Travel accommodation provider Sonder Holdings Inc. has raised US$170-million in venture capital funding despite a severe downturn in the hospitality industry after the Montreal-born rival to Airbnb took quick action early in the pandemic to protect its business.
The company, one of the most highly valued startups to launch from Canada in the past decade, is poised to emerge from the pandemic in a stronger position than many of its rivals that offer managed short-term accommodations – including Stay Alfred and Airbnb-funded Lyric Hospitality, Zeus Living and Oyo Homes and Hotels – but have either suspended operations or severely retrenched.
Sonder, which had about 5,000 units available for guests in North America and Europe as of February, began planning for the worst that month as the novel coronavirus hit Asia and Europe. In March, it cut or furloughed about a third of its 1,200-plus employees, slashed costs, sought rent relief from landlords and slowed its pace of expansion. It also shifted its strategy to offer extended stays to health care workers, displaced students and stranded travellers at discounted rates, rather than marketing short stays to business and vacation travellers.
As a result, Sonder says occupancy is now about 75 per cent. That’s 31 percentage points above the industry average in the week ended June 20, according to industry research firm STR.
Sonder chief executive officer Francis Davidson “basically went from a peacetime CEO growing his company like crazy to a wartime CEO making sure we’ll be ahead of the curve once we come out of this, not knowing when we’re going to come out [or] how deep we’ll have to go,” said Chris Arsenault, partner with Montreal’s Inovia Capital, which co-led the financing with other previous Sonder backers Fidelity and WestCap. “The company is an outperformer.”
Sonder, which moved to San Francisco from Montreal in 2016, is now valued at US$1.3-billion, meaning investors pegged the company’s worth at roughly the same level as when it last raised venture capital in 2019. By contrast, Zeus, a smaller competitor, took a reported 50-per-cent cut in valuation when it raised US$15-million in May.
The Globe and Mail first reported in April that Sonder had raised about half of a targeted US$150-million to US$200-million financing. Sonder said Wednesday it expects to raise another US$30-million to reach US$200-million.
“We’re incredibly proud to have been able to raise this much capital from this high-quality investor group at ... a very compelling valuation,” Sonder chief financial officer Sanjay Banker said. “To do that for a travel business during the pandemic … is a real testament” to Sonder’s quick response to the crisis.
Mr. Davidson launched the company in 2012 after his freshman year at McGill University, renting his Montreal apartment to travellers to earn extra money. The next summer, the Gatineau native managed vacant apartments for other students; by 2014 he was generating $1-million in revenue and quit school.
Sonder’s growth plan differed from Airbnb as it leased its units directly from real estate companies, giving it more control over spaces and furnishings. (Sonder does advertise listings on Airbnb’s platform.) It targeted digitally savvy millennials seeking “authentic” experiences rather than generic hotels or the uneven quality of Airbnb accommodations.
Forgoing costly amenities such as room service, front desks and gyms, it provided keyless entry to rooms appointed like hip boutique hotels, scattered in buildings in cosmopolitan neighbourhoods. Sonder instead offered “digital concierge” services to guests through their phones, connecting them digitally to local services such as food delivery.
In 2018, Sonder stepped up expansion efforts, leasing more than 1,000 rooms a quarter, and attracted copycat rivals. By the end of last year it was generating US$260-million in annualized revenue and taking over management of boutique hotels.
While Sonder has weathered the sharp downturn better than the rest of the industry, Mr. Davidson said in April he anticipates a “difficult and deep and long recession,” but he added “this might be one of the best opportunities” to add properties.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
Sean Silcoff