Hostaway unlocks $175M to expand its vacation rental management platform
Tourism and travel have come roaring back into business post-pandemic, and today a startup called Hostaway that's building technology for one segment of that market -- those owning and/or managing vacation rentals -- is announcing a major round of funding to grab the opportunity.
The startup, which provides software used to help manage vacation rentals across the many channels where these might get listed online -- Airbnb, Expedia, Booking.com, directly on their own websites, Google and more -- has picked up $175 million, an all-equity round that it will be using to continue developing its business on all fronts: enhancing its platform; expanding its customer base beyond the 100,000 properties managed through it today; recruiting more talent; and making acquisitions.
PSG Equity is leading the round; other investors and the company's valuation are not being disclosed.
The funding is a notable shift for Hostaway. In a landscape of startups that have optimized for scale and growth by burning investment cash at the expense of profitability, Hostaway has arrived at today profitable, largely bootstrapped, and with some significant scale already under its belt. It's taken less than $3 million in outside funding since first being founded in 2015 and launching its first products in 2016, and today some 100,000 properties across 100 counties are managed through its platform, with revenues growing 10x since 2021.
The company is HQ'd in Toronto but founded by three Finns -- Marcus Rader (CEO), Saber Kordestanchi (COO) and Mikko Nurminen (CFO) -- and previous investors have included a number of firms out of their home country, including Leap, Vendep Capital, and Business Finland.
Hostaway's ambition is to be a one-stop shop for all of the different kinds of tools that property managers might need to run their businesses, and it's already made significant headway on that front, with nearly 40 different functions including a property management dashboard, marketing and communication tools, channel management for listing and updating across different sites, accounting and payments software, tools to manage smart locks and communicate / pay maintenance teams, analytics and more, usable through mobile apps and a web interface. It also offers a marketplace with integrations for some 100 other apps that it's not providing directly.
The world of accommodation has been given over to digitization with more than 80% of the world's hotels, motels, self-catering rentals and other places to stay bypassing agents and getting booked directly online these days. That's created fertile ground for the world of tech, with a number of companies building software to help owners and managers of those places. Hostaway's many competitors include the likes of Guesty (which itself has raised nearly $300 million), Lodgify, Hostfully, and others.
Rader said that he and his co-founders came upon the idea of building Hostaway not because of their prior expertise in hospitality -- none of them had ever been involved with that industry -- but because they had actually all had previous experience of startups raising money and making exits in consumer areas like gaming, where they saw a lot of dissatisfaction amongst employees and little in the way of strong financial returns. "That story never ends well," he recalled.
They honed in on vacation rentals and hospitality because, in 2015, the landscape in that market looked fairly open. Airbnb was on a massive growth tear, but there were many, many other platforms for listing properties, and yet no obvious leaders in the market for software to manage that, with even the biggest players not even capturing 10% of the market.
But things were not much easier for a different reason.
"The odds were against us, since most of our peers were founded by people active in the vacation rental space," he said. So they got it into their heads that the best place to start would not be by building software but by running a couple of vacation rentals "as a side gig", to get an idea of the state of affairs and to understand problems from their would-be customers' point of view.
The fact that Hostaway is bootstrapped was not entirely by design. Airbnb was growing but was not quite the juggernaut that it is today, and that meant that a lot of investors were skeptical of the idea of tech that was being built to manage business on it and other platforms similar to it.
"One investor, after talking to us for an hour, simply said 'I don't believe in Airbnb and I'm out,'" Rader recalled.
Hostaway persisted, though, and said that ironically Covid-19 was the catalyst for things really taking off.
"We could see the global macroeconomic trends taking shape," he said, highlighting the trend for working from home, the rising price of real estate, and digital nomads (as he and his founders were and are) and people simply relocating during the pandemic, as all reasons for why the vacation rental market would continue to grow.
So, while business definitely went off a cliff at the start of the pandemic, leading Hostaway to lay off 1/3 of its staff as revenues fell by 60%, they stuck with the business, and it all gradually returned and has been growing steadily since.
"We are impressed with the quality of the Hostaway team, their vision and execution in building what is, in our view, a highly differentiated category leader with multiple levers of value creation," said Edward Hughes, MD at PSG. "We believe the company has a significant opportunity to lead this industry, as it continues to scale its integrated platform, expand globally and help its customers meet the growing demand in the short-term rental market. We look forward to partnering with Hostaway in this new exciting chapter."