(Chris Sacca, a venture capitalist who made early bets on Twitter and Uber, guest starred for this episode.)
Fixed Before Shark Tank
Complicated parking signs? Overambitious attendants? David Hegarty had heard it all. Parking tickets are expensive and maddening. David hoped he’d found the solution. Fixed is a service that automates the process of contesting parking tickets. Doing so manually is slow, expensive, and can require extensive legal knowledge. With Fixed, users simply take a picture of their ticket. If it can be contested, then a customized letter will be drafted and sent to the relevant office. After successfully contesting a ticket, Fixed gets a cut of what the value would have been. Customers only pay for the service if they win.
Fixed is an innovative solution to this problem. Entrepreneurs have often led the charge against regulation, pushing relentlessly into black and gray markets. From bootleggers during the Prohibition Era to Uber’s war on the taxi industry, these businesses are controversial and lucrative. In a way, Fixed is no different. Its main competitors for revenue are local city governments. As of the show’s film date, Fixed already had a rough relationship with the San Francisco Municipal Transportation Agency (SFMTA). For this reason, Fixed needed money to expand into other cities and related services. Scaling was the best solution to its problems, but would a shark be willing to bet against the government?
Fixed During Shark Tank
David entered the tank and requested seven hundred thousand dollars for 5% of his company, a fourteen million dollar valuation. He framed Fixed emotionally, channeling anger at parking citations. He wanted to fight this injustice. It was a peace-of-mind service, streamlining the customer experience by eliminating the need for legal knowledge. Users of Fixed could simply upload their tickets and sit back. The app’s success rate was only about twenty-five percent, but the pay-if-you-win model made it a no-brainer. The fees for a beaten ticket were about a third of the ticket cost. Additionally, Fixed collected a two dollar convenience fee to pay an uncontestable ticket for its users. However, this was actually a smaller amount than many government-sanctioned payment options. Basically, users could save money by paying for tickets through Fixed, even if Fixed never beat a single ticket.
The statistics seemed to back up David’s claims. Only five percent of people contested their tickets, and many of these attempts didn’t succeed. Fixed most commonly beat tickets due to omissions and typos by parking officers. It captured an untapped market of people who never attempted to contest their parking tickets. There has been criticism that the success rate for Fixed is lower than for individuals, but there is a simple explanation. Individuals tend to contest only tickets with obvious issues. Fixed was aware of more potential reasons for disqualification, so it was open to less obvious cases. Still, the business needed help expanding to new cities because each has its own regulations and payment methods. Eventually, David aspired to a presence in the hundred largest cities in the United States.
While market size is never an indicator of individual success, it does suggest demand. David estimated that, every year, a hundred million tickets are written in America (it’s unclear whether he is referring to parking tickets or all citations.) The average San Francisco parking ticket was for about seventy dollars. Unfortunately, the size of Fixed itself was not as impressive. So far, it was only operating in four cities: San Francisco, Los Angeles, Oakland, and New York City. Its net revenue (it’s unclear if David actually meant net profit) so far was only eighty thousand dollars. The revenue per ticket was also fairly low: only five to six dollars per submission. This seemed especially dismal when the cost of acquiring a new customer was four to five dollars. This made no sense to Kevin. Wouldn’t customer acquisition eat through their revenues? David answered that Fixed had a seventy percent retention rate, with the average user receiving six parking violations per year. Customers of Fixed kept coming back.
A few of the sharks had issues with the business model. Kevin brought up the idea that Fixed was counting on its users to keep breaking the law. This would be a concern if parking tickets actually deterred improper parking in the future. The average number of tickets per customer per year suggested otherwise, but the volume just wasn’t there for Chris Sacca. He didn’t see enough users to justify David’s valuation. He also thought it was a bet against the future. With on-demand services like Uber and emerging technology in autonomous cars, he thought parking tickets were a waning issue.
Wanting to persuade Chris against backing out, David talked possibilities. Parking tickets were a five hundred million dollar industry in the United States alone. Fixed was preparing to launch a similar service for traffic and moving violations, a three to four billion dollar market per year. Customers without legal resources had already submitted tens of thousands of traffic tickets, hoping that Fixed could help. Their major concern was rising insurance premiums. Fixed now had the opportunity to save its customers more money by preventing increases in insurance premiums.
In spite of David’s success, the sharks thought he was too optimistic in his estimates of the business’ growth potential. Current growth rates suggested revenue growth from eighty thousand dollars at present to eleven million dollars at the end of 2016. “If my three-year-old continues to grow at the same rate she’s growing now, she’s gonna be an eight-footer within three years. She’s gonna be playing in the WNBA,” Chris joked. After all, there were potential issues with expanding into new cities, capturing the traffic ticket market, and maneuvering the legal minefield with city governments. However, David wasn’t being completely unrealistic. So far, Fixed had raised one million eight hundred thousand dollars at a ten million dollar valuation. Other investors clearly believed in the business.
Despite the potential viability, Kevin had more fundamental concerns. As an owner of mutual fund companies, he was constantly under the regulatory microscope. He worried about making an enemy of the government. Fearing an audit and the “bad karma” from taking on such a big opponent, he backed out. Robert didn’t have the same issues as Kevin with the business model, but he thought Fixed’s projected run rate was too optimistic. He backed out, as well.
For Lori, the business was valuable, but it would be a risky investment. As such an unorthodox service, there could be untold legal issues or other problems along the way. While she thought Fixed was “climbing the mountain”, seven hundred thousand at five percent was too steep. She backed out. While Chris recognized how lucrative this legal services space could be, he also had concerns with the costs of acquisition, comparing Fixed to “ambulance-chasing lawyers”. He also thought it was a bet against his future-driven portfolio. It wasn’t the space for him, so he went out as well.
Only Mark remained. He disagreed with Chris that car ownership was on its way out and personally sympathized with the spirit of Fixed. He liked “the idea of kicking the government up the ass”. Chris objected. These revenues fund important public goods and services, such as libraries, roads, and homeless shelters. Mark and David joined forces against this sentiment and disagreed with the humanitarian angle. Parking tickets were a regressive tax, specifically targeting those without any other place to park. These people couldn’t afford legal representation.
Mark loved the idea, but he thought there were operational challenges to scaling quickly, so he offered to be a strategic partner. He was willing to offer the seven hundred thousand for seven percent, a ten million dollar valuation. This was the valuation of Fixed at its previous round of investment. A constant valuation across multiple infusions of capital is known as a “flat round”. Generally, this is bad for a business’ early investors. They bank on an increase in valuation over time to increase the value of their stake. By keeping the same valuation, they don’t turn a profit. This worried David, but Mark assured him that the extra two percent could be structured as advisory fees. This way, the technical value of the company would still increase.
David was still concerned. Mark’s offer was seemingly close to David’s initial request, but two percent of a company worth ten million dollars or more is significant. David asked for Mark’s full commitment. Would he offer his time and energy to the business? Mark promised to make himself available at any time, day or night. With a handshake, the deal was done between the two populist crusaders. David was glad to have Mark on board. “He’s a contrarian thinker, and that’s exactly what we need.” The Fixed founder walked proudly into the sunset as Kevin smiled, fantasizing about their failure.
Fixed Now in 2018 – After Shark Tank Updates
After its founding in 2013, Fixed went through a period of rapid growth. Beginning in San Francisco, it announced its expansion to Oakland in February of 2015. The story in early 2015 was expansion across southern California and into New York. However, legal backlash from San Francisco stalled the company. First, the SFMTA requested that Fixed stop faxing the office contest letters in bulk. When Fixed replied that this practice was legal, the SFMTA simply unplugged their fax machine. The cities of San Francisco, Los Angeles, and Oakland all outsource the back-ends of their websites to Xerox. Gradually, Xerox began to ramp up security and blocking measures on the web site, attempting to cut off access to Fixed through IP blocking and CAPTCHA measures.
This was easy enough to subvert – to a point. Eventually, Xerox began using a third-party organization to increase the effectiveness of these blocks. While there were still potential work-arounds, these were time-consuming. Xerox eliminated any profit motive for Fixed to stay in the region. After processing the remaining parking tickets in its system, it stopped offering parking services in San Francisco, Los Angeles, and Oakland.
There’s been an interesting back-and-forth between Fixed, the SFMTA, and Xerox in the following months. Xerox claimed that their blocking wasn’t specifically targeted at Fixed. Rather, it was an effort to bring their clients up to industry standards of security, which wouldn’t allow mass submissions. Fixed then submitted a Freedom of Information Act request to the city. The company discovered and published an email written a Xerox employee that implicated him in a direct conversation with the SFMTA regarding Fixed. The change in website security may have been more targeted than they let on.
Because a large portion of their parking ticket service revenue was removed by leaving these three cities, Fixed decided to pivot to a greater focus on traffic and moving violations. In the course of about a year, they’ve expanded to fifteen states, as well as Washington DC and New York City. Presumably, traffic and moving violations are more uniform across entire states. Fixed won’t have to re-work its compliance measures for each new city.
It’s new business model is a quite different. Now, users submit a picture of their ticket and answer a short survey about their driving record. A Fixed agent reviews each submission. If the expected increase in insurance costs warrants it, this agent will match the user with a vetted attorney. Up to this point, the service is free. When a user hires the recommended attorney, there is a fee, which is about one hundred fifty dollars on average. The attorney schedules the user’s court appearance and attends the court date for the user. An attorney can ensure that the option of traffic school stays available.
In some ways, this new model is a departure from Fixed’s pitch on Shark Tank. It solves the problem of insurance premiums instead of ticket fees, and it’s a more standard finder’s fee model. This service also charges users, even if they lose. On the other hand, it preserves the spirit of the business. It is a tool for the average person to receive just legal treatment, save time, and (in a different way) save money. Given that the users of Fixed were already demanding a traffic ticket service, they should have customers lined up. However, only time will tell if the “We beat your ticket or your money back” guarantee was the secret sauce of Fixed. While I’m rooting for David Hegarty, practical and legal challenges will mean a long road.
Episodes and other resources:
Shark Tank Season 7, Episode 14; News piece detailing Fixed’s legal troubles in California
Initial valuation and offer:
5% for $700,000
By film date in 2015: $80,000
By end of 2016 (projected): $11,000,000
Mark: $700,000 for 7%, with 2% structured as advisory fees (accepted)
Fixed currently operates in Arizona, California, Florida, Illinois, Indiana, Kentucky, Louisiana, Maryland, New Jersey, New York, Ohio, Pennsylvania, Texas, Virginia, Washington, and Washington DC. Fixed is available on iTunes and the Google Play Store.