Uber rival Karhoo shuts down after reportedly blowing through $250M

Posted on Nov 8 2016 - 10:46am by Huzoor Bux



So much for fighting the Uber fight. Today Karhoo — a company that wanted to take on Uber by pulling together various other competing car services under 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.

It’s a pretty large crash and burn for the company. Karhoo, founded by Daniel Ishag (who stepped down as CEO several days ago), had never publicly disclosed how much it raised but a report in the FT last year noted that 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.)

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.

Its business model was based around the company taking a 10% commission on rides booked through its platform, providing a competitive edge on Uber’s 20-25%.

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. (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 itself.)

But ultimately, Karhoo’s business model — 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.

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.

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 be 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.

 

It is with much regret that we have to announce that Karhoo has had to close its service and is now looking at the next steps for the business. 

 

The Karhoo staff around the world in London, New York, Singapore and Tel Aviv have, over the past 18-months, worked tirelessly to make Karhoo a success. Many of them have worked unpaid for the last six weeks in an effort to get the business to a better place.

 

Unfortunately, by the time the new management team took control last week, it was clear that the financial situation was pretty dire, and Karhoo was not able to find a backer.

 

We would like to thank our staff, our partners, the fleets around the world that shared our vision, and the hundreds of thousands of people who downloaded the app and supported what we were trying to do.

 

The world needs a Karhoo.



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