FlightCar brings the sharing economy to airport car rentals, launches at SFO with $570k in Seed funding

By Michael Carney , written on February 15, 2013

From The News Desk

On the scale of frighteningly ambitious startup ideas, taking responsibility of a stranger’s car and handing it over to a second stranger is pretty high up there. Welcome to the basic premise of FlightCar, and to the world of the sharing economy.

FlightCar, a member of the Y-Combinator W13 class graduating in March, is launching its product publicly today at San Francisco International Airport (SFO) and announcing $570,000 in Seed funding. They young company plans to disrupt the two equally frustrating and expensive aspects of airport travel – long-term parking and car rentals – while also making a positive impact on the environment.

Backers in the company’s early round include SV Angel, YC VC, Vine St. Ventures, TEEC Angel Fund, RelayRides investor Bill Curtis, Yammer CPO Jim Patterson, investor John Tan, Mixranka and Virool investor Klaus von Sayn-Wittgenstein, Yammer Director of Data Services Josh Ferguson, Curtis & Porter co-founder Ken Porter, and Getable investor Lex Liao. Prior to being accepted to YC, the company also participated in Cincinatti-based startup accelerator The Brandery.

FlightCar users living in San Francisco will be able to skip the roughly $18 per day expense of airport parking by lending their to the company to rent out to incoming travelers. Their car is valeted upon arrival, covered by a $1 million insurance policy, and will be returned freshly washed and with the gas tank at the same level they left it. To top it off, vehicle owners receive a gas card card of at least $10 in value (depending on the type of vehicle) as a thank you from the company.

For users visiting San Francisco, FlightCar is an inexpensive alternative to traditional rental agencies and has some environmental feel-good-ness to it as well. Renters are picked up at their terminal, eliminating the inconvenience of shuttles, and are given free GPS, free rental insurance, and free roadside assistance.

Vehicle prices vary depending on their age and condition. The company visually inspects all vehicles before renting them out and requires that vehicles be newer than 1999 model year and have less than 150,000 miles on them.

A search for available rentals next weekend lists a 2004 Jeep Grand Cherokee SUV for $23 per day, a 2011 Toyota Sienna minivan for $28 per day, and a 2008 Mazda Miata convertible for $30 per day. The company says that it is sold out of cheaper cars for this period, which were available for as little as $13 per day. Each rental allows for up to 90 miles of daily driving.

Other vehicles recently available include plenty of Toyota Priuses, according to the company, as well as several Acura and Lexus luxury cars. Early results offer no indication that owners will only leave the least desirable vehicles, but there's no guarantee that this will continue to be the case as the company moves beyond early adopters.

At any given time there are between 300,000 and 400,000 cars sitting in long-term airport parking across the US, according to the company. This underutilized “inventory” requires millions of square feet of parking lots. Addressing this real estate inefficiency is simply a side benefit of the FlightCar model.

The idea behind FlightCar seems to be a smart one, but there are enormous challenges the company must overcome, the most fundamental be convincing people to loan out their cars.

As I overheard recently when discussing the company, “When you rent out your home on AirBnB, they can’t drive away with it or smash it into a telephone pole. There are just so many things that can go wrong with a car.” It may not be a perfect comparison, but it illustrates the gut reaction many people have to the concept of trusting a stranger with one of the most valuable things they'll ever own.

FlightCar’s founders are aware of these concerns, but say that there’s enough people who feel differently or are sufficiently motivated to save on parking to make the model work. The company soft-launched on February 5th at SFO and has since completed more than 100 rentals with no incident. Now it faces the challenge of doing this at scale.

There have been no problems finding renters, with the company doing so primarily through search and display advertising under keywords like “cheap rentals” and on travel sites like Finding vehicle owners willing to try out FlightCar has been more of a challenge. Many of the earliest owners have been fellow Y-Combinator entrepreneurs who received emails from program founder Paul Graham inviting them to try the service during their next trip.

The company looks at this as an education and awareness problem, rather than one of an unreceptive market. Unfortunately, once it crosses this chasm in the San Francisco bay area, it will likely need to start almost from ground zero in each new market it enters – many of which will be less open minded, at least to start.

Also, while the company promises rates that are “up to 50 percent less than the competition,” a quick search of competing rental agencies for next weekend turns up multiple options for less than those of FlightCar, including an $8 per day compact, a $9 per day midsize, and a $25 per day convertible (excluding taxes and fees). If the company is going to hang its hat on cost savings, it may need to offer a more dynamic pricing model or a price guarantee, both of which are incredibly risky for a cash-strapped startup.

Given the issues facing other alternative ridesharing and livery startups like Lyft, Sidecar, and Uber, one must question the regulatory hurdles that FlightCar will eventually face as well. Its founders feel like they are on strong legal footing, but it’s hard to imagine that there’s will be no push back from disrupted legacy providers should the model actually catch on.

Finally, $570,000 is a paltry sum for a company that needs to rent a parking lot, pay employees to valet and wash vehicles upon arrival and departure, market a novel service, and manage all other legal and technical aspects of this complicated business. FlightCar claims that the minimalist financing round was deliberate, based on a desire to prove out the model before taking on larger investors and dilution. But undercapitalization would seem to be a significant risk. The good news is that the company will generate revenue with every transaction, unlike many Valley startups that focus on free user growth with the hopes of monetizing at some point down the road.

FlightCar is not the only startup in the peer to peer auto rental space. Both Getaround and RelayRides offer similar peer-to-peer rentals, focused primarily on hourly usage in urban areas, such as those that may be otherwise served by ZipCar. The aforementioned SideCar and Lyft fall under a parallel on-demand ridesharing model, but still face similar challenges.

The sharing economy is evolving rapidly and and pushing us all to reevaluate our relationship with the things we own. Startups like FlightCar continue to push this envelope. When AirBnB first launched, its founders doubted that people would be willing to rent out their homes, even though the initial concept was just renting an inflatable air mattress. Now it’s a multi-billion dollar company, a crown jewel within the Y-Combinator portfolio, and the poster-child for pulling off the seemingly impossible.

"The biggest startup ideas are terrifying," writes Paul Graham. "And not just because they'd be a lot of work. The biggest ideas seem to threaten your identity: you wonder if you'd have enough ambition to carry them through...Even the most ambitious people are probably best off approaching them obliquely."