Dec. 14 (Bloomberg) -- RelayRides, a startup backed by Google Inc.’s venture arm and August Capital, is opening up shop in San Francisco today, letting the city’s residents make money from their cars by sharing them with strangers.
The company is building on a trial run in Massachusetts, where 50 participants are renting out vehicles to 1,000 borrowers. The concept works like Zipcar Inc. and other services that use the Web to rent cars by the hour, except RelayRides doesn’t have to buy its own fleet.
RelayRides started in June, joining the ranks of companies that help consumers turn their possessions into revenue producers. San Francisco-based Getaround Inc. also lets users share their cars, while Airbnb Inc. allows people around the world to rent out spare bedrooms. At the SnapGoods site, users can borrow almost anything -- from a power drill to an ice-cream maker -- by the day.
“Your car, which is usually a burden, is an asset and something that can actually generate money,” said RelayRides Chief Executive Officer Shelby Clark. “Significant money is being put in people’s pockets.”
Clark, 28, started the company while finishing his master’s degree at Harvard Business School. After rolling out in Cambridge and showing the concept can work, RelayRides is relocating its headquarters to the West Coast and offering the service in San Francisco. Owners can make $250 a month on average renting out their vehicles, and that figure should rise as RelayRides attracts more users, Clark says.
Clark came up with the idea two years ago on a cold November day in Massachusetts, when he was relying on Zipcar to get around. The closest vehicle available was two miles away, forcing Clark to ride his bike. Along the ride, he saw hundreds of cars parked that looked like they hadn’t moved in weeks, Clark said.
“We had this amazing resource in our community and if we could figure out how to connect people, everybody would be better off,” he said from his office in San Francisco’s South of Market district.
To make the project work, he needed an insurance plan that was extensive enough to persuade owners to rent their cars to strangers. After months of discussions, Clark found an insurer willing to provide a $1 million policy covering theft and accidents. He declined to name the company, saying only that it’s a multibillion-dollar commercial insurer.
Starting today, car owners in San Francisco can register at the company’s website. RelayRides then installs a car-sharing system made by Car2Go, whose technology immobilizes the engine until it’s accessed by the reservation holder.
Borrowers can sign up online and register their credit card. Rates start at $6 an hour, including gas and insurance. The owner keeps 65 percent of the revenue, with 20 percent going to insurance and the remaining 15 percent to RelayRides.
Owners bear the cost of gas, which drivers can buy with a credit card included in the vehicle. The account is maintained by RelayRides, which then deducts the gas charges from the reimbursement it gives to owners.
Borrowers are limited to 20 miles each hour, or 160 miles per day. Above that, they’re charged 40 cents to 50 cents a mile, depending on the type of car they rent.
Getaround has a similar approach, with two options for owners. They can pay $200 for a car kit, which controls access to the vehicle and lets the borrower get in via a smartphone application. Or, they can choose to meet the renter in advance, rather than leave the key in the car.
Getting Owners on Board
Howard Hartenbaum, a partner at Menlo Park, California-based August Capital, led the investment in RelayRides after checking out the service in Massachusetts. He had about a dozen conversations with renters and owners to figure out how they use it, how much they like it and what they see as the benefits.
Getting car owners comfortable with the idea is key to success, Hartenbaum said.
“For renters, it’s a great asset -- it’s convenient, it’s close, it’s cheap,” he said. “The bigger issue we have to make sure we hit right on the head is that people who put their car into the system are very happy with the service.”
RelayRides will use part of its new financing to expand its staff of 15, including hiring a chief operating officer, product manager and head of marketing, Clark said. The company didn’t disclose the size of the funding.
Getaround, which was founded last year and is backed by some angel investors, has 10 employees and is also hiring, said Jessica Scorpio, a co-founder. The company started a test of its product in the Bay area last month and has signed up hundreds of owners, she said.
Both companies are entering the car-sharing market a decade after Zipcar, which filed for an initial public offering in June. Sales at Cambridge, Massachusetts-based Zipcar rose 24 percent last year to $131.2 million. Other services, such as the San Francisco nonprofit City CarShare, also compete in the market, aiming to promote cleaner air by reducing car ownership.
Still, there’s plenty of room for new competitors, according to Joe Kraus, a partner at Google Ventures who sits on RelayRides’ board. He estimates car sharing is a $12.5 billion global market, and still expanding.
“This growth is driven by the fact that car sharing is now a convenient, affordable and sustainable alternative to ownership,” Kraus said.
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