The market for car sales has been on rocky ground in the last several years as consumers, facing tougher economic conditions, get presented with an ever-larger range of alternatives, from ride-hailing apps and multimodal alternatives through to new propositions for private car use. Today, a startup out of Spain called Revel is announcing €115 million ($123 million) in funding to expand its business based around one of these models: a digital car “subscription” service, essentially a flexible lease agreement that includes insurance and maintenance, aimed at consumers willing typically to commit for at least a year.
The funding is a combination of debt and equity: €100 million is structured financing earmarked to build out the car network, and €15 million is equity invested in the business itself. Investors include KKR, Santander Consumer Finance and others that are not being named. Enrique de Mateo, the CEO who co-founded the company with Daniel Marcos, declined to provide the company’s valuation.
There have been plenty of startups that have tried to bring a technology spin to the leasing market. Some of these, like the startup Fair, raised hundreds of millions of dollars in equity and took on hundreds of millions more in debt before most definitely crashing and burning after failing to match customer demand to the capital-intensive efforts of buying in vehicles.
So is there a model for car subscriptions, bringing in flexible ownership and leasing, that can work? Revel, which was founded in 2020 (and is not to be confused with another transportation startup out of New York also called Revel), aimed to take some of those bitter lessons on board when building its product.
De Mateo said that before this latest round, the startup had only raised a modest €750,000, money that it used over the last three years mainly to test out different kinds of business models around the concept of car subscriptions. (Those tests and that business were small enough that De Mateo said he wouldn’t provide us with any sales and other figures.)
It found that people liked the idea of leasing — indeed, the leasing market is growing a lot faster right now than the car sales market, fuelled by startups in the space — and that in Revel’s home market of Spain, one year was a sweet spot, shorter than a typical lease of three to four years, and more economically appealing than a short-term rental.
And with people used to the idea of subscriptions and on-demand everything, Revel added in the ability for people to swap cars in and out from a range of options as part of it. Subs are paid for in monthly instalments, and the fee includes services like insurance, maintenance and carbon offsetting. Revel can be used online or over an app, and an order can be carried out in the same time time that it takes to subscribe to a streaming service. (The car is delivered after about a week.)
All of this is typically a lot faster, easier and more flexible than a traditional leasing provider.
But it’s not exactly transparent. De Mateo confirmed that Revel never buys in vehicles, but he declined to talk about where it sources them, and what the business model is around how they are subsequently leased out.
“That is the secret sauce of how we do it,” De Mateo said. “I don’t want to give an idea of how this works to our competitors.” (But given there is a structured financing tranche of €100 million, that leads me to think that there is some kind of leasing arrangement between Revel and the suppliers.)
The potential for a company like Revel today lies in tapping a market of consumers who still want to have their own new cars, but who might not want to buy one outright.
But longer term, Revel is also providing an avenue for something else: as cars become more advanced, and when (or if) fully autonomous vehicles are built and rolled out, for many people, the cost of these will be too high for most individuals to own. While that could open the door to more ride hailing services, for those who want to have their own cars for driving, leasing might be the main way that they will be able to have these state-of-the-art cars for their own use.
The funding being announced today is a bet from Revel that, now that it has figured out its business model, it’s time to super charge it and scale the operation.