A Darling of Angel Investors, CarWoo! Revs Up with Series A

Buying a new car without haggling with an annoying salesperson doesn’t sound realistic.

But CarWoo!—which today comes out of stealth mode and is announcing its Series A round—is hoping to transform the way consumers buy new cars.

“Buying a new car is extremely painful,” CarWoo! co-founder and CEO Tommy McClung told me last week as he recounted what it was like when he bought a car in early 2008. “Even with all the online sites that help you research the car you want, fielding calls and getting spammed and hearing pitches from car dealerships is inefficient. I knew there had to be a better way.”

Investors agree. The Burlingame, Calif.-based startup has raised a $4.5 million Series A round led by InterWest Partners with participation by Comcast Interactive Capital, Blumberg Capital, Accelerator Ventures and individual investors Raymond Tonsing and Dillon McDonald.

Previously the company, which completed the Y Combinator program in late 2009, raised about $1.5 million in seed funding from Comcast, Blumberg, Accelerator and a number of individual angel investors, including Paul Buchheit, an early Google employee who helped to create Gmail; Joshua Schachter, founder of Del.icio.us; Aydin Senkut, another former Google employee and founder and managing director of Felicis Ventures; and Dave McClure, founder of the 500 Startups fund.

In addition, a number of heavy hitters from the tech and automotive worlds are advising the 10-employee startup. Board directors include Rob Chesney, former VP/GM of eBay Motors; Dillon McDonald, former COO of Jumpstart Automotive; Tom Taira, CEO and founder of Honk.com and co-founder of Zag and TrueCar; Jeff Fluhr, founder and former CEO of StubHub; Tim Weaver, VP of sales for ResponseLogix; Niall Hay, e-commerce director for the Penske Automotive Group; and Michael Yang, former VP/GM of Yahoo! Autos.

McClung, who co-founded the company two years ago, explains that the way CarWoo! works is that once potential buyers have found the cars they want, they log onto the site (and pay a fee) to ask questions, communicate and negotiate with the dealers. CarWoo! never reveals the buyer’s personal information until they have selected the offer they want from the dealer they want to do business with. McClung—who described the process as putting the power of car buying into the hands of the people—said that negotiations are stress-free because they are anonymous and happen outside pressure-filled showrooms.

Because the system is designed around openness and transparency, dealers know exactly what other offers the buyer is seeing, so there’s no guessing game and the offers become more competitive, according to McClung. McClung says that CarWoo! recommends that buyers in the market come to his site after test driving a particular car.

He says the process eliminates follow-up calls from dealers.

“We found that dealers were frustrated, too,” says Erik Landerholm, the company’s co-founder and CTO.

Currently, CarWoo! works with about 3,000 dealers nationwide, out of a possible universe of 19,000 or so, although McClung says the number is growing and he expects to reach 5,000 by the end of the year.

I asked McClung about whether now was a good time to help sell autos, considering how the recession has hammered new car sales. He said that even though the number of new cars sold is down from 17 million in 2007 to about 11 million expected this year, the number of sales still represent a large market.