In 'Entrepreneurial Spirit,' we delve into the reasons people started their businesses, the initial challenges they faced, and their aspirations for the future.

In our 44th installment, we interviewed president of Aracan Co.Ltd., Kazue Tanaka, about the challenges that the company faces, with added insights from JAFCO's investment professional in charge, Yasuyuki Niwa.

【Profile】
Kazue Tanaka, President, Aracan Co.Ltd.
Mr. Tanaka joined Nextage Co., Ltd., a used car sales company, in 2003 and became director and general manager of its business division in just three years. Later appointed COO, he achieved listings on the Tokyo Stock Exchange Mothers (at the time) and First Section (now Prime). In 2019, he founded Aracan Co.Ltd. to tackle issues in the used car industry through an auto marketplace business.

【About Aracan Co.Ltd.】
Aracan operates the auto marketplace Kababa, where professionals handle various aspects. Qualified appraisers evaluate the quality of used cars and publish all information online, enabling complete online transactions for buying and selling used cars. The platform aims to allow anyone to trade at a fair price through fixed transaction fees and cost reductions achieved by streamlining distribution. As of April 2024, the platform has approximately 33,000 registered members, about 2,000 cumulative successful transactions, and a cumulative GMV of around 7.5 billion yen.

Portfolio

Transactions at fair prices with fixed fees: The reason for a thorough consumer-first policy

- First, can you give us an overview of the auto marketplace site Kababa, which started in 2019?

Tanaka Kababa is a service where individual sales of used cars can be completed online. Each listed car is assigned a professional appraiser who properly evaluates its quality and publishes the information on the site. We also handle the name change and vehicle transportation after purchase, so no specialized knowledge or complex procedures are required. It's a service that combines the convenience of online transactions with the reassurance of human involvement.

- Many users may feel uneasy about buying cars online. How does Kababa address this concern?

Tanaka The biggest concern is not being able to check the actual car in person. At Kababa, we provide detailed information about scratches and stains on the car through photos, videos, and descriptions. Moreover, the appraiser introduces each car with their face shown. While used car sales companies also post information about scratches, Kababa uniquely provides a level of detail that allows transactions to be completed solely on the website. Professional appraisers go over all the points that ought to be checked in a used car, so it can be said to be safer than inspecting the car yourself.

There's also the price aspect. Kababa offers a one-price quote that includes taxes, name change fees, and delivery fees. Usually, car purchases are based on price negotiations, so you often don't know the final price until you visit the store. Since Kababa completes transactions online, we provide the final price down to the last yen for peace of mind.

- So, you are transforming the unease of online transactions into a security that online services can provide. How do you handle issues that arise?

Tanaka Although it's a marketplace, we assign staff for each phase--from listing to sale, from sale to delivery, and post-transaction--to promptly address any issues.

A common case is where the delivered car would arrive with damage that was not disclosed beforehand. For this, we have a scheme of meticulously checking and photographing the car body at the time of appraisal, pick-up, and delivery, making it clear when the damage occurred. We believe it is our responsibility as the operating company to take preemptive measures against potential troubles.

- Sellers may run into the problem of not being able to sell their car. Do you offer support for that?

Tanaka As you say, not every listing results in a match. Therefore, for those who can't sell by their desired time, we started a new service of bulk appraisal where it's "left to the professionals."

In this service, we request appraisals from multiple buyers, and the seller is contacted by the one offering the highest price. If the seller is satisfied with the price, they can sell the car as is, or they can use the price as a reference to negotiate with other buyers. This service is very well received, with users expressing gratitude for being introduced to a buyer, even if they couldn't make a sale on Kababa.

- I feel that you have a sincere attitude toward both sellers and buyers. Could you speak about how Aracan generates revenue as a platform provider?

Tanaka Our company charges a uniform fixed fee per transaction from the buyer. To ensure fair pricing for car transactions, we do not link the fee to the transaction price.

Typical used car sales companies make a profit from the difference between the purchase price and the selling price, so "buying at low cost and selling at a high price" is standard practice. However, in used car transactions, many intermediaries are involved before the car reaches the buyer, leading to very high distribution costs. This results in a situation where the purchase price is too low and the selling price is too high.

Because Kababa is a person-to-person marketplace, we have no inventory risk. Since it's online, there's no need for physical stores or showrooms, and there are no sales personnel costs. Compared to usual used car sales, our costs are reduced to one-fifth, so there's no need to earn more than the fixed fee. This business model enables our customers to sell for as much as possible and buy for as little as possible.

- What drives your commitment to such a consumer-first service? Could you also tell us about your entrepreneurial journey?

Tanaka I have always loved cars. When I was younger, there was a model I admired, but with my income at the time, I couldn't afford a new one, so I bought a used car. That made my daily two-hour commute incredibly enjoyable, making me think that providing used cars would be a wonderful job. This motivated me to switch to the used car industry.

However, the more I worked in the industry, the more I felt the challenges I mentioned earlier, such as in the inefficiency of used car distribution and the opacity that disadvantages those without information or negotiation skills. I wanted to fundamentally correct these negative aspects and create a world where cars could be bought and sold at fair prices. When I felt balanced between my desire to create such an industry/service and my confidence that I could achieve it, I founded Aracan.

Support so effective that it feels like he's an employee

Mr. Tanaka (right) and Yasuyuki Niwa (left), JAFCO's investment professional in charge

- In 2023, you raised a total of 1 billion yen from seven companies, including JAFCO. Could you tell us about the process of considering funding from JAFCO?

Tanaka I was familiar with JAFCO from my previous job, so when I started thinking about raising funds for business expansion, they were the first I approached. At first, none of the investors understood the potential or significance of the business, and we struggled. They couldn't see the growth potential in the domestic used car sales business or feel attracted to the seldom-successful marketplace model. In fact, a different representative from JAFCO rejected us twice.

Niwa From the beginning, JAFCO has resonated with Mr. Tanaka's vision of the world he wants to create. His explanations were logical and convincing, and we felt the detailed service design could only be achieved by someone thoroughly familiar with the industry. However, the issue was whether the economics of this business model could truly work. We were concerned about whether we could generate a positive return per transaction and build up sufficient profits.

- What made you decide to invest in the company?

Niwa Subsequently, we closely examined the actual performance of Kababa and conducted a detailed verification of the numbers. We were convinced it was viable and wanted to invest.

Tanaka Many investment professionals only look at the broad numbers, but Mr. Niwa asked for the raw Excel data, which surprised me. He recalculated everything himself and created both negative and positive business scenarios. He was the first person to delve that deeply, making me feel he was genuinely committed to our business.

Niwa Thank you. Mr. Tanaka has extensive domain knowledge and the ability to translate that knowledge into business execution. I believe there are very few in the industry with his capabilities. He is driven by a desire to address the negative aspects of the industry. I have immense respect for him and am fully committed to supporting him.

- What was your impression of JAFCO during the fundraising activities?

Tanaka I was initially attracted to JAFCO's experience and their significant track record in IPOs. Additionally, they invest in companies with a strong social purpose, which was appealing. Interacting with them, I felt they had a rigorous perspective on business. Mr. Niwa's thorough approach and the fact that we were rejected twice demonstrated they were seriously evaluating the business. I had high expectations that partnering with JAFCO would mean tackling future challenges together.

- It has been about six months since the funding. How has the support from JAFCO been in practice?

Tanaka The support has been more hands-on than I anticipated. Mr. Niwa even participates in our weekly manager meetings, to the point where it almost feels like he's an employee (laughs).

With JAFCO's help, we succeeded in hiring engineers, strengthening our development structure. They also introduced us to a vendor with a proven track record for setting appointment schedules for our appraisers to visit sellers. This high-quality system, developed at a reasonable price, started operating in March and has already significantly improved our listing rates by streamlining the scheduling of appraisal dates.

While many VCs introduce collaborators, JAFCO's support directly contributes to our success. We are determined to achieve an IPO and repay their support with solid results.

Leveraging industry experience to make the market healthier by setting fair pricing benchmarks for used cars

- What are you working on now that you have raised the funds?

Tanaka Although we receive many listing requests, we lack sufficient appraisers. Our immediate goal is to place enough appraisers nationwide and shorten the appraisal wait time to within one week.

Increasing the number of appraisers and listed vehicles directly impacts the number of buyers. Our website is designed to rank highly in searches for car brands or years, making it easier for potential buyers to find us.

People rarely buy cars impulsively, so it's crucial for Kababa to be discovered by those actively searching for cars rather than relying on advertisements. That's why we haven't spent any marketing budget on buyers since our founding.

- So the hiring and training of appraisers will also help attract buyers.

Tanaka Yes. Kababa is a service that eliminates the inefficiencies and opacities specific to the industry, so as awareness increases, matching efficiency will improve.

Moreover, while the period from purchase to resale has been lengthening, if the cost of switching cars drops significantly, people can sell and buy cars more freely according to their circumstances and needs.

As Kababa becomes more widespread, people's car lifestyles will change, and the used car market will further expand.

- So the service itself is the key to unlocking the potential of the market. Ultimately, what's the vision that you aim to achieve?

Tanaka While our goal is to correct the issues in the used car industry, we are not, for example, aiming to dominate a majority share of the market. If Kababa achieves a 10% market share, meaning one in ten people in Japan uses it, that would influence the remaining 90% as well.

This is because Kababa can disclose transaction prices. For example, when buying electronics, don't you check prices on Amazon or Kakaku.com before going to a store? Using those benchmarks to negotiate prices is common. If Kababa reaches a 10% share, it will become standard to check our prices before transactions. This means our transaction prices will set the fair price benchmark for used cars.

If that happens, companies engaging in unfair pricing will be weeded out, and the entire industry will become healthier. Achieving this is my ultimate vision.

- I think that the challenge to improve the health of the industry is meaningful, but not easy. Do you ever feel some resistance from the industry?

Tanaka Yes, there is resistance. Unfortunately, companies that don't view us favorably are not operating healthily. Companies that compete through in-person hospitality and assurance don't see us as a threat, and their customers will be satisfied even if prices are slightly higher due to added value.

The existence of Amazon doesn't mean that there are no more bookstores and electronics stores. Consumers having more choices is a good thing. We believe we can coexist with existing companies and hope to improve the used car market together as an industry.

Comments from the investment professional in charge, Yasuyuki Niwa

The used car market, during its formation process, saw the emergence of specialized intermediaries such as purchase shops, auto auctions, and dealerships, creating a structure where intermediate margins accumulate from seller to buyer. In response to this issue, Aracan launched the auto marketplace Kababa, successfully compressing the traditionally dense intermediate margins and significantly shortening the distribution of used cars. To cultivate peace of mind for both sellers and buyers, which is important in individual transactions of used cars, the company employs its own appraisers and handles various