The Series A round announced with Google Ventures and Valley VC firm August Capital on Tuesday is expected to help it to $5m in total funding to date.
Its website allows car owners to post details of their vehicles and set a price for their hourly rental. The service provides a free fitting of technology that records mileage, GPS location and includes an immobiliser that only allows the car to be driven away by someone with a valid reservation.
Keys are left inside and the renter opens the car by passing a smart card over a windscreen tag.
RelayRides covers its costs and makes a profit by taking a 15 per cent transaction fee. It charges another 20 per cent to cover insurance costs for the rentals.
Car owners typically charge between $6 and $12 an hour, but Shelby Clark, RelayRides chief executive, says this varies depending on availability of cars in a particular area and the type of car and its accessories.
He has rented out his own car, which has a bike rack, GPS and iPod connection, and earned $420 in his first month – covering a car payment of $300 and insurance of $100.
Mr Clark says a car shared this way can take 14 others off the road as users delay purchases of new cars or sell their old ones to become a renter.
He says people are changing their behaviour in other ways – someone may cycle to their office and rent their car out or rent an SUV to go skiing and rent out their own smaller car while they are away.
Disputes where cars have been handed over in bad condition have been rare, with drivers taking more care of other people’s cars than they would do hiring from a regular rental company, according to RelayRides.
The idea of using less cars might seem alarming to Detroit automakers, but Mr Clark says they have accepted the concept and companies such as Smart Car in Europe and Nissan and Subaru in Japan have been experimenting with the idea.
“The auto manufacturers are looking at this as something that will happen and are trying to figure out how best to take advantage of it,” he told me.
“For example, we enable people to buy a more expensive car – they’re going to get one with a better stereo for themselves, because they can afford the higher payments and it makes it easier to rent out.”
While RelayRentals has started out in the densely populated areas of San Francisco and Boston, the service could come into its own in sparsely-populated rural areas.
Mr Clark says regular car rental companies need a 45-55 per cent utilisation rate to cover their costs and so can’t operate in such areas. RelayRentals does not have the high fixed costs of owning or leasing and can be profitable on a per-car basis, meaning the service could be successfully applied to rural areas.
Traditional rental companies will be a better option if drivers are going on longer trips though, he admits, due to a mileage cap on car-sharing rentals.
“Car-sharing is a $12.5 billion global market that is thriving in both the U.S. and abroad. RelayRides is the first to bring this global trend to the hyperlocal level,” said Joe Kraus, partner at Google Ventures and RelayRides board director, in a statement.
“This growth is driven by the fact that car-sharing is now a convenient, affordable and sustainable alternative to ownership.”