Online rental firms adopt new crowd-funding model

Over the past few years, crowd funding has been one of the ways online start-ups generated money to run their business.

Now there’s a new version of crowd funding which online rental players are adopting in a bid to make it attractive to small investors. Under this scheme, an investor can give small amount of money to the start-up which will then buy assets on behalf of the investors. These assets are then given on rent. The money generated by the company from renting the asset is shared with the investor.

A number of companies, including car rental firm Zoomcar and furniture rental player Guarented, have started this form of sourcing funds.

Zoomcar, for example, has come up with a scheme called ZAP wherein anyone can buy a car and loan it to the start-up. Zoomcar reimburses 80 per cent of the car EMI and also share part of the revenue earned on renting out the car. The revenue-sharing model can also be customised in terms of duration of lease.

Zoomcar founder Greg Moran said that the firm keeps 25 per cent of the rental money and gives away about 75 per cent to the car owners.

“The scheme was launched about 6 months ago and we are witnessing about 25 per cent monthly traction on this model. This is new and more start-ups are likely to come up with such schemes to hedge their working capital,” Moran said. The company also benefits as it does not have to invest in buying its own cars.

Manan Shah, a 28-year-old techie from IIT Kharagpur, invested about ₹1.8 lakh in online rental start-up Guarented with which the company bought consumer durables, furniture and electronics on behalf of Shah. These goods are further rented out to users. Shah is expecting to make ₹2.6 lakh on his investments.

“I had initially invested ₹1 lakh and I was getting a return of ₹3,000 every month. After a couple of months I again invested ₹80,000 more and currently I am getting about ₹5,400 every month. Although the value of my assets are depreciating at the rate of 15 per cent every year, I am tension free because at the end of my tenure (which is 24 months) I will get close to ₹1.26 lakh,” Shah said.

Called Guarented Returns Plan, there are now about 30 investors who have already invested over ₹50 lakh in Guarented ever since it launched the scheme about four months ago.

Subhajit Ray, who is driving the investment plan at Guarented said: “We see our crowd funding model as an innovative fintech solution which is helping us scale. Due to this model, our working capital requirements are almost zero. By the end of 2017 we are going to reach ₹3 crore worth of assets wherein we expect the contribution through the crowd funding model to be around ₹2.5 crore.”

But are these schemes highly risky given that these are not monitored by any regulator? Ray said the investors are educated on the exact model with the help of a detailed presentation before they invest. The company insures the products against any form of damages or delinquency. All the liabilities related to the rented products lies with Guarented.

“We charge customers if they cause any damage to the products. We also have a very strong refurbishing team which is responsible for regular maintenance and servicing. We are easily able to recover the value of assets. Again all these costs are borne by Guarented,” the company said.

Once the lease period gets over the owner can resell it. “The resale value of furniture is quite high. The average depreciation rate of cars are much higher than wooden furniture,” the company said.

Aneesh Reddy, CEO of Capillary Technologies and an angel investor, said: “I find the crowd funding model (in case of Guarented) very rewarding for individual investors who are looking for good returns. What interests me is that the entire investment is backed by the assets that Guarented purchases as individuals remain the owners of the assets for their tenure of investment.”