Karhoo, the company that said it had raised $250m and hired 120 people with the intention of competing with Uber, has confirmed it is pulling the plug on its taxi app a mere six months after it launched, following reports that it had burned through the best part of its venture capital investment.
The company posted an official statement on its website:-
“It is with much regret that we have to announce that Karhoo has had to close its service and is now looking at the next steps for the business. The Karhoo staff around the world in London, New York, Singapore and Tel Aviv have, over the past 18 months, worked tirelessly to make Karhoo a success. Many of them have worked unpaid for the last six weeks in an effort to get the business to a better place. Unfortunately, by the time the new management team took control last week, it was clear that the financial situation was pretty dire, and Karhoowas not able to find a backer. We would like to thank our staff, our partners, the fleets around the world that shared our vision, and the hundreds of thousands of people who downloaded the app and supported what we were trying to do. The world needs a Karhoo.”
Karhoo’s difficulties, as first reported by Sky News, came to light on Monday 7 November when employees were informed it was set to go into administration unless it was able to raise more money. Work was reportedly underway to find a new financial backer, but evidently this did not work. An internal memo quoted by Sky News said in part: “The key discussion points have been around providing him with reassurances about the state of the business, as he is being asked to invest money with no due diligence done.”
Karhoo was founded by British entrepreneur Daniel Ishaq; the original office was based in New York. The company has foundered in a hyper-competitive market, where cash can be spent quickly with heavy subsidising of rides to win market share.
The foundation of Karhoo’s operation had already shown weaknesses over the course of the year. Originally it had planned to launch in early 2016, after securing a network of 200,000 cars by striking deals with local – and many prominent – private hire firms. In its New York trial, meanwhile, it had some 10,000 cars. It took until 9 May for it to launch its first market, London, followed by a rollout to other UK cities. Several Twitter users claimed they could get £105 in free rides from Karhoo by using a variety of promotional codes.
In August, the Financial Times reported on its critical app store reviews, which Daniel Ishaq said were down to “not using the promo codes properly”, and that issues get resolved after they have spoken with customers.
Richard Holway, chairman of industry analysis TechMarketView, told the Financial Times at Karhoo’s launch in October: “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.”
Daniel Ishag (who stepped down as CEO several days ago), had never publicly disclosed how much it raised. A report in the FT last year written with cooperation from the company claimed it was around $250 million with ambitions to raise $1 billion in total. (CrunchBase further notes two rounds, with an undisclosed amount coming in January.)
Various tips from sources disputed that funding figure, however, saying it was much lower.
Karhoo’s business model was based around it taking a 10 per cent commission on rides booked through its platform, providing a competitive edge on Uber’s 20-25 per cent.
But ultimately, that structure - which by definition would bring in less returns for Karhoo than Uber’s -is based on very large economies of scale to have any kind of reasonable margin. And building out any transport service before it can get to that scale is extremely capital intensive - as Uber has demonstrated - which would deteriorate those margins even further.
Karhoo, however, didn’t appear to have the reach with consumers to achieve anything like enough scale. The company, according to Google Play, only had between 50,000 and 100,000 downloads of its Android app. It doesn’t look like it was faring much better on iOS, where, according to AppAnnie, it last ranked at number 86 in transport apps in the UK and didn’t even make the charts in the U.S. at last check.