Car hire startups juggle sales models to raise income

  • Leading car rental companies Zoomcar and Drivezy both cut short their current financing rounds
  • Zoomcar, which for its Series D round was supposed to raise up to $500 million, has now cut the funding round to just $100 million

Over the last two years, vehicle leasing companies running four-wheeler fleets have been facing a tough period. After their arrival in India in 2012-13, the startups have experimented with multiple business models, such as subscriptions and franchise. Now, investor pressure on car rental startups is mounting as they try a sustainable business model, taking a toll on financing.

Leading vehicle rental companies Zoomcar and Drivezy both shortened their ongoing funding rounds, three people said they were aware of the progress and requested not to be called. According to sources, Zoomcar had also discussed an opportunity to combine with its competitors.

Drivezy had discussions with SoftBank and Amazon in 2019 but both conversations fell through. Then, according to one of the people listed above, Drivezy cut its funding round from the $100 million it was targeting in early 2019 to less than half.

The company is now projected to collect only around $35-40 million to a valuation of $135 million, the individual said. Currently Drivezy is worth around $200 million.

In an emailed response Drivezy reported the developments. Digital news portal Entrackr announced in February that Zoomcar was having separate merger talks with Revv, a car rental startup based in Gurgaon.

But Revv and Zoomcar declined to hold talks.

Zoomcar, which was supposed to raise up to $500 million for its Series D round, has now cut the funding round down to just $100 million, two people added. The company recently said in a round led by Sony Innovation Fund, it raised $30 million with plans to raise another $70 million in the immediate future.

Nonetheless, a Zoomcar spokeswoman called Sony’s investment a “pre-series” round and denied that it will raise more money and slash funding.

All Drivezy and Zoomcar initially launched as an aggregator, buying vehicles directly from banks and other lending institutions on their balance sheets either through equity capital or through financing options. Nevertheless, as these companies started to grow, both companies switched to new business models to minimize capital (capex) spending on vehicle procurement.

In April 2016, Zoomcar had launched its’ Zoomcar Associate Program’ (ZAP), a model where private vehicle owners— individuals, fleet operators, dealers, etc.— could list their own vehicles on the website. For this, Zoomcar was reducing the vehicle production costs.

In 2019, too, Drivezy launched a similar franchisee model in which private owners were permitted to list directly on the website. The ZAP model, however, hasn’t scaled as planned, a mobility space investor who assessed Zoomcar said, asking not to be mentioned.

“In order for ZAP model to succeed on the supply side, you first need a lot of people who own cars to go and list on the platform for the weekend at least,” the investor said.

In 2018 Zoomcar launched a subscription service to solve this issue, enabling users to subscribe to a car for 6, 12, 18, and 24 months.

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