The vacation rental sector is highly fragmented, which provides many opportunities for funded startups that can make themselves indispensable to owners by providing services and efficiencies.
Vacation rental startups attracted nearly $100 million in venture capital funding during the first quarter of 2016 with most of the funding concentrated across the U.S. and Europe.
The alternative accommodations sector attracted the most funding of any sector in 2015 and it appears that momentum has continued during the first four months of this year. Skift has tracked 11 accommodations startups since January that received investments ranging form $1 million to $35 million [see chart below].
Our tally puts the vacation rental sector at just more than $100 million in funding during the past four months of 2016. Eight of the 11 startups are Europe-based but more than half of all funding — about $62 million — went to three U.S.-based startups. Five of the startups are consumer-facing and focus on helping travelers book vacation rentals while three help property managers manage their bookings or homes and the other three serve both.
Venture capitalists have plenty of reason to throw cash at vacation rentals and entrepreneurs are trying to take advantage.
Last month TripAdvisor acquired London-based Housetrip, for example, to supplement the vacation rental brands it already owns or controls. That’s was overshadowed by Expedia Inc.’s $3.9 billion acquisition of HomeAway last year.
One of the challenges in the vacation rental sector is getting property owners to make their homes online bookable; Expedia has paused Homeaway’s previously stated goal to make 100 percent of the properties on HomeAway sites online bookable.
Altos Ventures, a San Francisco-based VC firm, recently led a $10 million Series B investment in TurnKey Vacation Rentals, an Austin, Texas-headquartered vacation rental startup helping property owners manage their homes. It is also a booking site for rentals in more than three dozen U.S. markets.
“The short-term and vacation rental industry is about a $100 billion industry, but that’s only about a tenth of global hospitality,” said Anthony Lee, who was involved in the Turnkey investment and is managing director of Altos Ventures. “But it’s a piece that’s for sure growing the fastest. With all of the things that are happening with the demand side, we thought there would be opportunities on the supply side.”
“From our research, the number of vacationers saying that they stayed in a vacation home in 2014 was more than twice as much as 2008,” Lee said. “As interesting as it is to have the local and authentic and unique experiences, our research was showing more and more that people wanted to have consistency and quality also, almost like a hotel-like experience. We thought ‘there’s going to be people who build brands in the short-term rental world.'”
Lee still sees the importance in properties that are owned by individual owners.
“This is a super fragmented market where almost every property is individually owned and ripe for technology to help aggregate all that supply,” Lee said. “There are a bunch of companies doing this out there. If you look at vacation rentals, still the minority of properties are managed by a property manager and traditional property managers charged what we think is way too much which is usually between 30 and 55 percent of the gross rental fee. But, consumers are not yet at the point where they’re saying, ‘I want to find this brand of vacation home.’ But that will certainly happen in five or 10 years.”
Technology can help property owners professionalize the management and marketing of their vacation homes.
“What originally attracted us to TurnKey is that they started from the back-end,” said Lee. “They built all of these operational processes and a technology platform that very efficiently lets you list, market, book, manage, clean and fulfill a vacation rental.”
Lee views short-term rental sites like Airbnb as facilitating the demand side of the equation, “They’re the marketing channel and companies like TurnKey use those sites to list their properties. They are how listings get to consumers, so they’re natural partners in the business. All of the big players are trying to get all of the inventory and in the end that’s good for everybody on the supply side. You’ll see more funding announcements around companies providing very low-touch, virtual property management services.”
HomeToGo, a Berlin, Germany-based startup, is a metasearch engine for more than 6.6 million vacation rentals and 250 providers. Its latest $20 million Series B investment, announced last month, brings the company’s total funding to nearly $30 million since it launched in 2014.
In addition to other vacation rental metasearch startups such as Tripping.com, HomeToGo also faces competition from larger metasearch players such as Kayak, which offers vacation rentals in addition to flights and hotels.
“Served by large home-share companies, the U.S. online travel industry is strongly fragmented in regards to vacation rentals, with hundreds of companies in the U.S. alone,” said Patrick Andrä, CEO and co-founder of HomeToGo. “Searching and comparing vacation rentals can be time-consuming and confusing due to overlapping inventory and booking fees.”
“Comparing only a few partners does not bring any real additional value – especially if the ‘different’ providers are actually only different brands from the same provider. Besides all the big players, HomeToGo also lists smaller providers, thus the fragmented market gets fully covered and users find the best offer in every region.”
Vacation Rental Startup Funding, January to April 2016
|Company||Funding Round||Headquarters||For Property Managers or For Consumers|
|Vacasa||$35 million, Series A||Portland, Oregon||Both|
|HomeToGo||$20 million, Series B||Berlin, Germany||Consumers|
|LeisureLink||$17 million, Series D||Pasadena, California||Property Managers|
|TurnKey||$10 million, Series B||Austin, Texas||Both|
|Holidu||$5.4 million, Series A||Munich, Germany||Consumers|
|HomeRez||$4.5 million, seed||London, England||Both|
|NextPax||$2.7 million, Series A||The Netherlands||Property Managers|
|Bnbsitter||$2.5 million, Series A||Paris, France||Property Managers|
|Le Collectionist||$2.2 million, seed||Paris, France||Consumers|
|Snaptrip||$2.2 milion, Series A||London, England||Consumers|
|Edge Retreats||$1 million, seed||London, England||Consumers|
Source: Skift and Crunchbase
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Photo credit: A vacation rental in Incline Village near Lake Tahoe. Nancy_mic / Flickr