London-based hospitality company Selina announced its plan to go public via a Special Purchase Acquisition Company (SPAC) in late 2021.
Launched in 2015, Selina - which provides accommodations as well as workspaces to guests - is anticipating proceeds of $285 million, which it will put toward its growth strategy and technology investment.
In conversation with PhocusWire, Selina co-founder and CEO Rafael Museri discusses why the company is targeting a digital nomad audience, the size of the market opportunity and the brand's competition in the accommodations space.
How convinced are you that the digital nomad trend is going to stay?
It’s a matter of data. There has been a growing community over the past 10 to 15 years, and the pandemic made it catch up quicker. The pandemic introduced a new movement to many people that didn’t consider this lifestyle; it opened the door to experience something new.
As millions experienced it on one side, on the other, employers that were not open to doing that are right now extremely open to allowing people to work remotely while they travel the world. I think just from a rules and regulations point of view it was not acceptable, and now it’s acceptable by many top global companies.
Every time we see Zoom stock growing, it means people are using more and more different forms of communications. It indicates there are more and more people using these services, which means more people are working remotely. Internally at Selina we are collecting the data: how many people, the length of stay and occupancy in co-working spaces.
You talk about it being a matter of data, so what can you say about the size of the opportunity this represents for Selina?
We were focusing a lot before this on brand growth to understand the size of the market. If you look at accommodation the total addressable market (TAM) is $800 billion, but the fact is that millennials and Gen Z represent about 43% of this TAM. But, if you look at the lifestyle world - events, retreats and other - you are going into a combined TAM of close to $2 trillion.
These two generations are getting close to 50% of the consumption. And, then you look at all the hospitality brands around the world and ask yourself how many brands are truly built to cater to those two generations, and there’s very few - 2%, 3%, 5%?
You can argue about what it is, but it’s definitely not even close to the level of demand that exists. So there’s obviously a huge gap between supply and demand.
The fact that Selina is in six different continents and in different countries and has succeeded in more than doubling the revenue than the previous hotel means that the previous concept was not really aligned with the needs of those generations.
When you come in with a more relevant concept and immediately there is more consumption, that’s an indicator for the mismatch between supply and demand.
There have been quite a few new entrants into the alternative accommodations segment. How does Selina make itself standout?
The most important thing about Selina is that we are built for the local. I’m not building for the international traveler. I already know the international traveler, the international remote worker, and the digital nomad is looking for local experiences.
By building a concept for the local I’m solving the need of the local community from an experience point of view and I’m solving two things: One, with a very heavy international, restricted environment, the majority of traffic comes domestically, which gives us a huge advantage.
The future is product-driven; it can’t be marketing-driven.
Rafael Museri - Selina
The second thing is, that by building a product designed for domestic you’re ensuring that once the international tourist comes back they are going to come first to your space because they are looking for these local experiences.
For me what comes first is building a local, authentic experience and what comes second is the international traveler. The second thing that makes us different is the complete ecosystem of work, stay and play. You’re going to make a friend, you’re going to work and you’re going to stay. It’s going to be a social experience; you’re going to have a wellness offering and you’re going to have a good place to work and you will have a full democratic approach to accommodation from high-end suites to family rooms and dorms.
Seventy-percent of our locations are off-the-grid places - more remote, surf beaches, mountains, places with more nature. We didn’t invent it; it always existed but COVID sent many, many people outside of big cities to secondary markets, to more nature, more mountains, more beach, and the remote work is part of it.
Being ready with such a big portfolio in those nature locations means we’re less impacted than other brands in this crisis.
The proceeds of the SPAC is expected to be $285 million, which you plan to invest in international growth and technology. Is it particular areas of the world, what are you looking for?
It is not growth in new beds. The majority of the capital we need to grow geographically and open more beds comes from local real estate partners that help us to fund the expansion.
We’re talking about growth in revenue and the ability to be more efficient, growth in our ability to reduce operating expenses (OPEX) at scale and growth in our ability to source better talent in different areas.
When you scale a business you can’t really scale anything without strong technology today, whether it’s internal processes to deliver global experiences or a booking app that’s online. And how are you going to communicate those things? We’re going to invest a lot in technology that will allow us to do three things: OPEX reduction, incremental revenue, incremental experience - and then the fourth is to improve global processes and efficiency.
What are the advantages and disadvantages of going public via SPAC?
The advantage of a SPAC is you can choose your partner. It’s an amazing thing. We knew that coming from Europe, Latin America and Israel and growing into the U.S., having strong U.S. partners [that are experts in the Wall Street and real estate environments] is going to represent a big part of our expansion. We complement each other. We’re bringing a very strong experiential culture.
I believe that the disadvantage is that for some reason in the past year and a half people started criticizing it and looking at it as a bit of a short cut.
I personally believe that internally, we have been working on for a year and a half every process, every improvement that needed to happen to become a great public company, and whether SPAC or IPO, the readiness is the exact same process.
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Time will tell. If at the end of day you are a good company, with a good product and you’re going to meet your projections whether you went through a SPAc or IPO, the market will appreciate it, so I’m focusing on building a great company.
For Selina was there another way of going public?
The decision first was to be a public company, then we looked at the opportunities. Then we were approached by BOA, and they knew of us, so it was kind of natural and we felt comfortable.
Anyone can choose to IPO, and other SPACs came to Selina in the past two years, but until we were 100% comfortable that IPO was the next step, we didn’t do it. As soon as we decided IPO was the right thing and they came to us, it was the right chemistry and the right approach.
What added pressure does it put on you to be public?
I’m learning every day about what it means exactly. It’s the first public company where I’m going to be CEO, probably the first time for many CEOs.
I think it is positive pressure. It pushes you to be more accurate and thinking 10 times before putting out any statements and building a culture of excellence and a culture of over-delivering.
What’s your marketing strategy given the big OTAs out there have huge inventory of alternative accommodations?
Overall we are becoming less and less dependent on big OTAs. When you have a strong brand, one of the best indications is to measure what percentage OTAs is of your business.
We’re a young company, and OTAs as a percentage of our total revenue is lower than companies that have existed in the market for 20 years. We're working with the direct methodology with our internal app and community. But, I do believe there are great OTAs out there that play an important role in the beginning of any hospitality brand.
So we’re not going to see you invest huge amounts of dollars in marketing?
We’re building as many tools as needed to move a lot of our traffic direct. Every hospitality brand wants to get more direct bookings, so you invest in getting more direct booking. Second, we’re investing in content and programing and investing in what drives the experience.
At the end of the day the only thing that is stronger than OTAs is word of mouth - it’s the strongest tool in the world. If your brand is good, the service is good and people know what to expect and the word is out there, you are going to win. The future is product-driven; it can’t be marketing-driven.
What other distribution channels are you currently using?
Website and app are the biggest channels in most countries. Countries that are more developed lean more and more toward the website and app.
When we go to a new country, it’s more OTAs, B2B channels, offline agents, the retreats industry, which is a big industry that is direct, and our internal call center.
What about getting inventory. There’s talk right now from startups and large OTAs about grabbing as much as they can. How do you get in on that?
You’re talking about supply - there is 20 times more supply than we are managing to capture. We have our own technology, to help us identify this supply, that is unique for Selina.
It took us a long time and we came up with an incredible algorithm: We call it a distressed asset finder for under-utilized hotels around the world. Eighty-percent of the deals we close, we close off market, there is no agent. There is a lot of information online and we collect all the data and process it.
It lets you know that in this specific town, there are 200 hotels and these are the most 20 distressed ones that will probably be happy to strike a deal with you.
Who is your nearest rival, who does Selina keep its eye on in the market?
Internationally no one is doing what we are doing. I don’t know of an international brand, growing the way we are growing in lifestyle, with a big focus on experiential and in remote, off-the-grid secondary markets.
We’re also doing prime locations. We love the big cities but it represents 15 to 20%, so we’re putting a big focus on experiential and location and I don’t see big competition.
But, every country, town, village we are going to where the local community opens restaurants, hotels, clubs, coffee shops, co-working, that is our competition. It is happening at the town level with incredible concepts which are perfectly catered for the international market.
Which of the bigger players out there do you think can challenge?
The big [hotel] brands are doing a great job in their own target markets. For them to shift into being a local destination builder, with local experience, is very difficult to do, so I feel quite comfortable with our ability to be very unique going forward.
I think there is space for many of them but I do believe that the relevancy of Selina is getting bigger every day and the relevancy of may of traditional brands is getting lower every day. Their ability to shift this giant corporate is not easy. Flexible systems and flexible culture is something that you build from scratch.
I have to build every single local experience, whereas when the big brands open 150 to 200 hotels per year, they have a product book and can open hundreds because they are standardizing the product, there is not a big local component to it.
If you want to build a brand that brings a local experience, local community, local playlist, local culture and content, you can’t really make a thousand of them, so the pace of growth depends on your ability to build experiences.
So you don’t see yourself over time as challenging Airbnb or one of the big brands?
I think we are going to take a bigger and bigger piece as we grow, and other brands will have to work harder to compete.
If we look at what 43% of global demand is, and in five years is going to be 50%, and you think that close to 90% of the supply does not speak the language, the market potential is so big there is a lot of space to grow and we’re definitely the most advanced brand in this space.