Your next car may be a subscription and other reasons why Ringier Digital Ventures invested in Carvolution
On February 25, 2021, Carvolution announced its Series C of CHF 15M led by Avaloq founder Francisco Fernandez. Ringier Digital Ventures, advised by Marcau Partners, took part in this round. Read on if you are curious to know more about the reasoning behind this investment and why it’s exciting to ride along.
💰 A large market in a small country like Switzerland
According to the Federal Statistical Office, 6.24M road motor vehicles were registered in Switzerland in 2020. This is an increase of 36% over the last 20 years. Thereof, passenger cars account for the largest share with 4.66M. The picture is similar for new registrations — more than 70% of the 335k new ones were passenger cars. This means that almost 10% of passenger cars are renewed every year, or the market continues to grow accordingly. Why are these numbers so important? Market research by well-known consultancy firms such as Roland Berger and Frost and Sullivan have assessed the potential market penetration of car subscriptions and concluded that 10% of car sales are expected to be subscriptions by 2025, reaching 40% by 2030. Applying the 2020 figures for Switzerland, this would mean just under 24k new subscriptions in 2025, and over 95k new subscriptions in 2030. Assuming an average subscription to be CHF 500 per month would result in almost CHF 50M revenue per month as of 2030 — not yet including any potential remarketing[2] revenues.
Carvolution has taken the pole position in this market in Switzerland and we strongly believe the team can further expand its position.
⚡The customer experience
Customers have learned over the last few years through digitalization how purchasing processes can develop online (more transparency, other payment options, more financing options, etc.) - be it to hail a taxi, to buy a smartphone, to book vacations, to order furniture, clothes or to buy media content. But the car purchasing process is still mostly happening offline, with the last big innovation being the classifieds sites and leasing options. Car subscriptions offer customers what has become a familiar experience — completing a transaction with just a few clicks and getting the car delivered to their home.
Furthermore, a car subscription teaches customers something which is often ignored or forgotten: total cost of ownership. This term describes the total costs of owning a vehicle including purchasing price, depreciation, insurance, maintenance etc. The car subscription price transparently shows the total cost of ownership at the time of purchase and can keep up with the leasing and buying price of a new car.
While purchasing or leasing a car involves a commitment over several years and a high initial capital investment, the car subscription requires little commitment except for a minimum subscription term of 3 months. This value proposition fits well into the overall trend of the consumer subscription economy, with subscription business models being adopted in a variety of industries such as music (Spotify), movies (Netflix), health (Headspace) and data storage (Dropbox). Subscriptions in the mobility space are a great advantage especially in the market of electric vehicles, where technology develops rapidly.
Another benefit that customers know from other subscription services is the all-in-one service. The stress and bureaucracy of buying a car is eliminated with Carvolution. The subscription comes with insurance, registration, taxes, services & maintenance, tires, toll sticker and a fuel card/charging card.
Carvolution’s value proposition allows consumers to focus solely on the driving experience, resulting in a high NPS score of 75 (compared to the average NPS score of 34 for car rentals or 48 for car dealers).
💡 Asset-heavy or asset-light
Ringier Digital Ventures mostly invests in asset-light models such as Blok and CheckYeti, but is not afraid of asset-heavy models like Yamo or AboutYou. The question of the “right” model is one we have been asking ourselves repeatedly for the last almost two years during which we have looked at the car subscription market. We consider the hybrid solution of Carvolution via a so-called Special Purpose Vehicle (SPV), which enables asset backed financing, as very promising. This allows the company to buy the vehicles the customer wants to subscribe independently from single brands or types, which are otherwise normally pushed by car dealers or manufacturers. Furthermore, Carvolution has total control over the remarketing of the car which is an attractive additional revenue and margin stream for the company. In the meantime, the vehicle is neither on Carvolution’s balance sheet nor tying up too much of the company’s liquidity. This form of financing also offers the freedom to provide services like insurance, tire change and more, internally or with partners, as desired.
👦🏽 Team and Co-Investors
Hypothesis-driven, we have been looking for possible investments for Ringier Digital Ventures in this area for about two years. That’s also how long we’ve known Carvolution, and some team members even longer from their former activities. We were lucky to be able to track their progress, which is always desirable before making an investment decision. The team delivered what they promised and the developments of the company were more than satisfactory. We also liked that the team grew with the tasks at hand, indicating very capable personalities and a good mix of skills within the team.
In addition, Ringier Digital Ventures is pleased to invest together with trusted and well-known partners such as Redalpine, Mobiliar and Francisco Fernandez.
🤙🏾People buy a lifestyle — not just a product
It is clear to us that business model innovation needs some sort of explanation and proper advertising. Usually, the first step for a startup to test and find product-market-fit is to run performance marketing campaigns. Carvolution also used this strategy initially but quickly realized that getting a new car is not a spontaneous, low-involvement kind of decision. Learning from this experience, the team built a proper lead funnel and a trustworthy brand to guide potential customers during the whole purchasing process. By joining forces with media companies, startups have another interesting option to push their branding efforts in order to become top of mind for potential customers as a new brand — that’s also one of the strengths of Ringier Digital Ventures. As soon as potential customers are thinking about a new car, Carvolution is already in their minds. Lastly, today’s customers often not only buy a product but the lifestyle associated with the brand. This is also true for Carvolution, which promises flexibility, choice and a hassle-free experience.
We are convinced that the Carvolution team has the necessary skills, the right timing and the ideal partners to succeed on this rollercoaster ride to the top. Therefore, it’s exciting to ride along!
