A pretty entertaining fight broke out on Twitter yesterday between management guru Tom Peters and some of the VCs that backed Zipcar. It began when Peters tweeted:
“Aargh. Hate hate hate to see Zipcar swallowed by Avis!! Greedy VCs looking for quick payback, I presume???”
Folks like angel investor Jerry Neumann didn’t love the comment, disavowing Peters’ theory that the Avis acquisition of Zipcar was driven by the desires of VCs to exit. (My colleague Katie Fehrenbacher correctly points out that in terms of the return VCs got, “The multiple is also not all that high in the VC world.”)
The conversation soon devolved into a snippy dialogue on the value of venture capital investing with Neumann tweeting:
“@tom_peters You might want to reflect on this conversation before you go calling people you don’t know arrogant.”
“@tom_peters I agree. I suppose I find hating on the best form of innovation finance we know more dangerous than you do.”
There are situations in which VCs are pushing for an exit and it causes a premature acquisition before a company is given a chance to flourish. But I don’t think that was the case here.
I think Zipcar itself was concerned about its capital scaling costs going forward as expanding into new cities is very costly and there’s a significant lag time before those markets become profitable. Avis had the logistics and capital to ease that transition.
GigaOM analyst and founder of NextMarket Insights Mike Wolf correctly pointed out on Twitter that “What Peters doesn’t consider is that Avis could have just started their own sharing business, which contained valuation IMO.” This is exactly what Hertz decided to do after considering buying Zipcar itself. It launched Hertz On-Demand. It clearly ran the numbers and decided that $500 million or more was just not worth it, given that Hertz could just pour that money into developing its own service.
And that’s the interesting part of this deal. Avis paid $500 million for branding and for the IT infrastructure and experience that Zipcar brings. It seems like a steep price, given that Zipcar built its brand and infrastructure with $95.7 million in VC between 2000 and 2010. Surely, for a couple hundred million, Avis could have branded and developed a pretty catchy car sharing service, particularly since both Hertz and Avis are in the enviable acquisition position of already owning most of the infrastructure parts needed to launch a car sharing service.
It’s a difficult question to answer but let’s hope that Avis doesn’t dilute the Zipcar brand by putting it on the back burner, or by pushing the Avis name into the brand. At the end of the day the Zipcar brand is the most important asset and what Avis was actually paying for.