected to file draft papers by April, while EV manufacturer Ather Energy has already filed its DRHP to raise INR 4,500 Cr.

The flourishing IPO environment provides a favorable backdrop for Droom’s public market ambitions. As more startups transition from private to public markets, investor appetite for technology-driven businesses continues to grow, potentially creating a receptive environment for Droom’s offering.

In the automotive space, CarDekho is reportedly in talks to raise INR 3,000-4,000 Cr through its public offering, positioning Droom’s planned INR 1,000 Cr IPO as part of a broader trend of automotive platforms seeking public market capital.

Evolving Auto Marketplace Sector

The Indian automobile market is experiencing growth, with India aiming to become the world’s largest automobile market by 2030, focusing on electric and alternative fuel vehicles, besides, the government supporting this with infrastructure enhancements and EV charging facilities.

This ambitious national goal creates a favorable macroeconomic environment for companies like Droom operating in the automotive sector. The shift toward electric and alternative fuel vehicles represents both an opportunity and a challenge for online marketplaces to adapt their platforms accordingly.

The online automobile marketplace sector is seeing rapid innovation and expansion with major players like CARS24, CarDekho, Spinny, and Droom adopting AI and Metaverse to revolutionise sales and promotion.

Technological adoption has become a key differentiator in the competitive landscape, with platforms investing heavily in advanced solutions to enhance user experience and operational efficiency. Droom’s investment in technological infrastructure positions it to compete effectively in this innovation-driven environment.

Recently, CARS24 entered the new car market with an aggregator platform offering AI-powered buying experiences and real-time pricing.

This competitive move by CARS24 illustrates the dynamic nature of the online automotive marketplace and the continuous evolution of business models within the sector. Such developments underscore the importance of Droom’s ongoing investment in technological capabilities.

India’s overall automotive market (including passenger and commercial vehicles) is expected to grow from 5.1 Mn units in 2023 to 7.5 Mn units by 2030, at a CAGR of 5.7%, according to a Research and Markets report.

The projected market growth provides a substantial addressable market for Droom and its competitors. This expansion trajectory creates opportunities for online platforms to capture an increasing share of vehicle transactions as the overall market grows.

Key trends driving this growth include integration of AI and AR technologies for enhanced customer experiences, increasing use of digital platforms, and consumer preference for the convenience and transparency offered by online transactions.

These consumer and technology trends align favorably with Droom’s business model and digital-first approach. The growing preference for online transactions represents a structural shift in consumer behavior that benefits established e-commerce platforms in the automotive space.

Company Background and Evolution

Founded in 2014 by Sandeep Aggarwal, Droom is an online platform in India for buying and selling new and used vehicles. Initially focusing on budget-friendly cars, the company shifted in 2022 to mid-premium and luxury vehicles, increasing its profit per vehicle from INR 40,000 to INR 1.6 lakh.

This strategic pivot demonstrates Droom’s adaptability and business acumen, allowing the company to capture higher margins while catering to evolving consumer preferences in the automotive market. The significant increase in profit per vehicle highlights the effectiveness of this strategic shift toward higher-value segments.

Droom has expanded its services to include car financing, software solutions, advertising, and car rentals.

The diversification of revenue streams beyond core vehicle transactions represents an important aspect of Droom’s business model, creating multiple avenues for growth and reducing dependence on any single product line. This comprehensive approach positions Droom as a full-service automotive platform rather than simply a marketplace.

Funding History

To date, Droom has raised a total funding of around $296 Mn. Besides Lightbox, the company also counts 57 Stars and Seven Train Ventures among its backers.

The impressive funding history reflects sustained investor confidence throughout Droom’s journey. The participation of prominent venture capital firms in previous rounds has provided Droom with the financial resources necessary to execute its business strategy and establish market leadership in the automotive e-commerce sector.