Why we invested in HostGPO
Building infrastructure for the vacation rental industry
Background: The growth of the short-term rental industry and corresponding infrastructure challenges
Airbnb and VRBO helped define a new category in living and hospitality — the vacation rental home experience. Over the past two decades, these platforms have aggregated consumer demand and helped drive the vacation home market into one of the most exciting and high growth sectors within real estate. The vacation rental market has grown over 2.5x since 2012, now making up ~20%[1] of global travel revenue, which has eaten into hotel revenue. Airbnb itself has experienced a 20%+ CAGR[1] in booking volume since 2018 driven by new supply on the platform as well as increased demand from travelers seeking home environments as they travel, as opposed to hotel.
The growth in this market has spurred millions of local entrepreneurs and homeowners globally to list their homes for rent on these platforms, with many operators turning their portfolios of rental units into small but growing businesses. The “Airbnb dream” has become a real phenomenon with Youtube channels and digital bootcamps emerging to help entrepreneurs learn how to invest in short-term rental properties.
While this cottage industry has taken off, these rental portfolios require real management and operations similar to what you might expect in the boutique hotel industry, however, the scattered nature of rental homes creates a unique challenge for managers. While software companies like Guesty and Homeaway have grown tremendously, furiously building software to enable these Airbnb hosts to manage their properties, many of the tools and infrastructure required to effectively run these properties is still being developed or completely missing.
Home furnishing, services & supplies: a critical pain point
Within this amalgam of new and/or missing tools in the industry, one of the biggest challenges for operators has been the procurement of basic home supplies and services, from furnishing to kitchen goods and internet services. Naturally, in an industry as fragmented as the vacation rental industry, small operators with a handful of units typically lack the economies of scale that their corporate hotel counterparts do to negotiate preferred pricing from vendors. They also have no access to technology that helps streamline the procurement process, run analytics, and even automate future purchases.
In short, there has not historically been digital infrastructure for short term rental (“STR”) operators to manage procurement.
The solution we’ve backed: HostGPO
With these industry challenges as a backdrop, Navitas recently backed HostGPO, the leading group purchasing organization (“GPO”) for the industry. Really a marketplace at heart, HostGPO helps short term and vacation rental operators find the products and services they need in one central location, all oriented around significant discounts that HostGPO negotiates on behalf of the aggregate of their member base. While one operator with 5 units may not be large enough to demand favorable pricing, 10k+ members with 250k+ units on the HostGPO platform certainly is!
Key investment highlights. Navitas gained conviction in HostGPO from several key factors, including:
Short-term rental sector market size. The short-term and vacation rental market in the US is large. There are roughly 2 million professionally managed vacation rental units in the country, and an estimated 5 million total second / vacation homes total representing over $2 trillion of total value. While the market is huge, the majority of supply is highly fragmented. Most owners are your typical local “mom & pops” who may own or manage 1 to 5 units on average. Of this large and fragmented market, we estimate that there is over $11 billion of annual spend on supplies including furniture, appliances, internet services and consumables (toilet paper, hand towels, etc.)
Lack of digital infrastructure & tools. Given the fragmented ownership in the short-term rental segment and the recent arrival of infrastructure like AirBnb and VRBO, operators in the segment have historically been underserved by digital tools and infrastructure to run their business. While the hotel industry benefits from corporate structure, scale, and streamlined operations, local mom & pop STR operators have not had the chance to benefit from those processes and platforms. However, new base layers of tech, like Guesty/Homeaway (ERP), AirDNA (data services), and Airbnb (listings), have enabled new technology companies to begin to access the industry.
The HostGPO solution. HostGPO makes short-term rental operators’ lives easier by helping them streamline their procurement of critical products like furniture, linens and kitchenware, while offering industry leading discounts that are unavailable anywhere else. The company offers the most competitive pricing to hosts because they have gone and aggregated the demand of operators, creating collective negotiating power with brands like Williams Sonoma, Crate & Barrel, Brooklinen, and a variety of other suppliers. Operators on the platform can also access unique services on HostGPO including interior design services and pre-curated “boxes”, like their flagship “Kitchen Box”, which has everything you need to fit out a rent-ready STR kitchen.
From a host perspective, the platform is a no-brainer, however suppliers also enjoy working with HostGPO as the platform brings them a steady stream of business from a highly specific end market with zero incremental cost. While these brands inherently understand that vacation and short-term rental hosts are a fantastic potential customer segment for them, they are unable to target those individuals nearly as effectively as HostGPO can, being an industry native platform that’s earned the trust of the ecosystem.
Network effects. HostGPO sees true network effects from growing its platform both on the supply and demand side. The more operators that join the network, the more total purchasing power they have with suppliers and the more compelling the platform becomes for large, inaccessible supplies. Similarly, the more suppliers that join the HostGPO network, the more potential products are value are available to members.
Capital efficiency. As a marketplace that connects operator members with suppliers, HostGPO’s unit economics are highly efficient. An inherent benefit of the group purchasing model is high gross margins due to virtually zero costs of goods sold. Operating expenses, such as human capital, marketing, and administrative functions, make up the majority of HostGPOs cost structure.
Opportunity to supercharge the business with technology. One of the most exciting components of our investment is the opportunity for HostGPO to build and deliver to market new, innovative digital tools for their members and supplier partners. While the platform is a digitally native one, there remains tremendous opportunity to build products that help members find and buy the best products and services, inspire and educate members to grow their business and connect with eachother, and deliver even more value to suppliers through new offerings and more intelligent processes.
Strategic co-investors create moat. As part of the round, Navitas co-invested alongside GPO industry veterans OMNIA Partners, as well as hospitality experts including 75&Sunny (the venture firm founded by Zillow and Pacaso co-founder, Spencer Rascoff) and Par Capital, the Boston based investment firm known for holding large positions across travel and hospitality.
What’s next: We’re incredibly excited about the opportunity ahead. We expect HostGPO to become a critical piece of digital infrastructure for the vacation rental industry and continue to drive value to their suppliers and operator members as they grow their marketplace.
Read more about the round here.
[1] Alliance Bernstein “Airbnb: A Long Stay”
