The genesis of Zoomcar14 min read . Updated: 21 Sep 2016, 03:05 AM IST
For Zoomcar co-founder CEO Greg Moran, zeroing in on India was not a eureka moment but a well-thought-out idea, seeds of which were sown in his college days
For Zoomcar co-founder CEO Greg Moran, zeroing in on India was not a eureka moment but a well-thought-out idea, seeds of which were sown in his college days
Bengaluru: Greg Moran’s maiden visit to India in the summer of 2011 was not just about soaking up the sun or exploring the country’s hallowed cultural heritage. Moran meant business.
As a 25-year-old investment banker in the US, Moran knew his first business venture would have to be in India. Zeroing in on the country was not a Eureka moment for Moran, but a well-thought-out idea, the seeds of which were sown back in his college days, at the University of Pennsylvania, where he pursued a bachelors degree in international relations.
It was at the university that Moran made friends with Indian students from Bangalore (now Bengaluru), Mumbai, Delhi and Pune. Frequent and protracted discussions about India, with friends and their families, left Moran besotted with the country. He was quick to realize it was an opportunity waiting to be explored.
“Many of the conversations (with friends at college and their families) were around India. I always had an inkling that I would do something around India but did not know for sure what it was going to be. I studied India academically as well as part of my international relations course," says Moran.
The idea that was sown during college germinated a few years later, around 2010, when Moran was working as an investment banker, building his expertise around infrastructure and clean technology. A couple of projects that his firm executed in India gave him a better visibility of the lacunae in the Indian system and certain infrastructural gaps, which could potentially become significant business opportunities.
“That is how I realized that India was a great opportunity and somebody had to do something very quickly about infrastructure. This was in 2010. Me and David (David Back, Moran’s friend from the University of Pennsylvania who eventually co-founded Zoomcar), started talking a lot about the infrastructural challenges in India. The notion of transport came up because it was not that regulated and easier to break into. So we started thinking about what were the big models we could adopt to help with urban infrastructure. We came up with this idea of not having a car and still self-drive a car," says Moran.
And that is how Moran and Back decided it had to be Zoomcar, in India.
The preparatory days
In May 2011, Moran visited India for a reconnaissance of the ground realities.
“I knew I had to spend time on the ground doing more research. I came here in the summer of 2011—May, June and July—the wrong time of the year to visit. I thought if I could survive the summers here, that is it," he says, in a lighter vein. “I travelled across 25 cities including Bangalore, Mangalore, Hyderabad, Mysore, Chennai, Ahmedabad, Surat, Delhi, Agra and Goa. About 25% of that trip was touristy and the rest business."
During his travel, Moran met carmakers Tata Motors Ltd, Mahindra and Mahindra Ltd and Ford India Ltd. All of them would eventually come on board later, Ford even as an investor.
Back in the US, Moran and Back went back to the drawing board to chart out the course for Zoomcar. They did not want to delay the launch beyond June 2012.
The online taxi market in India was nascent then with Meru and Mega Cabs dominating the scene. Car booking was still done through calls, let alone any form of online booking, either through a website or an app. Uber would launch in India only in August 2013, while Ola, one of the fistful of home-grown unicorn start-ups currently valued at $5 billion, was just beginning to take shape.
It was virgin territory yet to be meaningfully tapped by the incumbents. The car rental segment had a handful of big businesses such as Avis, Carzonrent and Car Club among others. The self-drive car rental segment barely had a sizeable business to reckon with.
Globally, the car rental scenario was buzzing with activity. According to Tracxn, a start-up tracker, at least 10 such companies emerged and became big between 2000 and 2014 in the US and China. Companies such as Turo, Silvercar and Zipcar led the brigade in the US. The likes of eHi Car Services, Zuche, Reocar and Atzuche among others dominated the Chinese market, while iCarsclub in Singapore and Drivy in France also scaled up significantly. According to Tracxn, the 10 biggest car rental start-ups across the globe have together mopped up at least $1.2 billion in institutional funding from marque investors such as Sequoia Capital, Canaan Partners, Warburg Pincus, Fidelity Growth Partners and Greylock Partners among others.
Back home, Moran and Back were working at a frenetic pace. They registered the company in India in May 2012 and raised their first funds, about $60,000 from professional contacts. They pulled in another $40,000 from their personal savings.
With about $100,000 in his pocket, a sizeable seed capital to start up with (this was well before the mad rush of 2014 and 2015, when early stage deals in some instances ran up to a couple of millions of dollars), Moran relocated to Bengaluru in September. He had to seal deals with local investors and carmakers, and set the ball rolling for Zoomcar.
A bumpy ride
Start-ups were not yet a buzzword in India and money was certainly not pouring in. Flipkart and Snapdeal, the standard bearers of India’s consumer Internet story, were yet to pull in hundreds of millions of dollars of investment in single tranches. Not many people saw India as a breeding ground for unicorn start-ups. Certainly, not one set up by two young Americans.
Consequently, Moran did not have it easy with investors.
“Almost all the investors and people we spoke to initially dissed us off. They hated the concept. The investors saw this as a very high difficulty business in terms of execution risk. What I heard the most was Indians hate driving. But it seemed unlikely because I saw people driving their own cars. I even spoke to dealers and young people, who gave me a different notion," says Moran.
“Also, I was not from India. To be fair, there were enough Indian entrepreneurs coming up so why will they (investors) back me. If I was there in their shoes, I would have thought the same thing. Nobody said anything horrible but all they said was infrastructure in India was horrible and people didn’t like driving. Then why on earth will this model work," he adds.
But, a small set of investors—he does not name them—egged him on to launch a pilot and prove the model.
So started Zoomcar, a one-man team (Back was still finishing his college and yet to join Moran in India) in a tiny office space near UB City, aided by a team of freelance consultants.
While funding was not immediately a point of concern for Moran, getting a self-drive car licence was. Between September and December 2012, he unsuccessfully ran from pillar to post to secure a licence. The target of launching a pilot around February-March 2012 seemed to drift away for want of a licence. The experience was enervating. To the extent that at one point, Moran contemplated letting go and moving back to the US to get a business degree.
“It was all very harrowing. We had to start with a seven-car pilot and we had to figure out how to do it legally and get the right permits. We had been told upfront that the process takes a long time. We realized that we were in trouble and tried to figure out how we could go ahead with the pilot. Then we realized the only way to work was to find a licence holder who would allow us to rent the licence," recalls Moran.
At least four such operators with a licence rejected Moran and his despondence was only growing. He had already booked a flight home for Christmas and did not get a return ticket.
Moran struck it lucky in the first week of December. A meeting with Ford in Delhi led him to a car dealer in Bengaluru, who in turn connected Moran with Ramesh Tours and Travels, a firm which would provide Zoomcar with the much coveted licence. On 22 December, Moran inked the deal with Ramesh Tours and Travels. It was a happy homecoming for Christmas.
Zoomcar kicked off with seven Ford Figos and Mahindra Scorpios in Bengaluru on 14 February 2013. Back had shifted base to India earlier that month, after completing a degree at Harvard Law School. By then, Moran had a hired a team of 12 people—call centre and field executives. The engineering work was contracted to a third-party firm.
The company allowed customers to book rides, make payments and board a car which was stationed across multiple locations in the city.
It was in May 2013, when Zoomcar shot to the limelight as it raised about $300,000 from former US treasury secretary and professor at Harvard University, Larry Summers.
“After that (the investment from Summers) The Wall Street Journal covered us and the next day we had five investor calls, all angel investors. They all ended up investing. That helped us get to 50 cars in Bangalore. Between March and October, we raised another $400,000 and the business more than doubled," says Moran.
In October 2013, the company raised another million dollars from New York-based angel investor group Empire Angels, San Francisco-based venture capital firm FundersClub, Basset Investment Group and former US Securities and Exchanges commissioner Lady Barbara Judge among others.
However, venture capital firms in India still kept Zoomcar at an arm’s length.
“They were like prove an operation at scale or you need to get a permit of your own. Or enter a second city. They did not have much conviction in the business either. But if you look at it objectively, there were not many great exits in India then. The acquisition of Redbus by Ibibo Group had just happened," says Moran.
Zoomcar raised another $1.5 million in March 2014 from existing investors and some angel investors from Dubai, which gave the company the firepower to branch out to Pune, with 25 vehicles. A multi-city presence was necessary to get a venture capital firm on board.
The first one to buy Moran’s pitch was Sequoia Capital, which has continued to back Zoomcar ever since. In October, Sequoia Capital, along with former Infosys chief financial officer (CFO) T.V. Mohandas Pai, Abhay Jain, head of corporate affairs at Manipal Group, and the existing investors pooled in $8 million.
Quick expansion followed. The company launched in Delhi in December, followed by Mumbai, Chennai and Hyderabad in quick succession in April.
“This expansion also helped us with our next round of funding. We knew that we could obviously be in a few cities with a good number of cars. But we went wide as well. You really have to find a balance between going deep and going wide," says Moran.
The next round of funding happened in July 2015, when Sequoia Capital and Nokia Growth Partners invested about $11 million. Moran claims that by then Zoomcar was clocking monthly revenue of more than Rs5 crore, with its fleet of 1,300 cars.
Zoomcar has so far raised about $46 million from investors, the last being a $24 million round led by Ford Smart Mobility Llc, a unit of Ford Motor Co., and existing investors Sequoia Capital, Nokia Growth Partners and Empire Angels.
The company has 2,200 cars from manufacturers such as Ford, Mahindra, Maruti and Tata running across Bengaluru, Mumbai, Delhi, Pune, Chennai, Hyderabad and Chandigarh. Moran says Zoomcar will have more than 25,000 cars across 25 cities by 2018. The next big move will be to launch operations in tier II/III cities in the next 12 months.
“We have an average ticket size of Rs4,000. Our revenue is well over Rs10 crore every month. The utilization is good at about 75% and we will improve it further," he says, giving a stock of the current scale of Zoomcar.
However, unlike 2013 and a better part of 2014, when car rental was predominantly offline and dominated by legacy businesses, giving Zoomcar ample headroom for rapid growth, 2014 heralded a new era in the domestic ride hailing segment. Ola raised more than $200 million from Japan’s SoftBank in October 2014 and Uber started upping the ante in India. Ever since, the two companies have dominated the point-to-point ride hailing segment, which, according to industry estimates, is poised to become a $7 billion market by 2020.
The self-drive car rental segment is also crowded with at least 25 start-ups, some of the prominent ones being Myles (a unit of Carzonrent), Voler, JustRide and Revv. According to Tracxn, investors have so far pumped in about $55 million into self-drive car rental start-ups in mostly seed and angel funding, with Zoomcar accounting for about 80% of the total investments.
According to industry experts, the intra-city taxi market is bound to be dominated by Ola and Uber, with barely any room for a third business to spread its wings. Thus, the scope of a self-drive car rental start-up is constricted to leisure rides within the city and inter-city travel.
“The reason why Zoomcar has done reasonably well is because they target an upwardly mobile and young audience, who come to a new city to work and all, live on their own. Hence, this new use case of weekend travel has come up. That segment has done very well. And second value proposition is the kind of cars that is available. You can upsell. For instance, there are people who own a small car but need a bigger car for vacation," said Vinod Murali, managing director at InnoVen Capital India, a venture debt firm.
“While this (car rental) is a sizeable opportunity, I don’t think this is a substitute for routine, regular usage like Ola and Uber. It is not a completely utility service, but more leisure and recreational. In the long term, it may become utility, but in the short term, it is unlikely," added Murali.
Besides, scaling up the supply of cars is another pressing challenge. Most of the car rental companies, including Zoomcar until recently, own the fleet, which makes them an asset-heavy model that requires plenty of capital, slowing growth.
For instance, when Zoomcar raised $11 million in July last year, Moran told Mint in an interview that over the next year, the company plans to add 7,000 more cars. With 2,000 cars currently, Zoomcar has fallen well behind the target.
The company has tweaked its operations to suit the need of the hour. Unlike earlier, when a consumer had to travel to a pickup point to board a car, Moran has ensured that the cars are delivered to the customer’s doorstep against payment of a nominal fee, a move which has increased adoption by about 20% on weekends, he claims.
In April this year, the company launched an associate programme, encouraging people to attach their cars to Zoomcar, signalling a shift to the marketplace model. Moran says the company will look at scaling up the programme to account for about three-fourths of its fleet in the next 12 months. Under this programme, Zoomcar will retain 30% of the transaction value as commission.
“Relative to other business models, self-drive car rental is asset-heavy. And it is a logistically complex business with high margin and payback sensitivity to utilization. If one is off the profitable utilization ranges, margins and asset paybacks can go for a toss. So, utilization is super important in this kind of a play. But it is also hard to manage. For example, do you send the car back to the garage once every week after a rental to get all repairs done, including the scratches on bumpers, or just for the functional issues. If you have to send the car to the garage after most rentals, utilizations will drop. And if you don’t, customer experience may get hampered. So one has to walk a fine balance," said Aakash Goel, vice-president (V-P) at Bessemer Venture Partners.
“Crowdsourcing helps you do two things; one, get more assets without putting too much money into the business and second, it also helps you balance demand and supply. Given large part of the demand is still leisure, most self-drive companies are likely to witness heavy demand on weekends and relatively scarce demand on weekdays. Meaningful corporate demand for short-term self-drive is yet to pick up in India," said Goel.
Such hindrances do not deter Moran. He is confident that Zoomcar will be one of the businesses at the forefront of India’s start-up revolution, based on pure merit.
Moran’s confidence is not misplaced. After all, he’s been single-handedly steering the ship after Back abruptly cut short his active association with the company in May 2015 for “personal and professional reasons", and moved back to the US. Back continues to hold his stake in the firm.
Of course, Moran is ably supported by a team that shares and supports his vision. His war room comprises former Flipkart executive Prashant Verma, who is now CTO at Zoomcar, Mohit Sethi, V-P of operations who was brought in from Hewlett Packard Analytics, CFO Paritosh Gupta, a former Lehman Brothers executive, and Harish Rawat, V-P of marketing who joined from Lenskart.
Moran claims to have learnt his lessons from past mistakes, be it around team management, delaying appointment of a CTO or partnering with certain car makers. “It is a beauty that Zoomcar can mean many things to different sets of consumers. It can be luxury, utility or aspiration. We certainly don’t claim we are the cheapest in the market, but we are certainly great value for money. Indians are not necessarily price sensitive, but they are value sensitive," he says.