SoftBank, the lead investor in the subscription app Fair, is likely driving Fair to downsize as investors question current mobility business models, sources told Auto Finance News.
Yesterday, it was determined that Fair, which provides an automotive subscription service, would cut more than 40% of its workforce, including its chief financial officer.
SoftBank — a sizable investment firm based in Japan that has funded WeWork and Uber, among others — has been Fair’s main financial supporter. Fair, launched in 2016, has raised over $2 billion in venture funding, much of it from SoftBank.
Though the inner workings of SoftBank’s investment strategies are unclear, the parallels between SoftBank’s handling of real-estate startup WeWork and Fair are hard to ignore, said Grayson Brulte, president of Brulte & Co.
“There’s a common investor that’s the largest shareholder in both companies, and the same thing is happening,” he said. “Both have had to oust a co-founder, both have had to lay off [a large segment] of their staff.”
The issue is Fair’s business model. Fair offers what might be called “Netflix for cars.” In other words, Fair offers consumers the opportunity to get a car for a monthly subscription, with the flexibility to swap out for another car at will. Fair effectively is seeking to compete with traditional leasing, a well-established funding channel that accounts for about a third of all new vehicle transactions annually. Fair also offers a seven-day cancellation option, which is said to significantly amplify its operational risk.
Despite its fast and voluminous funding, the startup is burning through too much cash, an industry investor told Auto Finance News. The source said Fair’s business model is “scalable,” as long as the startup becomes profitable, which is apparently SoftBank’s demand.
“SoftBank has done a disservice to the [auto] industry by over-valuing growing mobility startups,” Brulte said. “The valuations are not sustainable. The bottom line is that consolidation is clearly coming to the mobility market.”
An internal Fair document all but confirms this strategic pivot. Fair Chief Executive Scott Painter wrote in the internal company memo that was published yesterday by TechCrunch that, with the company’s valuation below the levels at which it previously raised venture funding, the company is focused on a “path to sustainable growth and profitability,” presumably to restore its enterprise value.
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