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There are four waves of innovation sweeping through the automotive industry that will disrupt vehicles more in the next 10 years than they've changed in the last 100.

Each week, we explore connected cars, electrification, changing ownership models, and autonomous self-driving vehicles, as we seek to understand and prepare you for the future of transportation.

Jul 31, 2019

EP014 - Co-founder and CTO of ACV Auctions, Dan Magnuszewski

http://www.vehicle2.getspiffy.com

Episode 14 is an interview with Dan Magnuszewski, Co-founder and CTO of ACV Auctions; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Dan and Scot discuss a variety of topics, including:

  • The road from Dan’s upbringing to establishing a startup community in Buffalo, NY
  • How ACV Auctions serves dealerships with real-time, 20-minute auctions
  • The technology behind the scenes at ACV Auctions, from condition reports to payments & titles
  • His experience with blockchain and co-founding the Blockchain Buffalo group
  • His role as an investor and advisor for Drone Energy, an industrial IoT and smart grid solution

Be sure to follow Dan on Twitter and LinkedIn. If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

Transcript:

Scot:   

[00:51]    Welcome to the Vehicle 2.0 podcast. We are live at the 2019 automotive intelligence summit here in big beautiful Raleigh, North Carolina. It's Tuesday, July 24th, and we are really excited to have a special guest on the show. We have Dan Magnuszewski,and he is the co founder and CTO of ACV auctions. Welcome to the show, Dan. Thanks for adding me. So appreciate you. We're doing this at lunchtime, so appreciate you kind of skipping lunch a little bit so I know sacrificing the lunch and, you know, pretending the fast. Yeah. Awesome. Uso let's start with your background. We'd love to know, you know, as a fellow technology guy, you know, did you do comp sire engineering and then take us to how you ended up, at ACV auctions?

Dan:    

[01:42]    Sure. So born in in really raised in Buffalo, New York as I was going through school always had an interest in computers. I initially wanted to be an astronaut, but it was, wasn't good at math, so I said, okay, well I can work on, you know, you know, computers and stuff. That's cool. And then, you know, that, that, that's my contribution. So I got really interested in computers. In high school we had a Cisco Network Academy course and this is kind of like 97 through 2001 took some web design classes. And then like I said, this is go network academy. And so I got into networking graduated high school and was going to University of Buffalo for computer science. The summer leading up to it, I was fortunate to get an internship with a a regional bank and I was working in their network operations center and writing software that was helping monitor the network and you know, the systems and things like that.

Dan:    

[02:46]    So worked, worked there throughout college. And a couple of years after I left there, went to a kind of a growing startup in buffalo called Synacor. I was there from, you know, there was about a hundred people and when I left a little under, four years later, there were about 350 people prep and we're preparing for IPO and all this other good stuff. They tried the first time, it was 2008 when they're attempting that. So yeah, not, not quite the timing. So I left there. They, they IPO a couple years after I left, but so I left there and to go do a startup with a buddy of mine. We did that six months in, went to south by southwest, didn't necessarily launch. So kind of went around and started becoming a technical cofounder for hire worked with people out of the west coast, New York City, Chicago who had an idea and had some money and were looking for someone to kind of make this into a real thing.

Dan:    

[03:50]    So I would, I'd really take it, take the product idea, like work through it, figure out what the MVP is, really try to focus it and then would go and build it. So I was doing that for a while and kind of along the same time, I was doing a lot of things in the in the local community around how are we building, you know, startups and coworking and a whole bunch of other stuff. So, so I was doing that and we were opening, well, a couple of people were opening a an incubator in buffalo in five point $2 million seed fund and you know, so that was really the first of what a first of the incubators and things like that in Buffalo. So a kind of career shifted a little bit and went into venture capital and how do you build businesses?

Dan:    

[04:38]    And studied under a couple of guys who had a Jordan lovey around triber who had built a couple very successful companies and with Softbank capital in New York. So I was working with them and kind of understanding how do you build a business, how to vcs, look at investing in companies how do you pitch your company? How do you do all these different things that just building how do you build a great business, but then also how do you then go and pitch it and raise capital and things like that. Did that. And so after a while it felt like it was kind of sitting on the sidelines a little bit, you know, trying to help mentor companies and things like that. But I wasn't really fully getting my hands dirty at the end of the day. So I had an itch to kind of get back into it.

Dan:    

[05:24]     I was working on some things on the side. And then somebody applied to the incubator they, they had just moved to buffalo from Albany and basically say, I have this idea and I, you know, I was a used car dealer. I went and I was selling 50 cars a month and it was a nice little business, but I'm running around all these auctions all the time. And so he moved to Buffalo, worked at a, at a decent sized new car dealership and saw a lot of inefficiencies in their wholesale process. And he's like, you know, I, as a, as a used car dealer, I would love to get access to this inventory where they're taking a couple of photos and just putting it in their dms. I would love to have, I would love to have access to this. So it's like, I have this idea and you can get a push notification and you know, you can buy this inventory ahead of time.

Dan:    

[06:14]    And it was really, you know, so it was really the initial, a seed of ACV auctions. How do you take mobile phones and mobile adoption, smartphone adoption in the industry was, you know, starting to really pick up, you know, my, my dad's a used car dealer and as I was building it he still had his flip phone, so it was like just around as we launched that he ended up getting a smartphone. I think I kind of forced them a little bit into it. So so, so the timing seemed right. So I talked to him. I said that, yeah, this, this makes sense. I could build it. Let's start working on it. So this was about five years ago, so it was a summer of 2014. We just started kind of nights and weekends, started talking to dealers started talking to some investors as well.

Dan:    

[07:07]    And but really it seemed like, you know, we had something there. So by the end of 2014 we left our jobs and sold our houses, downsized, and we were all in a building the product. And so kind of that first half of 2015 we were building the product, going around trying to sell it just in the buffalo market. That was going to be our initial launch market. And we had 250 dealers signed up and January 1st of 2015 we were sitting around one day we were like, okay, let's just, let's just launch it. You know, the app was an app was out there, people are asking for it and we're like, you know, Shit, let's go do it. So, so we did and a sold our first car and you know, we were kind of off to the races from there.

Scot:    

[07:56]    Yep. So, so for listeners that don't know, I've learned a lot about this coming from the ecommerce world, it seems crazy, but most auto auctions you, you bring the vehicles with you, like physically you put them on a car carrier. So I'm a dealer and I have 50 cars that have been sitting on the lot for a long time and I want to wholesale them. So I put them on a travel trailer and I go to usually a location that's out in the middle of nowhere because these places take a lot of land. So I'm near a city, but usually like 50 miles outside of the city. And then I, I, you know, I unload my cars and they go into these lanes. And then there's you know, there's this kind of phase set up time. So there's like a day or two where you set up and then the auction starts and then you have literally other dealers, kind of a big group of dealers walking down a lane and they're kind of like, all right, now I'm at car number 84, and it's a red, you know, Toyota Camry.

Scot:    

[08:44]    And then you have a little auction right there. And then someone went quote unquote wins it and then you're onto the next vehicle. And then, you know, the winners take all their cars back with them. You know, they'd load them up onto a travel trailer and they'd take them back. Yeah, yeah. And that's, you know, really there, you know, you're, you're kind of moving the car twice. You've got the super inefficient, you know, walking down a lane, it could be raining and you know you don't have, you know, an old nurse, there's almost no technology in these things, right? There's no alert that kind of says I've been looking for a 19, you know, a low mileage BMW or anything like that.

Dan:   

[09:18]    Yeah. And you know, that's really the core of the inefficiencies. So my co founder, Joe he was on the road three, four days a week, a hundreds of miles in different directions nobody at, at his, his lot doing what he needs to do to make money, which is selling vehicles.

Dan:    

[09:36]    And even when you get to the auctions, you know, multiple lanes, there could be five cars you want to buy and they're all running in five different lanes at the same time. Murphy's law kicks in, well, what, what are you going to do? So, so there's that efficiency. You know, a lot of times, you know, kind of the industry standards, 50% of the time the vehicles aren't selling at those physical auctions. So, you know, you go and you wait a week, it runs, it doesn't sell. Now as the seller, you're saying, okay, do I send this to a different auction and kind of Plinko it all the way through the system or do I let it sit there for another week and see what happens again? So, so there was just a ton of inefficiencies. And with mobile, mobile smartphones at the stage, they were at the adoption.

Dan:    

[10:21]    It's like, why, why are we not? Why, you know, why is no one done this? Why is nobody doing this? And why are they traveling all over the place, moving vehicles multiple times, just super inefficient and, and as time goes on and that vehicle's sitting on a lawn or you're moving at place to place the vehicles depreciating, things could happen to it. So our, our concept was this never has to leave the lot. It can stay on your lot. No one's moving it. No one's, you know, you don't have to worry about someone stealing a mirror off of it or denting it. It's, it's, it's there and we can, we can have it sold in 20 minutes.

Scot:    

[10:57]    Cool. and then so, so it's always smart to go try to disrupt something where you can kind of do a 10 x better user experience, it seems like. Yeah. Uber was genius or going after taxis because the tax experience was so bad and it still hasn't caught up, you know, so it definitely much better. It was so easy to provide a 10 x better experience.

Dan:    

[11:12]    And, you know, what, what Uber did a taxis we felt we could do to the auction industry, which, you know, really the, you know, the Internet era and Silicon Valley in New York City, you know, the wholesale market specifically, it was just very much a pass by, and it was, it was a lot of the big incumbents and not a lot of you know, it really wasn't that sexy silicon valley, a problem that people were trying to solve. You know, it was, it was a perfect Buffalo Tech you know, startup idea for us to go after.

Scot:    

[11:49]    Yeah. Yeah. We get the same thing. They're like, you know, the traditional vcs were like, you have employees, oh my God. But we don't invest in those types of businesses. Like, okay so less flash forward. It's five years later. You guys have had crazy success. You raised 150 million. That's not always the bar of being successful. Correct. But you've had a lot of success on the revenue growth and I don't know what you've give us an idea for the scale of the business, like how many cars are auctioned or, or anything like that.

Dan:    

[12:15]    Yeah. So, and we had some stuff out in the previous months selling over 20,000 vehicles a month. We have, you know, we're in, you know, about 115 hundred and 20 territories. We're well over 700 people total. And that's across from, from sales, through engineering, technology, things like that.

Scot:    

[12:38]    And you've so, so walk us through the, the kind of the new digital user experience. So I'm a dealer and I have the same 50 vehicles now. Do I list them? I think you guys have an option where you can even have a team come in and do the whole thing, right. Kind of a full service operation.

Dan:    

[12:53]    Yeah. And really iterating initially what we did was allowed the dealers to do with themselves. And you know, there was a lot of issues with that and created, you know, there, there wasn't really all that trust and transparency, which is what we really pride ourselves on. So kind of, you know, normal startup thing. People were, certain dealers were, oh I was too busy to list the cars or the kid I had hired to do it, he quit or he left or whatever. So were like unite. All right, great. So we're in, we're going to remove all excuses. We're going to hire someone and all they're going to do is show up on certain days and do condition reports. And, and it was really to keep the supply of inventory going in and the benefit of it was people are like, Oh, I love that you guys are doing the condition reports. Yeah.

Scot:

[13:40]    So buyer's side, there's consistency too, right? Right. So, you know, your definition of good, better, best or fine, very fine or a bad scratch, a good scratch, any of that stuff is going to be much more consistent than, than the actual seller.

Dan:    

[13:52]    Yeah. We, we try to be super, you know, very objective condition reports. We're not trying to make it look better or worse, we're just trying to call it for what it is. So we've built out, you know, a huge network of, of, of these inspectors now. And really it's, it's, it's the main way that we're doing a inspections and people just really like that they can trust in us and we can be that, that trusted source. And for anyone who knows the automotive industry, dealers rarely ever trust each other. Right? So that was a really huge benefit to that having those inspectors and having people with their, you know that are trained by us, that are using our software that's custom built to build the best condition reports in the industry. That's, that's really what we've done and it's, it's worked out really well.

Dan:    

[14:43]    It's not the pure software play that a silicon valley type company would want, but at the end of the day we're going to end up with the largest inspection network in the country. So so there are some real benefits that when you're dealing with these tangible physical assets.

Scot:    

[15:00]    Yeah, yeah. I think it gives I don't think the venture industry is woken up to it, but as a, as a software option or cloud computing is like lowered all barriers of entry, right? Two people can create almost anything. So the fact that you have these inspectors makes it that much less appealing to, to Stanford grads. You know, right now in comp side wanting to replicate your model, that's going to be like, Ooh, that's Achy at all. I don't want him, I don't want 700 inspectors or whatever the number is.

Dan:    

[15:25]    Right, right. Yeah. And you know, there's definitely, there's definitely cost to it and there's definitely the training and the onboarding and hiring and, you know, so it does, it does add a little bit of a hurdle for just a pure software play. Uh and we've, we've kind of gone, you know, we've done that already and we understand, you know, we understand where the benefits and where the issues are going one way versus the other. So but we've been really happy with it. Our dealers love it. So yeah, it's worked out really well.

Scot:    

[15:53]    Cool. So I've got my 50 vehicles, I've got your guys coming every week to Kinda like help me wholesale. I fly, I got the chalk mark on him or something, or I give them the vins, they do the inspections. Then I think they would imagine, you know, list, you know, I'm a, I'm an ecommerce guy, so I'm easy commerce vernacular that may not be right. But in the Ebay, Amazon world, we would list the product out there. And then the buyers probably are, you know, there's probably some cadence or the buyers kind of come in. The buyers I imagine would have alerts and that kind of deal. So they buy the vehicles or, yeah, yeah.

Dan:    

[16:25]    And I can walk through there real quickly. So we, we have scheduled set up with our, with our dealers who are selling our condition. Inspectors go in, they get the keys, they get the price, they go out, they do full condition report takes, you know, 10, 15 minutes. And once they have that, there's different options where they can let it run live. They can save it to run later. And so, but if they say, hey, I'm going to run this auction, now that auction instantly gets, gets created based on buyers filters. The buyers will be notified saying, hey, here's a new auction. It's this vehicle. They go in 20 minute long auction and they can bid right through the app. In 20 minutes we have a high bidder.

Dan:    

[17:09]    And based on what the sellers reserve prices, that vehicle can be sold in 20 minutes. And and we can, so, you know, a whole bunch of them within that time period. So, so that's really the, the process and, you know, post-sale, we also handle everything from titles and payments and we have integrations in the floor plan financing. So we have those options. We have transport that we do as well. So we've really gone from just being a marketplace to adding all of these different components to be a true end to end solution for these, for these dealers.

Scot:    

[17:46]    That's the big trend in market places now is Opendoor has changed the real estate industry by, you know, going in and replaced Zillow would introduce, you know, the buyer and the seller. And then now open doors actually going in, you know, essentially even acquiring like part of the this stuff. Yeah, the managed is, yeah. Cool. I could talk for hours about this, but that's a really good overview. I want to make sure we have time. I noticed on your linkedin you do a lot of other cool tech techie stuff. So I saw you're involved with some blockchain and then there's something called drone energy, which kind of caught my, my attention would explain some of those, those things that you're doing on the side.

Dan:    

[18:18]    Yeah. So you know, in the local startup community I've been involved for for a real long time and I always like helping people who have ideas and they may not notice start, they may need, need introductions of I've been doing that, you know, probably almost the last 10 years, just really trying to help connect people. So, so I, I tend to have people come to me pretty often with ideas and I try to help them out where I can. So you know, a couple of years ago really started looking at there's a great book called the master switch and it's about information information technologies over time have been very centralized and then get de-centralized and then research, centralize and decentralize. And you know, you, you look at a lot of this stuff going on with Facebook and others in terms of privacy and data and, and things like that.

Dan:    

[19:11]    And we're in a very centralized, where a couple of really a couple of companies own all the data and all the power. And I think we're kind of now going, you know, the next step is to get into more decentralized. So as I learned about a theory and blockchain and a whole bunch of other stuff, it really clicked that hey, there's to be some new model where people can own their own data, they can monetize their own data, they have that control over it. How do we look at money on the Internet? And so there's a lot of really interesting things that getting into blockchain and cryptocurrencies really got excited about it. And so within Buffalo, we started this blockchain group where we were meeting every week and giving talks on, on different aspects of it. So I got really involved in that.

Dan:    

[20:01]     Drone energy is a mining company where they've shipping containers and they have this patented shipping container style where they can build, you know, there's, especially in northeast, there's a lot of these either cogeneration plans or you know, even just old factories that can't maintain their base load because manufacturing is demand has gone down in those areas. So there's a lot of excess power is one thing I learned a lot of power that exists just can't be used. And so this is a way where you can, by having a whole bunch of bitcoin miners and cryptocurrency miners running miners being very highly intensive computers that, that are computing at, at you know, for that very one specific task. So, but it requires a lot of power and so they can go and help maintain a base load so that a factory can run and doesn't have to batch up work or a cogeneration plant can turn on and maintain a base load.

Dan:    

[21:01]    And so, so that's really what drone is doing. And so I got involved with them and you know, made a little investment in them and I've kinda been mentoring them along with there's a couple other marketplaces as well since since I've been involved in marketplaces people who have kind of reached out, whether it's selling used manufacturing materials or whether it's produce that's you know, going to be thrown in the dumpster, that there's brokers that are just literally, they get this, you know, what's called number two and number three produce that they just have to throw out. So how do you build a marketplace around that for restaurants and others who don't need the most perfectly looking tomato if you're going to be making sauce? Right. so I've been helping these types of companies you know, through just kind of the idea and, and getting, helping to get the business going and help them think about a lot of the things that I've a lot of the mistakes I've made through ACV and the things that we did wrong that, you know, I can kind of impart some of that, that wisdom to show him some of the scar tissue and hopefully they, they make different mistakes and not the same mistakes.

Scot:   

[22:15]    Yeah. Or You, you tell them all the mistakes and they just go do them again or they just say, yeah, don't do that.

Dan:    

[22:21]    Yeah, I told you, I told you, I told you the stove is hot. Don't touch it.

Scot:    

[22:26]    Cool. one question I've been dying to ask is what does the ACV and ACV auctions stand for?

Dan:    

[22:31]    No, that stands for actual cash value. So it's an industry term. And when we initially started our, our main goal was live appraisals. And so it was going to be you know, someone comes in, they want to trade in their vehicle and there's not a lot of trust in that process of, okay, let me go talk to the manager behind the glass. Okay, here's what we can give it, give you for your car. And they're like, well, Kelly Blue Book says this. And they say, well, Kelly blue book doesn't write a check.

Dan:    

[23:01]    We do. So it was just this very non transparent process that a lot of people didn't like. So we, we looked at it and said, hey, we can solve this problem of vehicles going to auctions and dealers having to go to all these different options to get their inventory. But at the same time we could also help the, the franchise dealer by saying, Hey, you can provide this transparency at this stage. What you can do as they're going to test drive their next vehicle. You'd take some photos, you do a condition report, and you can send that to auction. So by the time they get back from their test drive, you can say, Hey, I know you wanted $10,000 for this vehicle, but we had 12 bitters and we got you 9,500. That's the market value and it's a much easier conversation to have.

Dan:    

[23:46]    So that's initially how we you know, kind of we're starting and that number that they have is the ACV that that's their actual cash value for when they're going to go wholesale it or sell it at auction. That's the number that they think they can cash out for. So we were kind of the guaranteed EQ actual cash value for, yeah.

Scot:    

[24:10]    Yeah. The so a lot of marketplaces, one of the ancillary business models is the data they throw off. Do you guys have you guys close the loop on that? Where if I'm about to list a vehicle, I'm a dealer and I'm going to list a vehicle and I've got a crazy reserve on it. You probably have enough data now where you can say, hey, that, yeah, we're happy to list this for a $20,000 reserve. But we, you know, vehicles like this on our platform have sold for 12, five or, yeah.

Dan:    

[24:33]    And we, and we've, we've built out pricing in understanding what a vehicle is going to be priced at or should it be priced at. And it's, it's a really delicate conversation to, you have to have a, because you're telling someone they're wrong and you don't really know how to price your vehicles and dealers feel that they're really good at pricing their vehicles. So you know, so a lot of times, so we try to take, you know, part of an approach where it's, you know, we're providing them you know, what we believe in is more of a recommendation, a and not necessarily a heavy handed approach. And so we use that with our people in the field to help show them, hey, if you, if you price it in this way and you price it appropriately, you'll actually do more than if you price it aggressively.

Dan:    

[25:20]    And everyone says, oh, this person's nuts. I'm not even gonna pay attention to this option. So, so there's a lot of those different dynamics that, that we work through. So it's currently, it's kind of a blend of the, you know, machine learning and intelligence from that perspective. And you partner that up with you know, a person that's having a conversation and explaining it and not just, you know, hey, this is what the machine says, so that this is what you have to do because that, that doesn't work in this, in this industry.

Scot:    

[25:48]    Very cool. I could go on for another hour or so. So it's been good. We'll have to have you back on. Well, we didn't even get to talk about where you stand on the future of vehicles or any of that and that good stuff. So we'll, we'll leave folks waiting for that.

Dan:   

[25:59]    Awesome.

Scot:    

[26:00]    Last question, if folks want to follow you online, do you, are you a linkedin person, Twitter, Facebook publisher, where, where should folks go?

Dan:   

[26:07]    Yeah, so I'm a, I'm on Linkedin, but I'm also more active on Twitter. I'm not really on Facebook. So magnus chef, m, a, G, N, a. C. H, e. F, a, is my Twitter handle and that's where I'm, I'm most active on, on social.

Scot:    

[26:22]    Cool. Thanks for coming on the show, Dan. We really appreciate it and really enjoyed the conversation.

Dan:    

[26:25]    Great. Thanks for having me.