Announcing Sonder’s plan to go public, raise $650M, and overcome the pandemic
Today, we’re announcing that Sonder will be going public through $GMII, delivering $650M of proceeds at a $2.2B EV. It’s been an epic 7 years, from getting started in a basement in college to where we are today, but here’s why I’m even more excited about what’s ahead.
First off, what is Sonder? Our mission is to revolutionize hospitality, through design and technology, to create a world of better stays open to all. We offer a selection of beautiful hotels and apartments that you can stay in for a night, a week or as long as you’d like.
All services are on the app. We actually run the properties ourselves with the help of our homegrown technology. This enables us to offer consistent quality, and to increase efficiency. We’re active in 35 cities across 8 countries with ~1,000 outstanding employees globally.
The first tectonic shift in hospitality occurred close to a hundred years ago, when brands like Hilton, Holiday Inn and Marriott introduced standards and consistent quality to consumers. They were so successful that nearly every hotel now built is flagged.
Prominent tech companies like Expedia and Booking arose in the 90s, but have only applied technology to the transaction — matching buyers and sellers — leaving the vast majority of the value-chain untouched.
In our view, the end state of the industry is one where technology and design are applied to every part of the business, not just the transaction: supply growth, interior design, property openings, demand generation, day-to-day operations and more.
Much like Amazon did for e-commerce, we’re applying innovation to every facet of hospitality in an end-to-end model. Vertically integrated businesses are more arduous to build, but their potential to reinvent the customer experience and its underlying economics is astounding.
When you travel and pick a place to stay, you broadly have 3 options. The first is a boutique/luxury hotel, often a great option but few can afford it. Then there’s the big box hotel which is consistent but unremarkable to say the least.
Increasingly, guests can flock to short term rentals. But the lack of predictability brings us back to a pre-brand era where picking a place to stay is a bit of a crapshoot.
We believe that there’s a way to combine the best of it all, without compromise. A modern, high quality, elevated stay open to all.
Our guests love staying with us — but real estate owners equally benefit from our platform. Through cost efficiencies and our operational capabilities, we allow them to increase cash flows without lifting a finger.
In the long run, we aim to become the largest brand amidst the $800B+ lodging market. In 2020, our top 3 direct competitors exited the market, and coming out of the pandemic we believe there’s no better moment than today to aggressively scale our disruptive model.
The ubiquity of mobile allows for the modernization of the industry. Room service is replaced with food delivery partnerships. The concierge becomes a messaging tab on the app. The check-in is fully digitized: book, verify your account and unlock the door with only a few taps.
The majority of our guests use the Sonder app when they stay with us. They can book, check-in (early), connect to fast and free WiFi in one tap, see our recs, message our team, request services, check-out and more. We like to call it the lobby on your phone.
But most of the technology we’ve built operates in the backend, powering supply growth, building openings and day-to-day operations. We’ve built a data platform and underwriting engine to guide supply growth, technology that powers our global supply chain, our own booking engine…
…distribution technology, pricing algorithms, task and workflow management software and more. Together, they form the OS for hospitality, providing a better, modern stay and ensuring that we can grow at a rapid pace with ever-improving economics.
Design is also deeply ingrained in our DNA. We take pride in the spaces we bring to life, through partnerships with talented artists, architects, and designers. While our aesthetic is elevated, we achieve it at scale without breaking the bank. Our mission requires it.
We’ve quickly achieved substantial scale with 300+ properties in 35 global markets. But before expanding to more geos, we plan to go deeper in our existing markets. Our concentrated growth will improve focus, our overhead leverage and accelerate our path to cash flow positivity.
I started Sonder by subletting student apartments, but we’ve come a long way since. Half of our signings now consist of apartment developments (licensed for hospitality), and the other half are hotels upgraded with our tech and design. Nearly all are full buildings.
2020 was an incredibly challenging year for the hospitality sector — by far the worst on record, and eclipsing the impact of the 5 worst downturns of the last century combined… So in March of 2020, we started targeting new use cases, a true Hail Mary at the time.
The result: COVID quarantiners, travel docs/nurses, relocations, and digital nomads quickly took our occupancy rate back to pre pandemic levels, achieving 2.8x more revenue per night than our comps.
Our guests skew leisure, domestic, and younger and in the near term, we believe the first phases of travel recovery will skew leisure, domestic drive time, and younger. That means we expect to outearn our fair share of every dollar that comes back to the category.
And as we come out of the pandemic, there may be long term changes to travel patterns which should benefit us, such as the continued growth of digital nomads and an increasing comfort with if not preference for digital service.
On the supply side, in both the commercial/mixed use apartment development and hotel segments, we have an enormous TAM. Even by 2025 and after 5 years of significant growth, we believe we’re only scratching the surface of market penetration.
Our supply-side deals generate very strong unit economics and have gotten much better. A typical contract has a 5–7 year initial term with optional renewals at our election, upfront abatement clauses, and a myriad of downside protections including a recession relief clause.
Since the onset of covid, we’ve switched to a model where landlords are funding nearly all of the capex, leading to very fast payback periods. We’re also increasingly signing flexible deals where payments are variabilized to performance, such as revenue shares.
We’re scaling incredibly rapidly because of the flywheel effects inherent to our business. The more we can invest in technology, the better the experience and lower our cost structure. This improves our unit economics and ultimately growth, cash flow, and more tech.
In the next few years we’ll keep improving our business model, with the aim of transitioning the majority of our signings to revenue share. In the long run, we plan to offer franchise contracts and sell our software to other operators.
Building an iconic 21st century brand won’t happen overnight. But we couldn’t be more excited to take this small step toward fulfilling our mission. Onward!
P.s. Our full presentation containing our projections can be found here.