Sonder raises $ 135 million to turn Airbnb-style apartments into a different kind of hotel


It was the summer after his freshman year, and Francis Davidson, like many students, was struggling to find a sub-letter to take over his apartment. Rather than dropping money on empty rooms, Davidson tried a different route: what if he rented it out to tourists instead?

It was in 2012, a few years after Airbnb launched, popularizing the idea of ​​living like a local in someone else’s space. It was no longer weird sleeping in a stranger’s apartment, and Davidson had to cover his rent. The McGill University Philosophy and Economics student did some math to see if charging tourists to sleep in his apartment could be profitable – and he did. Davidson began convincing other students to sign their leases and turned the apartments into vacation rentals, attracting clients through Expedia and Airbnb to stay in the apartments he managed with his co-founder Lucas Pellan. In 2014, Davidson hit $ 1 million in earnings and gave up a few McGill credits to focus full-time on his startup, now called Sonder.

Four years later, more than 200,000 guests have stayed at a Sonder and the company is on track to make $ 100 million in revenue this year. It has also caught the attention of leading venture capitalists who have invested more than $ 135 million in Sonder, including an $ 85 million Series C led by Greenoaks Capital which Forbes is revealed exclusively for the first time.

“Given that there has been such a movement from traditional hospitality to alternative hospitality, we saw that there would be an opportunity on a really massive scale to deliver a customer experience that essentially solves the two problems of consistency for the sharing economy and authenticity and uniqueness that is lacking in the traditional hotel model, ”says Davidson, CEO of Sonder and 2017 Forbes 30 Under 30 winner.

Davidson had seen the opportunity grow along with Airbnb’s rise to power. More and more travelers thirsted for local experiences that made them feel like they were staying in a city, not a sterile hotel. Yet Airbnb’s strength is also a weakness: the uniqueness that makes staying at an Airbnb enjoyable can also make it unpredictable. Even after a string of good stays, showing up to a trashed apartment can ruin any traveler’s experience.

“Travel is a high cost market of failure,” he said. “If you only have two weeks a year, things can’t go wrong, so we’ve learned to put a very high price on quality. “

Davidson and Pellan saw an opportunity to build a hospitality business around overnight rentals that looked like apartments but had the consistency and quality of a hotel, right down to mini toiletries and crisp linens. . And although it started with negotiating student leases, Sonder today works directly with developers who are building new apartments or renovating old vacant spaces into Sonder’s apartment-style units and signing leases directly with the company. .

Compared to your typical Airbnb, no one “lives” in the Sonder apartments except their guests. Each rental includes a living area and a kitchen so people can cook and relax as they would in their own homes. The units range from studios in the heart of a city to a sprawling six-bedroom unit in downtown Montreal. No two spaces are alike, but rather they are designed to match the style and decor of the neighborhood around it. One of the advantages of the deconstructed hotel model is that travelers can stay in areas like San Francisco’s Mission district or London’s Shoreditch. Sonder does not concentrate its units in one place like you would find in a typical hotel. A 24/7 concierge is accessible via a call or text in case a light bulb burns out or someone forgets their keys.

Running a business like this isn’t easy, and Davidson is the first to admit that he and Pellan have learned the ropes over the past two years. Concentrated units have their advantages in terms of maintenance. The hotel’s cleaning services are door-to-door and a concierge is located in the lobby. Sonder’s deconstructed approach means that crews and cleaning staff have to travel across town to service apartments on any given day.

The ladder will help. Today, Sonder has more than 2,200 units with more than 3,300 rooms in total in 11 cities. The more units Sonder puts online, the denser they will be in a city, which will help keep costs down. It will also allow the startup to secure better deals when it comes to furnishing and bringing units online. Because Sonder does not take back people’s apartments, the company must acquire the real estate and also furnish it with each design appropriate to the location. Despite all of Davidson’s math-focused templates and worksheets, the design is one of his favorite parts.

“We want it to be beautiful. This is one of the disappointments of hotel chains, ”he said. “You can turn this place into a place more than where they sleep.”


Sonder has created his own collection of furniture because he needs hotel-grade sofas and beds, but those that match the West Elm-meets-local look that Sonder seeks. It can also be a little more daring. During a visit to a Sonder unit in San Francisco, Davidson shows a painting that shows the underside of a woman’s breast. Photos of the units are online, so people can fully see the decor and art ahead of time and choose the style that suits them, Davidson says. The company also rents warehouses to store furniture, monitoring inventory with its own software designed to track and assign different rooms to apartments as they become available. It only takes a few days for Sonder to go from receiving keys to a fully decorated unit ready to go.

“There is literally no one who built a hotel business that has operated this way,” said Nabeel Hyatt, an early investor and partner of Spark Capital. While Davidson may be a first-time CEO, Hyatt credits his analytical side mixed with his artistic side to his ability to see and execute a vision in ways others had never imagined before. “I think you want a seasoned CEO when you use a playbook,” Hyatt said. “What you need here is someone who is incredibly passionate about the business.”

How to classify Sonder – as a hotel, vacation rental company, or whatever – remains one of the trickier parts of building a new market. Davidson says the company needs to take a very slow and methodical approach to entering each market to ensure it complies with all local regulations. In a market like Chicago, Sonder operates licensed vacation rental units. In Vancouver, a new project underway is instead licensed as a hotel, he says. In challenging regulatory environments like San Francisco and New York, the company requires a minimum stay of 30 days.

It may be an undefined space now, but Sonder also faces a threat from the company he’s trying to disrupt: hotels. In response to Airbnb, the hospitality industry has strived to launch more ‘soft brands’ or hotel lines designed to have that local and unique feel instead of a chain, while still maintaining the expected level of service. in a hotel, says Dr. Cathy A. Enz, professor of strategy in the School of Hotel Administration at Cornell University. Hotels are even experimenting with the traditional sharing of the house. Marriott launched a pilot project with Hostmaker in the spring to allow Marriott customers to rent homes in London, and even earn or redeem points for every stay. Hotel businesses already have many locations, back-end operations, and a predictable level of service that customers trust, Enz said. “Vulnerable points [for Sonder] can they get enough properties in enough locations with enough price to build a brand and community? “

Davidson likes to compare the evolution of hospitality to what swept the food industry over the past decade, when there was a movement towards healthier dishes that were locally sourced and not just cheap and easy. Airbnb may have launched it, but it’s just a travel platform and doesn’t own any property itself. Sonder wants to be the Hilton or Marriott of the next wave of hotel companies, and the additional $ 85 million from investors will go a long way toward achieving that goal faster.

“I think 20 or 30 years from now people will be looking at those stuffy, pretty expensive downtown hotel rooms and be like, ‘I can’t believe it was like that,'” Davidson said.

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