How to Get Funded in the Recession: The Frugal Mechanic Story

2/12/09Follow @gthuang

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 »

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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  • http://www.talentica.com Abhay Jaju

    Hi Gregory,

    This is very good success story for a start-up company and how to get funded in recession period.

    This is all together Eric Peters and Tim Underwood that they thought of this concept and achieved their level of success.

    I would keep this success story of The Frugal Mechanic in mind for my next blog. My organization help start-up, small and mid size company to take advantage of global talent.

    If you would like to know more about my blog please do visit at http://itsmyproduct.blogspot.com

    Best Regards,
    Abhay Jaju (Abby)

  • Ricky Donal

    Hi Gregory,

    Many Many Thanks to you for this informative article.Its such a nice article ..