Unagi, the e-scooter manufacturer, has had a bustling month. Merely a few weeks after launching its Model One Voyager scooter, the company announced that it has successfully concluded a significant funding round and secured a partnership with Best Buy for scooter subscription services.
The funding round, totaling $29.3 million, is a mix of equity and debt. The equity portion, amounting to $17.3 million, is spearheaded by Ecosystem Integrity Fund, with contributions from Menlo Ventures and Pure Capital. The remaining $10 million in debt is led by Aegon Asset Management, partnering with Unagi’s existing credit provider, Horizon Technology Finance.
Unagi has gained popularity not only for its lightweight e-scooters that cater perfectly to urban users but also for its subscription model that provides a hassle-free and affordable experience without any long-term commitments. While the company does offer its scooters directly to consumers and via retail partners, the subscription model now constitutes nearly 90% of its business. The company might even contemplate ceasing sales altogether, according to T.J. Compagnone, Unagi’s Chief Product Officer, in an interview with TechCrunch.
The capital raised will be deployed to expand Unagi’s subscription business, with the partnership with Best Buy forming a crucial part of this strategy. Unagi has collaborated with Best Buy and other retailers for the sale of its scooters for several years. However, David Hyman, CEO and founder of Unagi, shared with TechCrunch that selling scooters through a retail partner can pose challenges.
“Cash flow timing, narrow profit margins, handling returns, customer service, and so on, can all be problematic. Hence, we’ve completely shifted our focus towards subscriptions through retail partners,” stated Hyman.
Customers can now visit BestBuy.com to sign up for an Unagi subscription, which is priced identically to Unagi’s website — $59 per month for the Model One Classic and $69 per month for the newly launched Model One Voyager.
Customers who register through Best Buy will have the advantage of having the $50 registration fee waived, a sacrifice Unagi is willing to make in exchange for the visibility gained by being featured on a prominent U.S. retailer’s website.
“From Best Buy’s perspective or any retail partner, this proposition is incredibly compelling. Unagi takes care of all fulfillment, service, and operations,” explained Hyman. “For Best Buy, there is no need to hold inventory, allocate funds, handle customer service or returns. It’s a straightforward way to generate pure-profit revenue without any additional costs. We believe this business model will soon become commonplace in all major retailers, and Unagi aims to be at the forefront of establishing these innovative business models.”
While Best Buy provides a variety of electric micro-mobility vehicles for purchase, this could be their inaugural venture into the realm of e-scooter subscription services. Nevertheless, Best Buy is not new to hardware-as-a-service initiatives. In October of the previous year, the company introduced Upgrade+ as a means to assist customers in financing the acquisition of new devices, such as Mac laptops and other Apple products.
E-Scooters Subscription Services: Unlocking Convenience and Flexibility
According to Hyman, the popularity of the subscription business has exceeded expectations compared to the retail aspect. Additionally, the unit economics have reached a favorable state, with the founder stating that gross margins stand at 50%.
Unagi anticipates achieving profitability by the end of this year, with a specific focus on net profitability rather than adjusted figures.
T.J. Compagnone commented on the strategic aspect, noting that for SaaS-style companies, the valuation multiplier on $1 of revenue can reach up to 30x during favorable periods and around 10x during challenging times. However, for sales-focused companies, the multiplier is typically around 1 to 1.5x based on revenue. In the hardware-as-a-service space, where comparable examples are scarce, Unagi has observed a valuation multiplier of 12x to 15x in good times and 8x to 10x in difficult times. This reinforces the company’s preference for the subscription model over traditional sales.
In addition to the collaboration with Best Buy, Unagi aims to enhance its subscription service by establishing partnerships with enterprises. The company has already joined forces with Google to provide its employees with access to subscription plans, with the subscription costs being fully reimbursable to them. This strategic move helps Unagi expand its reach and further promote its subscription offering.
Unagi has exciting plans to introduce a program that will provide exclusive benefits to employees of companies with established transportation reimbursement schemes. By registering with their work email addresses, these employees will be eligible for perks on Unagi’s website, such as waiving the $50 signup fee or receiving monthly discounts. The program will automatically detect the employee’s domain and apply the relevant benefit to their transaction. Furthermore, employees will have convenient access to their subscription accounts for easy receipt retrieval to facilitate reimbursement by their employers.
Hyman anticipates that the enterprise program will serve as one of the primary catalysts for growth in the upcoming year, projecting that approximately 25% of all subscriptions will originate from this vertical. This indicates the significant potential and impact that partnerships with enterprises can have on Unagi’s subscription business.
The emphasis on subscriptions played a role in Unagi’s decision to discontinue its highly anticipated Model Eleven scooter last year. Despite being CEO Hyman’s passion project, the $2,440 scooter was designed to be highly advanced, with features such as Bluetooth speakers for playing music or providing turn-by-turn directions, remote kill functionality, and advanced rider assistance sensors. However, the company opted to focus on the subscription model rather than pursuing the production of a high-end scooter with advanced features.
Regrettably, due to the growing prominence of the subscription business, the feasibility of offering the Model Eleven scooter for monthly rentals at a cost below $100 diminished. The shift in focus towards subscriptions made it increasingly challenging for Unagi to provide the Model Eleven as a rental option at a more affordable price point.
Hyman acknowledged, “And that was a significant setback,” recognizing that Unagi had commenced the Model Eleven project even before the introduction of subscriptions.
Unagi chose to repurpose the intelligent mobile app for its recently launched Voyager scooter, and Hyman revealed that various elements of the Model Eleven will be integrated into future product advancements.
“We have a scooter slated for release, potentially by the end of this year, that will incorporate more of the Model Eleven’s features,” he explained, implying that an upcoming product will build upon the innovation of the discontinued model.
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