Zipcar Robin Chase Has Just

ZipCar

Robin Chase has just completed a round of financing for $1.3 million, but her expansion plans for ZipCar mean that she is going to need more financing in the near future, possibly as soon as six months. She is facing a couple of key issues. The first is that she must make a decision between strategic alternatives including expansion in the Boston market and expansion to other U.S. cities. The latter expansion in particular needs to be timed in line with financing rounds, Chase must lay out a sound expansion strategy for the company. The other key issue for Chase is that she needs to ensure that ZipCar is able to acquire the financing it needs, at a fair valuation. The venture capital community in Boston is favorable to the ZipCar idea, but less enthusiastic about having Chase and her husband lead the company through the expansion. Additionally, venture capitalists are also going to be respond favorably if the company can deliver the market share and profits in the Boston market that it has projected to the community during this latest financing round.

It is recommended that ZipCar focus its energy for the next six months on building out the Boston market. This strategy will resolve two key issues that need to be addressed prior to securing more financing. The first is that success in Boston would demonstrate that the current management team is capable of building the company, without bringing in outside management help. The second issue that would be addressed with success in Boston is gaining network effects that will help raise the company's profile in the venture capital community. For ZipCar to successfully expand into other East Coast cities, the company will need to raise a substantial amount of capital with its next round on financing.

The company will also need to hire professional management to handle this rapid expansion. The previous experience failed because the person they hired was the wrong person, culturally, and did not truly understand the business. It is recommended that ZipCar find the right person to guide this company through this period, however, somebody who is urban and who has guided startups before. Such a hiring will raise the credibility of the company with investors, facilitating the successive financing rounds.

ZipCar has just received $1.3 million in financing from venture capital partners, and is expected to use this money to grow the company. At this point, the CEO believes that $300,000 will be used to pay down debt and the remainder will be used for market development.

At present, the company is focused on the Boston market, and is in the very early stages of rollout. Saturating the Boston market is one of the strategic options for ZipCar, and another is to expand quickly into other major cities. The company's business model is to provide a car-sharing service based on similar ones in Europe. The target market is college-education urbanites, in particular those who do not have a significant need for automobiles, but may have occasional needs. There are several cities in North America that have a critical mass of target customers for ZipCar. The company has only just entered the Boston market and has not developed other markets, but is the first-mover in North America. Strategically, ZipCar could benefit significantly from rolling out into other cities before other competition emerges.

It is believed that in another six months, more financing will be required to facilitate further expansion. Filling in the Boston market is expected to utilize all of the $1 million remaining after the debt is paid off. Venture capitalists are believed to want to see a couple of things from ZipCar in order to make the successive financing rounds smoother. The first is that the company will need to demonstrate that the current leadership team is capable of leading this growth. At present, there is concern that the team's lack of experience is going to inhibit its ability to grow. However, when professional management was brought in before, it was not successful. The other thing the venture capitalists are going to want to see in the future is that that company has built a critical mass in Boston. This will help create strong network effects for the company that will facilitate further investments from the venture capital community. Strategically, however, this may mean forgoing first mover advantage in other cities. However, moving into other cities before having the capital required to do so is not recommended, so the focus for Robin at this point has to be to earn additional capital by demonstrating the concept's success in the Boston market.

In terms of financials, the company is projecting net income of $200,800 for the Boston market, based on 36 cars, serving 648 members (market penetration of 4.32%). The cost of rolling out to four more cities in the coming year is $1.6 million, but the rollout is expected to be profitable in its second year. In year five, the company is expected to enjoy revenue of $1.227 million and net income of $459,000 on that total. A reasonable exit value in five years would be revenue of $111 million. The growth of the company is expected to be self-sustaining within a year of the national rollout, as projections show that each new city is likely to be profitable within a year of launch, based on the Boston experience.