Is Zipcar a High Potential Venture
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Based on Criteria’s of Evaluating Venture Opportunities there are several key indicators that shows that Zipcar is indeed a high potential venture. Below are the criteria in brief
Industry & Market
Market: The revolutionary concept certainly provides an alternative to public transport. Furthermore the car sharing concept is really useful for the public in a overcrowded city with limited parking & expensive parking fees. This is clearly not an untouched segment because there are other 2 competitors operating.
Customer: The target customers are educated and internet savvy urban dwelling people.
User Benefits: Non car owners will have the service at their disposal when ever they require thru reserving it on the web.
Value added: All billings are done online and is hassle free. Users have access to utilization data. System is fully automated with wireless data sending and receiving.
Product life: Product will be long life as annual market growth is expected to be 30%.
Market Structure
As I mentioned earlier, the market is not completely untapped, but the other competitors are concentrating in the metropolitan area. The whole US market is still available to be ventured into.
Market Size
The potential market size is huge, as forecasted, in 14 metropolitan cities it would be $200 million.
Growth Rate
The annual growth rate is expected to be 30 %.
Market Capacity
It’s at its fullest capacity, as only Portland & Seattle have similar services.
Market share attainable (Year 5)
It is capable of capturing 13.8% of the market share. It is not a market leader, but with continuous development & effort has the potential to be a market leader.
Cost Structure
ZipCar is a low cost provider. Marketing cost is low. Exhibit 3 shows the yearly costs increases slightly. However the marginal cost in percentage is at a declining rate.
Economics
Time to break even / positive cash flow
ZipCar will break even in year 2 of operation. A positive cash flow is anticipated.
Capital Requirements
Capital requirements for ZIpCar is $1.7million.
Free cash flow characteristics
Sales Growth : Projected sales growth is approximately 20-40%
Asset Intensity: No assets are on lease or on loan.
R & D / Capital Expenditure: The R&D investment is on the average side.
Time to break-even profit and loss
The time to break even profit and loss is less than 3 years.
Harvest issues
Value-added potential
Patenting of the reservation system, tracking of vehicles and billing has created a high valu added potential.
Valuation multiples and comparables
From year 2 to 5, an average EBIT of 2 times is achieved, however, EBIT is 5 times at first year.
Exit mechanism and strategy
Big guns in automotive industry might buy the business.
Capital market context
The market was picking up and cost owning a car is high; ZipCar came into the market at the right time
Competitive Advantage Issues
Fixed and variable costs
ZIpCar has a low start-up overhead cost amounting up to $50,000.
Control over costs, prices and distribution
Cost is kept at a moderate control for marketing and promotions.
Barriers to entry
Propriety protection : Patented billing and booking