Extended warranties -- those offers to add an extra year or two to an existing product warranty to give you a little more peace of mind in case something goes wrong with something you've purchased -- have long been a part of the sales process when you're buying big-ticket items from large stores. Today, a startup is announcing a large round of funding to help democratise the concept, using APIs to make extended warranties it into something that even the smallest retailers can offer on the least expensive items.
Extend, which works with companies like Peloton, iRobot, Harman / JBL, Advance Auto Parts, Traeger Grills, BlendJet, SoClean, 1More, August Home, Balsam Hill, NewAir, Evolve Skateboards and some 150 others to build and handle extended warranties on their products, has raised $40 million in a Series B round of funding.
Woody Levin, the CEO and founder of the company, said in an interview that his ambition is to remove the roadblocks for smaller merchants (especially in the direct-to-consumer space) in offering extended warranties on their products, and for consumers, to remove the stigma attached to the concept, which some see as simply preying on people's insecurities and not worth the paper they are written on (or in these days, the splash screen they appear on in the checkout flow of your online transaction).
"There has been a stigma around the extended warranty for way too long," he said. "We want to create a more elegant experience. We want extend to be Apple Care for everything."
Levin -- a repeat founder who has sold multiple other startups -- added that today, the company touches more than $27 billion in warrantable gross merchandise value.
If Apple is where it's aiming, Extend is working the right VCs, situated in the top shelf of investors. The round is being led by Meritech Capital -- which has backed the likes of Facebook, Salesforce and Tableau, among others -- with participation from PayPal Ventures and previous backers Great Point Ventures and Shah Capital Partners.
PayPal is a key investor here: it's one of the most ubiquitous providers of online payments and other services for merchants, and will forever be on the lookout for those building technology that will lead to more conversions, especially in the current market, where social distancing has led to a boom in e-commerce, which in turn has led to a much more competitive landscape: more places to buy things, more discounts and more tech to keep people from navigating away and buying elsewhere.
“Merchants of all sizes can benefit from extended warranties but implementing and maintaining them has been too complex for many businesses,” said Jay Ganatra, Partner at PayPal Ventures, in a statement. “Extend shares PayPal’s commitment to providing merchants with easy to use tools that help them better connect with and support their customers. On top of that, the Extend team has seriously improved the end-user experience through its use of their conversational chatbot. We’re excited to invest in Extend as it continues to redefine this space.”
Extend has raised $56 million to date, and it's not disclosing valuation.
Extended warranties may pivot on the idea of providing more peace of mind to buyers who will, for example, take out Apple Care in order to make sure that their expensive iPhones don't cost a fortune to fix or end up getting thrown away after a misadventure. But from the point of view of the merchant, they serve as a huge fillip to getting a sale over the line.
And over the last few years, as merchants have realised this, they've been applying the extended warranty to a lot more than just the most expensive things.
"The top 1% of merchants have been benefitting from that peace of mind," Levin said. "If you look at Amazon, they are offering extended warranties on $40 backpacks. That's because the purchase rate goes up when there is an extended warranty even being advertised."
But advertising is not all: extended warranties generated a whopping $130 billion in 2019, with the figures growing at a rate of about 7.4% annually.
The roadblock for many up to now has been that the companies that provide extended warranties are old and tend only to work with the biggest sellers. Companies like SquareTrade and Asurion, Levin said, work with only the "top 1% of companies," ignoring smaller companies. "These are legacy companies focused on one-off integrations," he said.
Extend's solution has been to take the modern approach: it has built an API that can be integrated into any e-commerce storefront or check-out flow (it works also with others like Affirm that are also trying to disrupt and modernise this process). The actual can cost as little as $19.99 or far more than that for one- or two-year plans.
Extend then partners with underwriters like AIG to provide the insurance backing to the warranties. Those who claim back can file claims by speaking with an agent, but it also offers an automatic chatbot 24 hours a day to deal with claims. Levin said that some 98% of claims are processed through her. (She is called Kayley.)
Those claims, in turn, are processed with as little hassle as possible: since they are tied to transactions that happened online, buyers don't need to have kept receipts in order to claim since Extend tracks that for them. It typically issues credits back for a buyer to either re-purchase the same product, or something else of equivalent value, at the same point of sale.
“Meritech always strives to work with companies that are seeking to define the future of an industry, and that’s exactly what Extend is doing with its platform,” said Alex Clayton, General Partner at Meritech Capital, in a statement. “Extend is filling a huge gap in the eCommerce infrastructure market by streamlining the process for merchants to offer extended warranties and protection plans on their products, and providing a seamless customer experience for consumers from start to finish. We’re eager to see what’s next.”
Based on the size of this round, and the companies backing it, there is a lot of momentum behind Extend, but it is not the only one to have identified this opportunity. Earlier this year Clyde raised $14 million for its take on extended warranty plans, and True-backed Upsie is also building a platform to offer warranties directly to consumers, bypassing the retailers altogether.