CarsDirect Closes Near-Record Equity Placement

In what is being billed as one of the largest private equity placements ever secured by an Internet company, online car retailer CarsDirect.com announced yesterday that it has closed a $280 million (US$) round of financing.

All of the company’s original corporate and institutional investors, including Internet incubator idealab!, Michael Dell’s MSD Capital LP, Goldman Sachs, Primedia Ventures and Foundation Capital participated in this round of funding.

New investors include Morgan Stanley Dean Witter, Hambrecht & Quist, E*O Investors LLC, Oracle, Liberty Digital, Times-Mirror’s TMCT Ventures, East Peak Partners L.P., Japanese technology distribution firm Hikari Tsushin, and George Soros Private Equity Partners.

CarsDirect.com also announced that it has named Robert N. Brisco, the former president of Universal Studios Hollywood, as its new CEO. Scott Painter, founder and former CEO, is now vice-chairman of the company.

“We will use the proceeds from this round to build our brand, enhance customer service, and expand our program with our nationwide network of dealer partners,” Painter said.

The Next Webvan?

CarsDirect.com’s $280 million round of funding is reminiscent of the $275 million that online grocer Webvan secured in July from heavyweight investors including Goldman Sachs, Softbank and Sequoia Capital. Like Webvan, CarsDirect.com received funding that is comparable to, if not more than, the entire value of notable competitors.

For example, leading online car dealer Autobytel.com, which accounts for an impressive 45 percent of new automobiles sold on online services, is worth barely $280 billion, while Autoweb.com has a market value of $227 million.

CarsDirect.com’s first-tier investors, however, make the company look like the future leader in this market — at least in terms of market value. After all, Webvan has turned big buzz into a big initial public offering and a current market value of more than $5.7 billion, even though it currently serves just one market — the San Francisco Bay Area.

Meanwhile, rival online grocer Peapod, which serves eight markets, is worth about $142.5 million. Peapod has had financial difficulties recently, but the difference in value has still raised more than a few eyebrows.

Entire Buying Process Online

What distinguishes CarsDirect.com from other online car-buying services is that the entire vehicle purchase transaction can be completed online. Other services direct buyers to a dealer in order to close the transaction.

CarsDirect.com currently offers 2,500 makes and models by what the company says is every major manufacturer. Customers who use CarsDirect.com can shop for, customize, order and finance automobiles online. Automobiles will be delivered directly to the buyer after a transaction is complete.

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