Clear scores $44.4 Million in funding

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08/21/2008
Well, I guess the money people aren't too upset about that laptop snafu: Clear announced today $44.4 Million in venture funding. Apparently, some rich people think this Registered Traveler thing has legs. I'm not totally sure I agree, after having covered many of the baby steps the various contenders have taken. This is the part that's supposed to convince me it all makes sense: Clear's annual membership fee is $128. The Clear concierge service alone has made Clear lanes 30 percent faster than regular security lanes and Clear plans to improve that even more through enhanced technology which, once approved by the US Government, could allow cardholders not to have to remove shoes, outer garments or laptops as they pass through the security checkpoint. Clear was recently featured in a Conde Nast Traveler story which reported that there are an estimated 8 million fliers who take at least two trips per month and who are Clear's target market. Okay, let's do a little math, then. Say there are 8 million people who might be interested (I sort of doubt it, actually, since 8 million is almost 3 percent of the entire U.S. population, and that seems high to me). I would count myself among them, even though I don't travel quite that often. However, I doubt I will be joining Clear anytime soon because I find it highly unlikely my home airport, Portland, Maine, is going to get a Clear lane anytime soon. Maybe I'm wrong. Either way, Clear is going to have to up its amount of airports with lanes in a major way. They say it takes about $1 million per lane, per airport. So, to get a large percentage of those 8 million people interested, they're probably going to blow all of that venture funding on 50 or so new lanes, not to mention all the registration stations with iris technology, etc., they need to buy, which will probably run them another $1 million per airport. So, say, ballpark, they need about $100 million to get to the point where they've got great U.S. coverage (but still probably not at Portland or Hilton Head airport, or very many regional airports at all). Now, what's the cash flow? $128 per member, per year? Say a quarter of that 8 million people make the plunge (that would be a huge amount to do it - people are cheap, and security really isn't that bad). And say 60 percent of that half go with Clear and not the FLO Alliance (who are doing some interesting things with non-airport security access). That would leave you with 1.2 million buyers of a $128 membership each year, in the best-case scenario. So that's a pot of about $150 million. And what's the net margin on a membership, after you've paid people to man the lanes and staff the registration stations and made the cards and done the paperwork and advertised, etc.? In a perfect world, maybe 20 percent? So, you're bringing in about $30 million in net income each year in the very best case scenario, which couldn't possibly be realized for about two years (and that would be very quick)? And you've got to pay back $44 million in investment, so say $60 million minimum, at some not too distant date? And you've got to make $100 million in investments to even get to that $30 million in net income? I don't know. Back of the envelope, it just doesn't make that much sense to me. Maybe there are a bunch of sponsorships they could sell - advertising in the lanes and partnerships with hotels and car rental joints, etc. But I think the average security experience is going to get better, not worse, as fewer people will fly now that it's more expensive and those fewer people flying will be more experienced. Plus, the laptop and shoes and jacket things will go away fairly soon for most people as technology is developed. So I'm not even sure they would ever get a quarter of their target market to sign up. Maybe I'm wrong. Steven Brill is a smart guy, and the investors aren't dummies, but it seems like irrational exuberance to me.

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