Why We Invested in TRADE X
Written by Dmitry Alimov & Yakubu Agbese — August 30th, 2021
1.5 trillion dollars in used cars are sold every year and an estimated $75–100B of those sales happen between countries. On the one hand, the cross-border auto market is attractive because it offers a wider variety of inventory and is replete with price arbitrage opportunities. On the other hand, participating in the cross-border auto market, especially as an auto dealer, presents several frustrations and challenges: differing national regulations, communication barriers, limited pricing data, complexity of shipping and customs, dishonest operators, and lack of access to trade finance. Solving any one of these problems would unlock tremendous value — billions of dollars’ worth — and make cross-border auto trade more efficient. We’re proud to announce our investment in a company that has already made significant progress in solving several of them: that company is TRADE X.
Clearing customs, retitling, and registration are the key regulatory hurdles dealerships must overcome when importing used cars. Not only is this process lengthy and expensive, but it’s also risky. It is easy to spend several hours and hundreds of dollars filling out paperwork only to have a government official deny you the right to conduct the transaction. The regulatory burdens alone deter dealerships from directly sourcing international inventory. TRADE X has solved this problem by setting up fully registered subsidiaries in the countries where they do business. When a dealer on TRADE X’s platform sees a product they’re interested in, TRADE X takes on the responsibility of registering, retitling, and clearing customs on the dealer’s behalf through its network of subsidiaries. TRADE X also streamlines and simplifies logistics so that dealers don’t have to worry about if and how their purchases will arrive. Legal paperwork has long been a defining feature (or, more aptly, a bug) of the international auto market. By eliminating that paperwork for its customers, TRADE X is redefining the market.
Until TRADE X, the cross-border market was only a “market” in a loose sense. This is because finding trustworthy sellers is, too often, a matter of chance. For this reason, most used auto marketplaces focus on locally sourced inventory. The two key innovations TRADE X brings to the market make it a market in the true sense of the word. First, TRADE X offers trust. Each dealer on its platform is vetted and must pass several regulatory tests before receiving access to the marketplace. The second key offering is transparency. Historically, in order to trade internationally, dealers would have to visit a trusted middleman, request a particular vehicle they are looking for, hope that the middleman can find that vehicle, and then wait several months for that vehicle to be found and shipped. With the TRADE X platform, a dealer can search for a particular vehicle they’re interested in, review listings from around the world displaying that vehicle for sale, and then select which one they want to purchase. For too long, the automobile trade has been stuck in the 20th century. TRADE X’s marketplace brings the cross-border automobile trade into the 21st.
Many banks and other financial institutions have stayed away from auto trade finance, as they are keenly aware of the risks and inefficiencies in the market. Consequently, most dealerships must finance their operations via equity capital, high interest loan options, or sales. Financing operations in this way means that dealers have their capital tied up in inventory and have to wait for months before buying new inventory. Considering the size of the trillion-dollar auto market, the auto trade finance market represents an untapped multi-billion-dollar industry. In addition to simplifying the regulatory and logistics aspect of the market, TRADE X has simplified finance for dealers. TRADE X has a deep understanding of the operations of its members and of the automotive market as a whole. With this information in hand, it’s much easier and less risky for a dealer to obtain trade financing through TRADE X. Through offering its users trade financing, TRADE X enables its buyers to purchase more automobiles more frequently and grow their businesses faster.
This year, we’ve invested in three B2B marketplaces. We’re excited about this sector because we feel that the B2B marketplaces will follow the B2C marketplaces’ lead in creating tremendous value for the world as a whole. We are also excited by TRADE X’s experienced leaders. Between the two of them, Ryan Davidson and Luciano Butera have more than 45 years of automotive industry experience through executive-level leadership with top international automotive companies and building successful automotive ventures as entrepreneurs. Our goal is to contribute to TRADE X’s success by giving the company access to our relationships in the tech ecosystems of Europe and Asia Pacific. We’re also motivated to provide value to TRADE X’s work by providing all the other resources of the Frontier Ventures team as the company scales to new markets worldwide. We’re thrilled to back a company that has scaled its solutions to hundreds of millions of dollars in annual gross revenue run rate in under two years and has the ambition to redefine the global automotive industry.
