Hospitality company Sonder is in talks for a cash infusion between $150 million and $175 million, according to a report from The Real Deal. Fidelity and WestCap Group are leading the funding round for the company.
Sonder joins a growing list of hospitality companies getting new funding amid the Covid-19 crisis. Frondesk, another rental startup, recently announced $6.8 million in funding. Investors are looking to protect their investments against significant losses, opting to invest more capital to ensure that the most promising businesses can survive the crisis to deliver a return on their investment.
So far, Sonder has raised a total of $400 million since their founding in 2012, putting them at a valuation of $1.1 billion. The company rents out spaces to travelers for short-term stays. Their apartment/hotel-style units blend modern design and amenities in a way that’s reminiscent of Airbnb, one of their biggest competitors.
Sonder Adapts to Covid-19
Sonder had cash reserves entering the pandemic — the company raised $210 million in July 2019. The company said that this most recent round of funding was not a pandemic-related cash infusion and talks had started before the crisis.
The company laid off or furloughed about one third of its staff. According to Sonder CEO Francis Davidson, the company would not run out of money in the near future, even though the company’s bookings were down 20 percent across the company’s 5,000 U.S. based apartments.
Fortunately for the company, about 80% of Sonder’s leases have a recession-release clause, allowing the company to reduce their expenses. Sonder claims that investors are committed to providing additional funding if needed.
“We’ve been planning for a downturn for the last 18 months and have contractual rent reductions built into 60% of our live properties,” the company said in a post on Medium. “Some leases allow free rent at our election — we are exercising those now.
Many of Sonder’s competitors have faced similar financial troubles due to Covid-19. Lyric, a competing short-term rental company, cut staff and closed locations. Airbnb has reckoned with steep losses, reducing their valuation to $18 billion, down from $31 billion in 2017.
Cutting Sonder’s burn rate has maintained investor confidence, and some think that the company’s changes will allow them to ride out the economic downturn and come out as a leader in the space.
photo credit: sonder