Startups are battling challenging conditions, including a decrease in venture capital as well as wider inflation and interest rate issues.
Yet some are managing to break through and attract funds with ongoing investor appetite in the vacation rental market, which continues to show some resilience.
While not huge sums, Whimstay recently announced $10 million in fresh funding, Sextant Stays added $14 million and Kindred and Holiday Swap landed $15 million.
So what makes a vacation rental startup, be it technology-, hospitality- or real estate-focused, attractive to investors?
Zinab Bercheq, assistant director of private equity company Advent International, which has invested in Planet, said it's down to a number of criteria.
“The first thing we look at is the market, it’s really crucial to, as a base, have a supportive market," she said during an "Accessing the Money” session at the recent Short Stay Summit in London.
"That’s the view we took on short-term rental. We came from a place where we were familiar with adjacent markets, we’ve invested in travel and hospitality and were really attracted to this kind of compound growth every year in short-term rental. It has that higher exposure to domestic travel. We thought this is a market we want to be exposed to and that was a solid base.
“Then we looked at what segments we wanted to be invested in. Technology felt like it had a really big play, it’s an enabler of the growth of the industry that is fragmented and has a lot of regulation so technology has a role to play.”
Meanwhile, startups on the panel, Guesty and Holidu, provided their view on the attractiveness of the market for investors.
Johannes Sieber, co-founder and CEO of Holidu, which has raised €200 million including €100 million in October, said: “It’s a large market, a growing market with growing demand and on top of that it’s an offline-to-online change, which drives even more growth. It’s still super fragmented and in many areas non-digital, and that’s a great place to build something.”
Amiad Soto, co-founder and CEO of property management platform Guesty, said that the market is still in its infancy.
His company has raised $280 million, including $170 million announced in August, and made a string of acquisitions since, including most recently StaySense.
“Our market share is still in single-digit percentages, and that’s just in vacation rental. We can grow a lot. As the market grows and matures, we see a lot of our customers go into adjacent markets: glamping, student housing, residential and a lot of other ones, taking full buildings and converting them into boutique hotels. There, our market penetration is even lower, so we have a lot of room to grow and to disrupt these other markets.”
He also said that technology in the segment has not yet reached its full potential in terms of “simplification and automation.”
“When I say simplification and automation, I mean how do we get the technology to help scale our business for us and how do we grow the business 10 times without growing the team 10 times. That’s something we have yet to see in any of the technology out there that Guesty has been focusing on and achieving. So there are a lot of things out there and a lot of great opportunities.”
Simon Lehman, founder of short-term rental consultancy AJL Atelier and session moderator, asked the panel about the experience of investment from both perspectives.
Bercheq said: “We do a lot of due diligence. We spend a lot of time trying to understand sectors and businesses. We try to understand market share and market share development. With the business plan you’re looking at, what are the proof points if you’re showing me X number considerations around more of the bottom line and the leadership team. At the end of day, you’re not running the business, so culture is super important.”
Sieber agreed that it’s important for investors to look at the team and the culture, especially with the world changing so rapidly.
Subscribe to our newsletter below
As to why investors might not invest, he said: “What we learned is that not everyone likes travel or knows how to invest in travel. It’s seasonal, and with almost every part it takes a lot of time to build up substantial supply and demand, and people need to understand that.”
Soto shared that he received “20 noes for every yes” and said it can pay to persevere.
“Investors sometimes make up a reason because they just don’t fall in love with the company, and after a while you meet with them again and they realize they were wrong and that helps create a better relationship for the long term. It’s making sure they understand the vision, making sure they believe and trust you, and sometimes it takes a couple of years of developing a relationship.”
Both he and Bercheq also said it was important to get the right investor on board, for example, one who has experience in the segment and brings more than just capital to the table.
But, said Lehman, what if a startup is desperate for funding?
Soto said: “Getting an investor is forever. If you choose wrongly, it could kill your business. So I actually think if your back is against the wall, redesign your hypothesis and change the narrative because it’s never too late to not take money. If you meet the investor and feel this is the right investor, do due diligence and ask founders that took money from them how was it when it was bad not just how was it when it was good. Do due diligence just like they do on you and take money only from companies that you believe could be a good partner for you forever because it is forever.”
Phocuswright Europe 2023
Some of Europe's smartest investors share their views on the state of startups and how to pick winners for travel’s next era.