Alex Chesterman says the idea for the used car site came to him watching American television
Credit: Jamie Lorriman
Alex Chesterman has been founding companies for so long that he has to spell out to his children how his first start-up even worked.
“I try to explain to my kids what LoveFilm did,” the 51-year-old says of the DVD-by-post business he founded in 2002. “The idea that DVDs were posted and landed on your doormat. These are concepts that people today just don’t get.”
In a country that often suffers from a lack of big tech companies, Chesterman has created three. He sold LoveFilm to Jeff Bezos’ Amazon in 2011 for £200m – then considered a huge sum for a start-up.
At that point he had founded Zoopla, the property listings website that he took public in 2014. Valued at £919m when it floated, it was acquired four years later for £2.2bn by US private equity firm Silver Lake Partners.
Chesterman took just one week’s break after stepping down as Zoopla’s chief executive. The following weekend he wrote down the business plan for his next venture.
The used car website he imagined – Cazoo – is now worth $6bn (£4.5bn), even after dropping by a fifth since going public in New York this August. His 24pc stake is worth $1.5bn, placing him among a select few British technology billionaires.
Cazoo, which lets Brits buy and sell cars online with the vehicle delivered to their door, has grown from conception in 2018 to become the biggest listing of a UK company on the New York Stock Exchange.
“Even two years ago, the only people who had even heard of the brand Cazoo were the people inside this building,” Chesterman says. “Today, three out of four people in the UK have heard of us. Nobody’s ever done that before.”
After selling Zoopla, Chesterton says the only company he was willing to create was one that could be bigger. “We sold [Zoopla] for an enterprise value of £2.6bn. So starting a billion-pound business would have been a step backward.”
The idea came to him the same way as it did for LoveFilm: American television.
In the pre-LoveFilm days, Chesterton was living in America having ditched a graduate job at Goldman Sachs. He met his wife while working at the Hard Rock Cafe in Orlando, and later went on to become an executive at its Planet Hollywood chain.
Chesterman's 24pc stake in Cazoo is now worth $1.5bn
Credit: Jamie Lorriman
During the Christmas holidays in 2002, he spotted an advert for Netflix, which posted DVDs to subscribers in the pre-streaming days. Chesterton decided the idea could be an even bigger success in Britain, where the Royal Mail made nationwide next-day delivery.
Fast-forward to 2018 when Chesterton sat through a handful of adverts for Carvana, which sells used cars online in the US: he wondered if the same thing would work back home. “The single biggest retail market out there, bar none, is used cars, which is worth £100bn in the UK, and €700bn (£600bn) across Europe. And the single biggest sector had the lowest digital penetration.”
The entrepreneur – who has moonlit as an angel investor and backed a string of other British start-ups – admits he knew next to nothing about cars when he started. “Every time I’ve gone into a space, somebody has always said to me you’ll never succeed. What do you know about films or property? I’ve heard that every time, usually from industry players within the space for 20 years. My comeback to that has always been ‘I love films, I live in a property, I drive a car. I’m the customer.’
“What more do I really need to know? Can I make the consumer proposition of buying or selling a car better? Do I need 20 years of industry experience to do that? No.”
Buying a car online without haggling or high-pressure sales tactics, he insists, is simply more enjoyable: “It’s a fundamentally-better proposition. We have 100 times the selection. We are completely transparent on value. You don’t have to spend half a day travelling.”
Investors backed the idea, making Cazoo Britain’s fastest ever company to reach the hallowed “unicorn” status at which point it is worth $1bn.
And consumers are starting to come around. In the first half of this year Cazoo sold 20,454 cars – five times as many as the same period last year. Revenues rose from £40m to £248m, although much more growth will be needed to live up to the company’s valuation. Half-year losses grew, from £31m a year ago to £102m.
Despite the bet on Brits, Chesterman says a key reason for the company choosing to list in the US, in contrast to Zoopla’s London listing, was because American investors are more comfortable with losses.
“I took my last company public in the UK, on the stock exchange, it was absolutely the right thing to do. At the time we floated it, it had been going for seven years and was generating tens of millions of pounds a year of profit. So it was a very easy sell,” he says.
“If we’d done [Cazoo] seven years in … the UK would have been just as good a place but because we’re early in the story, but also early in the business where our plan is to lose money, for a period of time, some people struggle to get their head around [that].
“That is a better understood concept, a more readily-welcomed concept on the other side of the Atlantic.”
The site’s growth has been partly fuelled by that readiness to be lossmaking. The company’s marketing budget – including the cost of sponsoring Everton and Aston Villa football clubs and decking out hundreds of London taxis in Cazoo green – has trebled in the last year.
While some may view Cazoo’s listing location as a bet against home soil, Chesterman disagrees with British hand wringing over where companies go public, or whether we should allow deep-pocketed American giants to buy UK-founded start-ups.
Alex Chesterman CV
“If you look at both the businesses I’ve sold, one to Amazon, one to a US private equity house, the businesses have remained in the UK, the number of jobs created in the UK, and all of those things have grown materially.
“I would argue that those businesses have become much stronger for the UK in terms of creating jobs, paying taxes, etc, for the very reason that they now have very deep pocketed owners.”
Despite Netflix becoming a $270bn giant, he says he has no regrets over selling LoveFilm, which formed the basis for Amazon’s giant push into Hollywood. “I was competing with Blockbuster, and a bunch of independent video stores, I knew it was within my capability to beat those guys.
“But the market was moving to digital and the type of players that we were going to find ourselves competing with were the Amazons and Netflixes and Rupert Murdoch’s of this world.”
He dismisses suggestions that a shift in the car market to autonomous or electric will fundamentally change Cazoo’s business, saying people will still buy vehicles in 10 or 20 years.
The question is whether Chesterman – a serial entrepreneur – will still be in charge. “It’s the starting and growing that I like, when my ability to strategically improve a business diminishes, then I think it’s probably less exciting for me. At that point there are probably better managers out there.”
Cazoo is a long way from that point, however: “We will be a £50bn business in five years’ time,” he insists, with all the confidence of the best used car salesmen.