Hospitality startup Sonder has gone and raised $170 million, in the middle of an unprecedented hospitality downturn no less.
The San Francisco-based company, which leases apartments and turns them into furnished short-term rentals, said it closed a Series E at a $1.3 billion valuation — up from its prior valuation of $1.1 billion. The round was led by Fidelity Funds, Westcap and Inovia Capital, with participation from Spark Capital, Greenoaks, Valor Equity, Greylock, Atreides Capital, the Pritzker family’s Tao Capital and Lennar.
In a blog post Wednesday, the company confirmed the funding round, which had been in the works for several months, as The Real Deal previously reported. Sonder said it expects to raise another $25 million from new and returning investors in the coming weeks for a total of $200 million.
Sonder said it plans to use the funds to continue to scale “carefully and responsibly.” Currently, it manages 12,000 rooms in 28 cities. “While we expect the recovery from the pandemic to be long and difficult, with this latest round of funding, Sonder is well-positioned to help lead a re-invention of the travel industry in the months and years ahead,” it said.
Founded in 2012 by CEO Francis Davidson and Lucas Pellan, Sonder has raised $560 million. It officially joined the ranks of proptech unicorns last July, after closing a $210 million round at a $1.1 billion valuation.
Although investors previously told TRD the current round was not a bailout, Sonder wasn’t immune to Covid. It laid off or furloughed 400 people, or one-third of its staff. And bookings dropped 20 percent at its 5,000 apartments in March, it said.
But unlike rivals Lyric and Stay Alfred, which folded under pressure from the pandemic, Sonder was able to pull two key levers: It secured rent reductions at many locations, and it pivoted quickly to longer-term stays. The latter is a strategy that Airbnb has also embraced of late.
At the height of the outbreak, Sonder said it kept its occupancy rate above 40 percent for that reason. Its global occupancy rate is now 75 percent.
As for its rent obligations, many contracts have a recession clause that lowered rents by 8 percent during Covid, Davidson told Forbes, which first reported the Series E. “This, along with some extraordinary, and at times painful, cost-cutting measures, have allowed us to maintain a strong cash position, crucial to the long-term success of the business,” the company said in the blog post.