Hostaway OY resembles a lot of software startups that it’s difficult to assign a nationality to it.
Its chief executive officer, Marcus Rader, who is Swedish-born, and roughly 20 of its 120 workers are based in Canada, but the company’s headquarters are in Finland, where two of its founders, an Iranian and a Finn, both live. It once had offices in Barcelona and Toronto, but it closed them down in order to become entirely remote. It now has staff members working on four continents.
However, Hostaway is distinct in other ways from other companies that sell software used by owners of short-term vacation rental homes to manage operations. It maintained its capital well and is profitable, raising no venture financing during the pandemic boom (and just US$2.1 million before it). Since 2021, its income has increased ten times, thanks to a recovery in the travel industry and a slowdown in other businesses.
Another discrepancy is that, despite the fact that rising borrowing rates and inflation hindered many businesses, Mr. Rader asserts that they aided Hostaway. More families have started renting out their cottages and paying property managers to take care of them, he added, because higher costs “mean the family cottage might become unsustainable to just keep empty and maintain.” We have a lot of growth coming from those property managers who also happen to be our clients.
The startup is now reaping the rewards of its luck. The eight-year-old company, whose software is used by clients to manage more than 100,000 properties listed on rental sites like Airbnb, Booking.com, and VRBO, has received a US$175 million investment from global private capital firm PSG Equity LLC for an undisclosed majority share.
“We are impressed with the quality of the Hostaway team, their vision, and their execution in building what is, in our view, a highly differentiating category leader with multiple levers of value creation,” said Edward Hughes, PSG managing director, in a statement. As it continues to build its integrated platform, grow internationally, and assist its clients in satisfying the escalating demand in the short-term rental market, “we believe the company has a significant opportunity to lead this industry.”
Before relocating to Canada in 2015 with his Polish-born wife, Mr. Rader, who was born and raised in Finland, worked for startups and resided in a number of other European nations. After visiting Canada, he felt that “this was the best thing we’d ever seen.” He and his co-founders, whom he knew as friends from prior ventures, made the decision to launch their own business, concentrating on the burgeoning short-term rental market where they believed property owners lacked tools to manage their businesses.
The Hostaway platform is comparable to other small business management software tools geared towards particular groups, including some of Canada’s most successful startups: Shopify and Lightspeed Commerce (for merchants), Jobber (for home service providers), Clio (for lawyers), Jane Software (for doctors), and Hi Mama (for daycares). The software from Hostaway enables users to coordinate marketing initiatives, automate time-consuming processes, offer analytics, and manage smart locks on properties in addition to communicating with staff, service providers, and consumers. Guesty and Cloudbeds are two of its competitors.
Late in 2019, Hostaway’s business started to boom. Afterward, the pandemic struck, and “it turned out we were one of the worst industries to be in,” Mr. Rader recalled. Early in 2020, the company laid off 15 of its 40 staff and lost 60% of its customers. However, the group realised that visitors were still choosing to travel to more remote beach, mountain, and lake sites, particularly in the southern United States where there were fewer restrictions. In order to meet the needs of that market, we swiftly changed everything—from our support to our marketing to even the product itself.
Midway through 2021, business started to pick up again. By the end of the previous year, only the most successful and profitable firms were receiving funding. Hostaway experienced a spike in investor interest and received numerous offers when it went looking for funding. According to Mr. Rader, the company’s annualised recurring revenue is close to $20 million and should approach $25 million by year’s end.
The CEO declined to disclose Hostaway’s valuation, how much of the company PSG purchased, or how much of the funds were used to repurchase the shares of the company’s founders. The company wants to hire much-needed staff in various functional areas, including finance, engineering, and human resources, since “things are breaking at the seams,” he said, adding that a substantial percentage went to the balance sheet. Hostaway might consider purchases.
Mr. Rader noted that the three co-founders only spent US$80 for their celebratory dinner in Finland after the purchase completed, including tax and tip, and that the company will continue to be thrifty.
“That’s capital efficiency,” he remarked.
