Editor’s Note: We like alerting you to the best startup deals out there. Today, we’re doing something different. We’re telling you about a startup you should NOT invest in. This well-researched report comes from our friend Chris Lustrino, CEO and founder at KingsCrowd, a Boston-based startup research firm. Enjoy.
– Andy Gordon, Co-Founder, First Stage Investor
Key Deal Stats
- Raising platform: StartEngine
- Valuation cap: $10 million
- Security type: Convertible promissory notes
- Minimum investment: $200
- As of March 22, 2019, Your Car Our Driver has raised $11,600 of a minimum target of $10,000 and a maximum of $1.07 million.
Your Car Our Driver has been assigned an underweight rating by KingsCrowd. To learn more about its due diligence process, please check here.
The Ride-Hailing Market
Goldman Sachs estimates that the global ride-hailing market will be a $285 billion market by 2030. With such astounding market growth, Uber and Lyft are expected to capitalize on market excitement when they IPO in the next month or two.
Uber is expected to fetch a valuation of around $90 billion at IPO, and Lyft is expected to IPO at around $23 billion. (Editor’s note: This piece was written before Lyft’s IPO on Friday.) Our own chairman of the board of advisors, John Fanning, and his family were the first investors in Uber and have been rewarded handsomely for that.
That’s why we constantly keep our eyes out for what could be the next wave of innovation in ride-hailing and, more broadly, transportation. We caution, however, that while many people will try and capitalize on this new market trend with slight variations and unique mousetraps, do not expect all of them to pan out.
Just look at Sheprd, which tried to create an Uber for kids to get to school but closed abruptly at the end of last year. And Bridj, which tried to create a hybrid, low-cost bus service, shut down when it could not continue to raise funds.
In this piece, we are covering another company that we would recommend you steer clear of in the ride-hailing market.
Your Car Our Driver is currently raising on StartEngine. In essence, this company set out 10 years ago (in the very early days of ride-hailing) to create a more affordable, frictionless chauffeur service by connecting professional drivers to individuals seeking these services.
Unlike Uber or Lyft, where you are seeking a car to pick you up, Your Car Our Driver provides you with a driver who will actually drive your car for you. Think of it as a poor man or woman’s chauffeur at $40 per hour.
Your Car Our Driver was founded by Josef Wojtkow in 2007. Despite its long history, this is its first time raising funds from the crowd. The company currently serves Orange County, California, and is the only on-demand chauffeur service in Southern California.
The on-demand chauffeurs of Your Car Our Driver can be booked easily through its online reservation portal, and the drivers reach their destination in their own car. It makes it feasible for the clients to multitask or be at celebrations without having to worry about driving their car back home.
The chauffeurs at Your Car Our Driver are trained, licensed, bonded and insured. They are chosen through an intense interview process and are fully trained to meet the required standards.
Despite the obvious strengths in an “Uber-ized” world, we have some concerns. Your Car Our Driver has been around for more than a decade but hasn’t quite reached “escape velocity.”
By which we mean revenues have failed to rise at the sizable clip expected of early-stage ventures. The market for on-demand chauffeurs also appears limited – partly because the company has restricted itself to a limited geographical area. Lastly, while we love the hustle of management, we do think there would be a need for a more seasoned executive team if it wanted to truly build a nationally scaled chauffeur service.
Below we dive into the major factors hampering the value of investing in Your Car Our Driver.
The Key Concerns
1. Low Revenue Growth
Your Car Our Driver became operational in 2007 and started generating revenues in 2011. The company reported revenues of $365,000 in 2011 and $429,000 in 2013.
Since then, revenue growth has been lacking. Despite being in the business for more than 10 years, Your Car Our Driver reported revenues of $341,978 for the most recent fiscal year. That’s up from $328,337 the year before that. Naturally, we find it concerning that sales of the company have slipped since 2013.
Could this be partly because of the rise of black car service availability on ride-hailing apps like Uber? We think this is part of it, and that the team has perhaps saturated its current and only geographic market.
2. Limited Market Size
The low revenue growth of Your Car Our Driver can be attributed to the limited market that it caters to. The company is currently operating in only Orange County, south of Los Angeles.
This makes sense – Orange County is one of the most affluent areas in the country. Which brings to light a difficulty for the business: The demand for chauffeurs appears quite limited. Future expansion will require focusing on similarly affluent areas.
The company is also not without competition on a nationwide basis. The “personal driver market” features competitors like YourDriver, which has been in business for more than 32 years, and Dryver, which is the nation’s largest personal driver service.
Not surprisingly, you don’t hear much about these other services raising millions of dollars because they are not the types of companies that are going to scale. This is a niche service platform that frankly feels a bit dated as car ownership in the U.S. undergoes a meaningful change away from traditional ownership.
3. High Valuation
Considering its slow revenue growth and the limited market size, the valuation of $10 million for Your Car Our Driver seems unjustifiable in our estimation.
The valuation is based only on management’s best estimate of the probable result of operations, and the business projections are only projections. There is no assurance that the company will be able to find sufficient demand for its service or that it will be able to sustain profits.
It has shown an inability to grow revenues over the past five years. Nothing suggests it now has an answer.
If we thought this service could be a value-add to an organization like Uber or Lyft, we could surmise that an outsized exit could happen. However, to excite an organization valued at tens of billions of dollars, Your Car Our Driver would need to show scaled acquisition of a user base Uber was not currently accessing.
This does not appear to be the situation in this case. Thus, we expect an exit to a larger entity unlikely in the next five to eight years.
4. Lack of Technology
Your Car Our Driver has not yet invested in building its own technology to create a differentiated product. The proceeds of the crowdfunding raise will be used to acquire an industry-leading platform that will then be modified for the company’s driver-on-demand program.
We like that the company is building an app in a cost-effective way. However, given the lack of experience, this will inevitably be a “beta” version and may need refining in the future. Most importantly, it doesn’t actually own the tech, which limits its defensible moat as an organization.
Your Car Our Driver is led by founder Josef Wojtkow, who is a hardworking entrepreneur with a passion for his company. The rest of the team appears experienced at their various functions, but none have taken a startup from inception to exit.
Right now, what has been built is a strong small business. However, the business does not appear to be scalable. It is limited in terms of target market, geographical market and scope of expansion, and the team will need to come up with creative solutions to surmount these difficult problems.
The Rating: Underweight Deal
As a result of the lagging growth of Your Car Our Driver, and its limited market potential, we are assigning it a rating of an Underweight Deal.
Your Car Our Driver comes with an exciting business idea, but the target audience appears limited. The number of people willing to spend about $120 ($40 with a three-hour minimum) on hiring a chauffeur is low. This is why the company has not yet launched beyond Orange County.
We advise investors to exercise caution when investing in Your Car Our Driver. Sagging revenue growth and questionable product demand make success anything but ensured.
That said, there is some demand for chauffeurs in specific areas. If the company can develop a high-end app that’s functional and easy to use and then roll that app out to the right geographic areas, the company may very well have a bright future.
Finally, and as with any equity crowdfunding raise, there are risks. Particularly with this deal, one should pay attention to the nuances of investing in convertible promissory notes. The investment may remain illiquid for a long time or may be lost completely.
If you have any questions regarding the underweight rating of Your Car Our Driver, you can reach us at email@example.com.
CEO and Founder, KingsCrowd