Why we continue to invest in FINN

Source: FINN

In the face of a challenging macroeconomic environment, FINN today announces an impressive €100 million Series C funding round, propelling its post-money valuation beyond €600 million. In this article, we shed light on the factors behind the company’s remarkable accomplishment and delve into why we, as the company’s first investor in 2019, have steadfastly believed in FINN’s business model since day one.

Car subscription — an attractive consumer proposition with complex business challenges

When initially looking into car subscription models in 2018 and 2019, we were immediately excited about the overarching consumer proposition. One of our key investment hypotheses, which we maintain to this day, revolves around the shift towards continuous, usage-based and sustainable subscriptions for asset classes, away from ownership of assets. We firmly believe that the evolving dynamics of work and private life, including a strong mindset shift towards eco-friendly means of transportation and living, will reshape major asset classes such as cars and real estate. Additionally, diverging from the typical cyclicality found in the broader automotive industry, characterized by fluctuations in demand during economic downturns, subscription models like FINN’s uniquely thrive as customers gravitate towards short-term and highly flexible solutions. In the light of these hypotheses, we see inflexible three-year leases and traditional car ownership as outdated and ready for disruption.

Despite our enthusiasm, we decided against investing in nearly ten car subscription companies back then. The dominating reasons were typically the following:

1. Limited scalability of supply
2. Equity capital intensity
3. Missing tech DNA
4. Car pricing risk

Our decision to invest in FINN hinged on our conviction that the company had solutions for these challenges early on and was ready to focus on them along the way:

1. FINN’s sourcing strategy prioritizes new cars, allowing for substantial order volumes directly from OEMs, thereby streamlining operations. A notable contrast to companies such as Fair in the US, which opted for sourcing used cars, assuming lower asset depreciation between years 2–4. As a consequence, operational intricacies likely contributed significantly to the businesses’ failure. FINN’s approach, however, is buying in massive volumes while exclusively selling young used cars to resale partners. This strategy enables FINN to become one of the closest sales partners to OEMs, opening up an entirely new go-to-market channel for them, while securing favorable purchase conditions and thus maintaining strong unit economics. The potential impact of macroeconomic developments is also mitigated to a large extent, as even in periods of a booming car market, the spread between purchase and resell prices is relatively constant.
2. Thanks to FINN’s focus on sourcing new cars, financing these vehicles with debt is considerably easier even at substantial volumes, given the asset classes’ well-established nature. Notably, FINN secured its initial debt line before even dispatching its first vehicle. Presently, the company operates at close to 100% loan-to-value (LTV) ratio in Europe, underscoring its financial strength, and is poised to achieve the same in the US market in the near future.
3. The company has firmly understood that not only internal operational challenges but also the consumer value proposition can be efficiently addressed through technology and a “sustainability first” mindset. FINN’s fully digital customer journey offers a significantly faster and more comfortable experience. This distinction is particularly pronounced in the US, where the conventional car purchasing, financing and leasing process is highly inconvenient and stressful. The FINN team’s successful backgrounds in e-commerce gave us additional confidence in the company’s tech DNA from day 1. Furthermore, we see the FINN business model as a strong potential driver for electric vehicles and sustainability (>35% of the fleet consists of EVs (electric vehicles) & PHEVs (plug-in electric vehicles) already and the company is committed to increasing this share further while compensating emissions for non-electric vehicles) given the clear benefits of flexibility and therefore a longer trial period when considering driving an electric vehicle the first time.
4. At its core, FINN strategically refrains from taking a pronounced interest in substantial car price fluctuations, whether positive or negative. The company has successfully pre-sold 90% of its acquired vehicles at predetermined, guaranteed prices over the past years. The remainder, susceptible to factors like price drops, especially in the context of electric vehicles, posed a potential challenge for FINN and its presale partners. Consequently, the company has implemented a stringent practice of not acquiring any cars without a presale contract, exclusively collaborating with reputable, well-financed partners to mitigate associated risks in the present and the future.

An unprecedented growth and profitability profile

Built on these foundational pillars, the company has demonstrated remarkable subscription revenue growth since its inception in 2019, growing to ca. €170 million in ARR (annually recurring revenue) by December 2023. Based on strong B2C (>3x CLTV / CAC) and even stronger B2B (>6x CLTV / CAC) unit economics in Europe, which constitutes >90% of FINN’s revenue today. Furthermore, there remains significant optimization potential to double both metrics in the coming years. Based on these unit economics FINN is now able to operate independently of further external equity capital on their path to break-even.

With ambitious aspirations, FINN now targets surpassing €1 billion in ARR and €100 million in net income run rate throughout the next years, a milestone unparalleled in comparison to the vast majority of public tech peers. In alignment with the rule of 40, which dictates that the sum of profit margin and revenue growth should be at least 40 for successful companies, FINN confidently envisions maintaining a profit margin and revenue growth sum even exceeding 50% at any time in the upcoming years.

In the pole position for global category leadership

To us, FINN stands out as a potential sustainable, global category leader in one of the largest asset classes globally. To put things into perspective — the car market size implies that attaining a 5% market share in the US and Europe alone can result in a subscription ARR surpassing €30 billion. Undoubtedly, opportunities of such magnitude are exceptionally rare. FINN is extremely well-positioned to dominate the new car subscription market in both Europe and the US, supported by its business operations, financing structure, and key supply partnerships. But first and foremost, it fills us with great pride to say that we consider the FINN team amongst the strongest in breadth and depth across our entire portfolio as the firm has always been dedicated to attracting and maintaining the best talent for the leadership and for all other levels.

The long-term vision

Last but not least, we see a lot of potential to expand the business model beyond car subscription. Examples include offering direct e-purchase options for consumers post-subscription or the possibility of car-sharing among users during idle periods to markedly reduce subscription fees. Such innovations aim to enhance the overall utilization of cars, addressing the prevailing issue of cars still being one of the most under-utilized asset classes. Looking ahead, even in a fully autonomous future, a clear perspective emerges. Envisioning diverse subscription tiers (e.g., bronze, silver, gold), users could gain access to distinct autonomous car pools or fleets featuring different levels of availability, quality, and other characteristics which would further increase car utilization and increase the sustainability of the asset class.

FINN’s journey has just begun, and we remain exceedingly enthusiastic about what is yet to come!