Deal To Watch: Mobile, On-Demand, Brake Services and Repairs

Key Stats:

Summary

BRAKES to Go has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

Vehicle maintenance is a necessary, but tedious part of owning a vehicle. In a nation dominated by vehicles, most Americans actually don’t know how to perform basic upkeep or maintenance on their vehicles. Additionally, 2 out of 3 Americans do not trust auto repair shops in general — citing overcharges, recommendations for unnecessary services, and general poor past experiences for their lack of trust. 

American car owners care about auto repair services that are ultimately convenient and stress-free according to a report from Cox Automotive’s Service Industry Study. It also doesn’t help that the average American spent $1,986 over the last five years on car repairs. 

The same report also stressed the need for dealerships and service repairs providers to offer price transparency, online appointment services, and mobile solutions.

Given that, how does the archaic and outdated car repair industry modernize, compete, and win out in a highly fragmented ~$70B market (of which brake repairs and services represent only a piece of that ~$70B) where consumers have difficulty trusting auto repair shops, but DO trust a single auto repair shop they’ve grown accustomed to? 

Solution

BRAKES to Go provides an alternative service option for helping vehicle owners solve brake issues. BRAKES to Go is a mobile, on-demand, automotive brakes repair solution that is convenient and competitively-priced. In an industry marred by poor service and the tedious, slow process of bringing your car in and waiting for repairs, BRAKES to Go provides a convenient, stress-free, and transparent experience for users. 

The world is trending towards on-demand solutions and BRAKES to Go is becoming the Uber for brake repairs. The company is attempting to disrupt an antiquated industry with clear, transparent pricing and convenient, on-demand service. The company is capitalizing on the ease of brake repair/installation and reduced need for overhead expenses related to a physical shop in brake services. With the reduced overhead expenses and mobile-experience, BRAKES to Go passes on the savings to the customer, resulting in a better experience. 

How it Works:

1. Call or Request a Quote Online
2. Schedule An Appointment
3. Brakes are Serviced

The company’s business model is fairly straightforward: brake pad replacements are $149/axle, which includes both parts and labor. For other brake repairs, customers pay a fixed fee dependent on the particular service plus a 15% markup on MSRP for parts. Labor charges are based on service performed and not on the make, model, or time taken to repair. Aside from luxury and over-sized vehicles (which demand a higher labor fee), most customers pay the same labor fees.

The Deal

BRAKES to Go is offering a fairly straightforward capital raise. The company is raising between $50,000 and $1.07M. Investors who purchase the first 50,000 Crowd Notes, funding the first $50,000, will receive a conversion provision based on a $9M valuation cap, instead of a $10M cap. 

With equity financing of at least $1M, the company will have the option to convert the Note into preferred shares at a price based on the lower of a 30% discount or a price per share based on $9M instead of $10M. At this time, the company has already received commitments in excess of $250,000.

The Team

Randall Huntsinger and Jonathan Ganther are the co-founders of BRAKES to Go. Randall is an attorney by trade, having spent 20 years across the private and public sector. He served as general counsel at a private energy services company, was Assistant Attorney General in Austin, and was an attorney at Godwin, Gruber, P.C. in Dallas. He handles all administrative affairs, including financials and general counsel. 

Jonathan directs and manages the company’s service operations, including customer service, scheduling, and even servicing vehicles. Jonathan does not have prior experience in operating a startup. As the business continues to grow, the BRAKES to Go team may need to hire more individuals with prior experience in the space in order to help them build partnerships with specific retailers and manufacturers. 

Lastly, the team has no outside advisors in the space to support business development and partnerships at this time. Overall, we think management has proven ability to execute and operate the company, though at scale more reinforcements may be needed.

Why We Like it

1. Traction: BRAKES to Go has managed to reach profitability in the 4 years since it began its operations. Although the term “startup” does not necessarily describe BRAKES to Go, the company has managed to reach net profitability, which is more than what many early-stage companies can say about themselves.

   
   The company has generated revenues of nearly $5.6M since its inception and has grown revenues 24% from the previous year. Additionally, it seems customers have built an affinity for BRAKES to Go as it has managed strong customer ratings across Yelp, Google, and Facebook.
   

   

2. Growth: Despite focusing on the Austin, TX area and on brake repairs and services, BRAKES to Go has managed to grow revenues every year. We can see potentially adding more services to their current offering as a way to accelerate growth. The current fundraising efforts will be allocated to expansion in Dallas and Houston, which involves marketing, additional equipment, and technicians. This is the right first step in geographic expansion, though we would like to see more aggressive expansion across the southeast with time.

   

3. Customer Stickiness: BRAKES to Go has built a strong customer base with high ratings across Yelp, Google, and Facebook. With its mobile on-demand services along with its competitive prices, BRAKES to Go has built trust in a specific automotive repair niche. The company can use the goodwill when potentially marketing new services or when marketing in new geographies. It should be noted that there is no mention of repeat customers/retention.

4. Trending Market: The demand for on-demand services is heating up and receiving plenty of venture investment. Wrench, a direct competitor to BRAKES to Go, recently raised $20M. RepairSmith is a service that operates in San Francisco and Los Angeles and offers on-demand repair services. On-demand services are an increasingly popular investment area with Booster Fuels, Filld, and plenty of others receiving venture backing and validation from customers and institutional investors.

5. Exit Opportunities: We think the exit opportunities in this space are great for an on-demand auto repair provider like BRAKES to Go. Pep Boys, a national chain, acquired Just Brakes for an undisclosed price in 2017. Although the other large chains like O’Reilly Auto Parts and Advance Auto Parts haven’t made an acquisition in a while, we can see the two making a play to acquire BRAKES to Go as upstart startup Wrench continues to gain traction.

   
   The most active acquirer in the space has been startup Wrench, fresh off its $20M Series C financing. Wrench acquired Octobots in September of 2018 and Fiix in October of 2018, both for undisclosed amounts. There’s certainly potential for Wrench to acquire BRAKES to Go, but Wrench already operates in all 50 states and may not need to acquire BRAKES to Go’s customers or its minimal tech-stack.

The Rating: Deal To Watch

BRAKES to Go operates in a highly fragmented market generally subject to poor customer experiences. We like that the company is able to capitalize on a specific service (brake repairs and services) with an on-demand mobile solution to win over consumers. The company, however, faces competition from YourMechanic and Wrench, Inc. which are venture funded, and Just Brakes which was acquired by Pep Boys. 

The three competitors are not only well-funded, but also enjoy a wider geographical influence than BRAKES to Go. The company states that its main differentiator is its customer-centric experience, which YourMechanic lacks as it is strictly a marketplace. Wrench, Inc., however, more closely overlaps. Wrench, in fact, also provides oil changes and tune ups along with its brake repairs and services. Even with many players, there is no clear national winner in the space and operating in a $70B market does provide room for more than a couple of competitors. 

Additionally, we want to highlight that BRAKES to Go does not have much of a competitive advantage aside from its customer ratings and reviews. There does not seem to be much of a technological component that BRAKES to Go can use to differentiate itself from current competitors or potential new competitors from entering this particular space. What’s to stop an upstart company from offering the same services, but with a potential techstack supporting it and offering the new solution better scale and efficiencies? Perhaps the company will succeed based on the strength of its early profitability and geographic niche. The two in tandem will help the company grow slowly geographically and in its service offerings, potentially positioning BRAKES to Go as an attractive business in the future.

Lastly, we want to highlight again that there is room for more than one player in this space. Compared to an industry like ride-sharing, auto repair services is NOT a winner-take-all industry. Advance Auto Parts, O’Reilly, Pep Boys, and Wrench are all indicative of there being room for more than one large competitor. The ability to have your own full-time employees servicing vehicles is an immense benefit, however creates organizational challenges in itself.

Given what we have seen of BRAKES to Go thus far, we believe it is an attractive business, but not one that will yield extraordinary returns. It will probably never see a unicorn valuation, but may reach a valuation where a private equity firm or auto parts supplier like Advance Auto Parts would acquire the business for several millions and in the case of private equity firms, keep it in its portfolio of cash cows to yield good returns. Additionally, compared to others in the space, BRAKES to Go’s early profitability is a positive compared to traditional startups that aren’t profitable and burn cash at extraordinary rates. 

When the company does expand geographically, profits will most likely dip back into the red, especially since its expansion efforts mainly revolve around expanding geographically along with additional spend in marketing. Because the company doesn’t seem to be adding additional service options and keeping to its niche in brake repairs, the company’s current upside is looking limited. In that respect, this can be a good, safe, and profitable long term investment for investors to consider and watch, but also one that has limited upside compared to fast growing businesses like Wrench that scale more quickly.