Karhoo, a new well-financed aggregator (taxi and FHV comparison)-app, set up in London and headquartered in New York, thinks it can make taxi and for hire vehicle drivers and the taxi and for hire vehicle industry more competitive. The last 10 months it has been preparing for its formal launch in January 2016 as ‘the Expedia of the taxi industry’, giving users a wide choice of taxis and private hire vehicles – all fully licensed. So far, according to an interview with founder and CEO Daniel Ishag (41) in the Financial Times, it has raised $ 250 million. It aims at making that $ 1 billion next year to challenge Uber and others.
To do that Karhoo partners only with fully licensed companies. A tap on the app will show the nearest licensed vehicles completely with the name of the company and its fare structure. In New York City, Karhoo already works with ‘black car’ companies Dial 7 and Carmel. In a city like New York City –especially in Manhattan, traditionally street hail country- the traditional taxi business has been severely dented by the arrival of Uber.
The number of total yellow cab trips for the first half of this year fell by 10 percent, to 77 million, compared with last year’s first half, according to data from New York City’s Taxi and Limousine Commission (TLC). Revenue also fell.
Every day Uber carried out some 100,000 trips in New York City this past summer, a fourfold increase compared with last summer, the Wall Street Journal reported. And with Uber reportedly raising $1 billion in a new round of funding, it has, so far, appeared unrivaled. With this last round its valuation went up to around $ 70 million.
Karhoo is not in the same league yet, but comes with an impressive list of backers: Nick Gatfield, the former CEO of Sony Music Entertainment, and David Kowitz, the co-founder of hedge fund Indus Capital Partners are among the startup’s investors. Founder and CEO Daniel Ishag told BusinessInsider: “Uber can’t subsidise prices forever; they have to be profitable, especially if they want to IPO [which Uber said it delayed for the time being-TI]. We can go in and we can level the playing field.”
Karhoo was founded about 10 months ago in an apartment in South London and is now working from buzzing, cramped and busy offices near Piccadilly employing over a 120 people on both sides of the Atlantic. On the website it says “The way you get from A to B is about to get smarter.”
It’s actual headquarters is in Manhattan and on both sides of the Atlantic it is working hard on name recognition and on contracting the taxi and FHV industry for its services. Both in Britain and in the US many cab and FHV companies are convinced about the new kid on the block and are flocking to the new start-up. Most London black cab and large FHV companies have apparently joined. Europe is next in Karhoo’s plans.
Ishag, 41, CEO and founder, seems undeterred about the task ahead – although he is conscious that “timing is key”. He notes that Karhoo is making its move after others have spent money proving a taxi app market exists – and is catching the taxi industry’s incumbents at a vulnerable moment. “Generally speaking, a monopolistic environment where you’ve got one really big, dominant player doesn’t always do the best for service,” Ishag told the Financial Times (FT). “We’re in a position where we’re able to create a vendor-neutral platform for both the locals and the larger players to compete.”
Uber’s model has been to create its own fleet, with drivers downloading its technology to be connected to customers. Karhoo has chosen a different path, offering rides solely from established companies – allowing consumers to choose between different providers and differing fares. Taxi companies will dictate prices, with Karhoo taking a 10 per cent cut from each journey.
This is not a new idea. Many early taxi app groups, including Gett, Hailo and Kabbee all operate by providing access to established taxi fleets and licensed drivers. But Karhoo is better funded. According to the FT it has done this by securing money from wealthy individuals and people associated with private equity groups – the types of investor traditionally overlooked in big tech fundraising rounds. Many investors have also joined the company in various roles.
“We have very much of a private equity background and a private equity mentality,” said Ishag. “We have strong backers who encouraged us to batten down the hatches, just focus on execution and motor forwards.”
Nick Gatfield, former chairman and chief executive of Sony Music Entertainment, who has personally invested in Karhoo, told the financial press: “There’s room for several players in a market this vast. It’s not necessarily first mover advantage either. It’s for people who can look at the mistakes and successes of other businesses and build on that.”
But analysts point out that Karhoo stands at a financial disadvantage to the global leaders, each of which have raised more than $US1 billion: Uber and Lyft in the US, Didi Kuaidi in China and Ola in India. “Working with groups like Addison Lee gives them credibility,” said Paolo Pescatore, an analyst at CCS Insight. “I wouldn’t rule them out on day one, but they’re going to have to throw a lot of money into marketing.” Rival taxi app groups have also used their financial strength to engage in heavy price cuts, to win customers from each other.
In the FT Ishag claims that even this may be to Karhoo’s benefit. “Uber did very well in over-subsiding the market to squeeze out a lot of other players.” he suggested. However, others continue to question the funds being invested in start-up apps. Richard Holway, chairman of TechMarketView, the industry analysts, said: “I do get blown away by the amount invested in these [taxi app] companies and their valuations. It’s crazy. A lot of people, particularly those who invest in the later fundraising rounds, will lose money.”
- A new well-funded player on the taxi app-market is about to launch.