The Investment in Hostaway: Defying the Odds & Securing a $175M Investment

The Investment in Hostaway

Transaction Details

• Company: Hostaway
• Vertical: Travel & Hospitality SaaS
• Founders: Marcus Räder, Saber Kordestanchi, & Mikko Nurminen
• Transaction Type: Investment
• Investor: PSG Equity
• Amount: $175 million
• Financial Advisor: Vista Point Advisors

There’s a very low chance of a startup ever succeeding. There's an even lower chance of being able to conduct a proper, successful transaction. It's almost unheard of. But with Vista Point’s help, we were able to be one of the few who accomplished it.

Hostaway’s Origin

Before Hostaway, I was working in various startups and usually had a role where I was doing market research on different industries, and a few personal interests of mine were travel and real estate. And back in 2015 when I started looking into the short-term rental market, Airbnb combined these two aspects that were close to my heart.

What got me excited when I started doing market research in this area and after talking to industry insiders, I realized that a lot of them had no idea how to build a technology company because they were either hospitality or real estate experts.

And that's when I saw the real opportunity for Saber and I, as technology experts, to come in and build technology in an industry where there weren’t any. And that's why we started Hostaway and that's the path we're still on.

Hostaway’s Growth

We've learned over the years that growth is really, really hard. It's not enough to do one thing well, like building a good product, company culture, marketing, or sales. You’ve got to be good at absolutely everything. It would have been nice to focus on one area, but we looked at our competition and that's what they were doing. So we started out doing a little bit of everything all the time, which is extremely stressful, but that's how we grew so much.

Then in 2020, we lost 60% of our revenue due to the pandemic. We were about to raise a round of funding and we didn't have any money. I realized that we probably weren’t going to make it through this one. So I decided to dedicate 3 months to talking to every single one of our customers. It was one of the hardest things I've ever done, but when you talk to enough customers, you start to see patterns. I saw a pattern of positivity in the Sunbelt in The United States, specifically Florida, Texas, Louisiana, the Carolinas, and Georgia. I told our team, "I've spoken to people around the globe. Nobody sees light at the end of the tunnel except these people. We have to do everything we can to succeed in this market. And if we do that, we can then expand to other markets."

The requirements for those customers were different from other customers, so our product, marketing, and sales had to change in order to accommodate, but we became successful in that market. And the changes we made ended up being very suitable for the broader market, so we saw unprecedented growth.

Deciding to Pursue a Transaction

It's the founder's dilemma that whenever you need funding, nobody wants to invest. And whenever you want to sell a business, nobody wants to buy. And then when business is good, you don't want to raise capital or sell, but of course, that's when the investors are interested.

We stopped talking to investors when things started going really well, as is tradition, and then we got a solid offer from an investor who said, "Here's the deal. We're going to give you this much. These are the terms. And this is what's going to happen after that."

While that offer in itself wasn't that attractive, we thought that if we changed a couple of numbers and a couple of terms, maybe a different investor would make an offer that we would all be really happy with. That's what really triggered it.

We didn’t want to be a pig in a slaughterhouse and that's what you're going to be if you go into this unprepared. So we talked to a lot of people, a lot of founders who had done multibillion-dollar transactions to find out what's realistic, what's out of the ordinary, and to have clear objectives in mind.

One theme that we saw throughout was that if you have the opportunity of a lifetime, you had better take it.

One of the companies that we had been looking up to had received massive acquisition offers that they declined, and suddenly they were laying off employees. The business wasn't growing. They were the market leader in their space, but there was no more room to grow. The founder said they should have taken the deal when they were growing.

We decided that if we get a good deal on the table, we should take it because you never know if you'll ever get another chance.

Choosing to Work with an Investment Bank

We found it very difficult to evaluate a transaction in advance because it's a bit like a sports game where the outcome isn't certain. You’re trying to evaluate different teams and the final score in advance, when you don't even know who's playing on each team. That's really difficult. So we spoke to a couple of different banks and to our investors and they recommended we hire an investment bank.

What initially drew us to Vista Point was that they knew our business, since they have done a couple of transactions in our industry. Then a lot of the competing bankers weren't setting the bar high enough.

But sometimes, in order to make a dream happen, you have to create the dream first. And I think that's what Vista Point was good at, and that's why we chose them.

Vista Point also brought some excellent strategic points about how to position our business that was not only useful for a transaction, but even taught us a lot about our business and how other people see it. That has been really helpful, and it’s still useful now that we're running the business post-transaction.

The Process & Creating Competition

I learned quickly that there were way more people looking at the space than I had any idea of. And the investors, the materials they presented, the research they had done, gave me a clear indication they were waiting for an opportunity like this. But we didn't realize what a massive impact that would have on the positive outcome that we got.

Vista Point led a competitive process that helped us vet the right investors. They knew the angles that the investors were coming from. They would tell us, "If you continue further with these people or with this group, this is what they ultimately want. This is their vision." That was very helpful because it helped us position our thinking.

At first it was a bit like when the dentist asks whether you floss and you get very defensive. But when Vista Point introduced us to the right people, suddenly we realized we're working towards a goal where we're going to be on the same team. So if we don't play ball now and find the right teammates, we might end up playing the game with someone we don't even like.

Vista Point helped a lot with framing the metrics. We had them, but they weren't calculated in a way that others could understand our story. You need common ground if you're going to reach an agreement between two parties, and our bankers helped us find that.

Vista Point was also excellent at keeping track of what was being said, and to whom. We talked to a lot of different parties and sometimes you've got to present your company’s narrative a little differently depending on which buyer or investor you're talking to so that it makes sense to them. We also had to be careful about what information we should or should not share. There were a lot of things that, had we run a process without Vista Point, we would have ended up giving up valuable information to the other parties.

They created a good environment for competition by managing this communication and having a lot of different investors up against each other while also trying to find the right partnership for us. I think that was the secret to getting a good outcome.

The Outcome

We didn't define the outcome when we went in, but we had a list of three potential best case scenarios. And what we ended up with was better than anything we could ever have imagined.

We ended up securing a partnership with PSG and an investment for $175 million. I also want to thank PSG for playing their part in the process. They clearly understood the needs of our company, our customers, and our staff. They had done their research better than anyone before even reaching out to us, and so far they've been a fantastic partner to work with. It wasn't just signing and the deal was done. Everything that’s happened since, and the way our business has continued growing partially because of this investment, is absolutely amazing. I can't believe anyone would reach such an agreement. We're extremely happy with the relationship.

It's a very rare success story that we have, and I think Vista Point played a really big part in that.

Founder-to-Founder Advice

First of all, find others who have done it and talk to as many of them as possible.

I would also recommend creating a completely different schedule for yourself. I had been doing the same things for 7 years and I knew I had to get out of that to gain perspective. I took my family to Florida for 5 months so that I could detach from the business and get a better understanding of what it looks like from an outsider point of view. And that's something that I definitely think contributed to it.

Another thing that I did was split my time into thirds. One third working on the business, one third working with VPA on this process, and one third learning everything about this process. I read about 5 books and listened to 10 e-books about founders, investors, and examples of deals that went right and deals that went wrong. I'm a firm believer in understanding what it's like on the other side of the table. If I hadn't taken that time off work to truly focus on it, I don't think we could have got this deal done at all.

It's very hard to know what you want in a deal like this. No school is going to teach you how to deal with investors or how to deal with explosive growth in the tech space. There's no playbook and the amount of people that have done this is very limited.

There’s a very low chance of a startup ever succeeding. There's an even lower chance of being able to conduct a proper, successful transaction. It's almost unheard of. But with Vista Point’s help, we were able to be one of the few who accomplished it.

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