The pandemic has accelerated the demise of some high-flying niche real estate start-ups who were kept afloat by venture funding to compensate for poor business models with an elusive path to profitability.
The latest to fall is venture capital-backed HubHaus. The company is expected to shut down after struggling to attract tenants and raise additional funding.
The Information reported that HubHaus had no path forward as funding dried up.
HubHaus has unsuccessfully shopped itself to a potential buyer in recent weeks, and also sought emergency funding. The company’s investors told people recently they expect it to shut down, two of the people said. Last week, HubHaus let go of its seven or so remaining employees, who focused on growth and property acquisition, the second of two rounds of staff cuts the company made this year.
Recently, HubHaus has struggled to fill its rooms as the pandemic lowered rental costs in most major cities and also made the prospect of living with unfamiliar housemates unpalatable to some. In recent weeks, about 30% of HubHaus rooms were vacant, two people familiar with the matter said. Three-quarters of the properties weren’t profitable, one of the people said.
Its business model was shaky.
The company said on its website that it was generating more than $20 million per year from members across 25 cities. HubHaus grew membership in part by accepting tenants with poor credit scores, former employees said. But it struggled to hit growth goals last year, turning off potential investors. And the company had to start the eviction process for around 100 people last year because they didn’t pay rent, a former employee said.
The company raised about $11 million since its founding in 2016 from General Catalyst, Social Capital, and others, most recently at around a $40 million valuation according to The Information. HubHaus managed around 300 homes in high-rent cities like San Francisco, Los Angeles, and Washington, D.C.