How to Get Funded in the Recession: The Frugal Mechanic Story
On Monday, Seattle-area startup Frugal Mechanic closed a round of seed funding from Founder’s Co-op, an early-stage investment fund for Internet companies. Frugal Mechanic is an online search engine for auto parts, so people can find the best price for an air filter or muffler, and get the right part to match their car quickly and easily. It doesn’t exactly sound like turbo-charged technology, and the size of the investment (between $250,000 and $500,000—exact amount undisclosed) is barely enough to buy a couple of Tesla Roadsters. But the business lessons for launching a company in the current climate are immense.
I spoke with Frugal co-founder Eric Peters to get the story. Peters and fellow co-founder Tim Underwood were college roommates at the University of Washington. Peters went on to work for Amazon and Microsoft (MSN Search), while Underwood logged time as an Amazon developer. Last June, they were both laid off from their jobs at Bellevue, WA-based Second Space, an online marketplace for vacation homes and retreats.
Peters and Underwood decided to start something new, and spent time looking at different possible Web businesses. They settled on auto parts not because they were car enthusiasts, but because they noticed it was inefficient to go to existing product-search sites like Froogle and find what you need in a niche market, and then match the right part to your car. “The space is very fragmented. There are different sites for different parts,” Peters says. “We wanted to just focus on doing auto parts better, and be more agile.”
The key to their success so far has been their revenue model. (Hint: not much advertising.) For each auto-part transaction on the site, which averages about $100, Peters says, Frugal Mechanic collects a fee of 8 to 15 percent. Because the company connects buyers with sellers, Frugal doesn’t have to worry about managing customers’ credit card information, and so forth. On the flip side, Peters says the company also has been pursuing a “white label” service, whereby Frugal hosts another … Next Page »