Skift Take

Can you be both a marketplace and a supplier at the same time? Airbnb certainly seems interested in testing that theory out.

Airbnb is leading a $160 million funding round for Lyric, a San Francisco-based company that manages multifamily apartment complexes and rents out those units on platforms that include Airbnb, HomeAway, and, among others.

The Series B investment confirms an earlier report from December when The Information originally reported Airbnb was planning to lead a $75 million investment round in the accommodations brand.

The $160 million round on Wednesday is led by Airbnb, as well as new investors that include Tishman Speyer, RXR Realty, Obvious Ventures, SineWave, and former top Twitter executives Dick Costolo and Adam Bain. Current investors Barry Sternlicht, NEA, SignalFire, FifthWall, and Tusk Ventures have also participated in this latest round of funding, bringing the company’s total funds raised to a grand total of $185 million.

What Lyric Is — And What It Represents

Lyric is one of a crop of newer professional accommodations operators whose competitors include companies like Sonder, Stay Alfred, and others. They’re essentially serviced apartment businesses that are licensed to run as a hotel (avoiding regulatory challenges), and they use marketplaces like Airbnb to advertise their accommodations Moreover they rely on technology to wring out efficiencies, manage the guest experience, and eventually grow to scale.

“We’re not a hotel. We’re not an Airbnb. We basically design and operate what we call ‘creative suites,’” explained Joe Fraiman, president and co-founder of Lyric. Those suites, he said, are “spacious studios, one-bedroom or two-bedroom suites on full floors of premium, either multifamily or mixed-use buildings, in 13 U.S. markets.” To date, Lyric has more than 500 rooms across 400 units nationwide.

Lyric‘s target audience, Fraiman said, is “the modern business traveler,” often in their late 20s to early 40s and working in a variety of industries, who “is looking for travel that’s much more experience rich.” He continued, “So, as opposed to a standard hotel room where you’re kind of just getting a bed and a TV, this traveler is looking for a lot more than that — it‘s being integrated into the community and having a higher quality experience.”

Lyric’s units are master leased from landlords and are operated full time as accommodations for travelers, and the company has also been a part of the Airbnb Plus program, which highlights listings that have been vetted for quality assurance by Airbnb.

In the simplest sense, Lyric represent a newer generation of serviced apartments who are bridging the gap between what we think of as traditional accommodations (hotels) and what we typically think of when it comes to private accommodations (Airbnb and other short-term rentals). Products like these are what the alternative accommodations industry needs to evolve and to reach more mainstream audiences.

“These new business models are really trying to make a big wave, and the fact that they are getting into a new aspect of overall hospitality is representative of the convergence that’s happening in the space,” said Simon Lehmann, CEO and founder of AJL Consulting and the former CEO of Interhome, a Swiss home rental platform.

He continued, “Lyric, Stay Alfred, and Sonder are building consumer-facing hospitality brands with a different type of product from hotels that is more structured, and their appetite in raising capital is quite phenomenal. There’s an appetite from an investment standpoint, and the margins seem to be a lot healthier than just doing private accommodations like renting out second homes and managing those. In the economic upturn we’re at right now, this seems to make a ton of sense.”

With this latest $160 million round in funding, which is half equity and half debt, Lyric intends to grow its team and its portfolio. Fraiman said the company hopes to get to 2,500 rooms over the next 12 months and to eventually expand beyond the U.S.

Lyric is still relatively smaller than its competitors when it comes to its inventory, but with this new funding round, it leapfrogs ahead of its peers in terms of total funding, which now amounts to $185 million.

Stay Alfred raised $47 million in funding last fall and is the next largest venture-backed company, by inventory, behind Sonder, which has raised a total of $135 million. Other rivals include The Guild, which raised $9 million last fall and whose investors include current Airbnb strategic advisor Chip Conley; Domio, which raised $12 million in the fall last year; and others that include WhyHotel, Zeus, Lokal, 2nd Address, MagicStay, AtHomeHotel, and Homelike.

What Airbnb’s Investment Means Here

Now that Lyric is among the most well-funded of these types of accommodations providers, however, therein lies a bigger conundrum for Airbnb: By choosing to invest in Lyric, does Airbnb risk alienating Sonder, Stay Alfred, Domio, The Guild, and others? Does this investment cannibalize its larger business?

A source close to the deal said that Airbnb’s investment in Lyric does not include exclusivity; Lyric can and still will advertise its inventory not only on Airbnb but on other platforms as well. That source also said that Airbnb is eager to work with other companies similar to Lyric and that the company’s decision to invest in lyric may not be the only investment it makes in this space.

Fraiman confirmed that Lyric will continue to advertise its listings on a variety of platforms but also noted that there could be room for some partnership going forward. “One of the reasons we’re excited to partner with Airbnb is, obviously, they are a great distribution partner for us, and we’re excited to collaborate with them more in the future,” he said. “Going forward, we’ll have more to share here. Some things might be exclusive, some may not, but Airbnb has always wanted Lyric to grow as an independent company.”

As Airbnb works on its larger vision of evolving into an “end-to-end travel platform” as company executives have described, as well as fending off competitors such as and Expedia, having access to more exclusive inventory, especially in the accommodations space, will be crucial.

“Exclusive inventory adds value for consumers and for distribution,” Lehmann noted. And that’s ultimately what platforms like Airbnb and HomeAway and are all striving to have.

In a press statement about the funding round, Airbnb President of Homes Greg Greeley said, “At Airbnb, we have seen how hospitality entrepreneurs like the team at Lyric can help deliver amazing experiences and help guests feel like they can belong anywhere in the world. Lyric has combined the latest technology, strong partnerships with the real estate community, and cutting-edge design, and we are excited to support their work.”

But is there any particular reason why Airbnb chose to invest in Lyric first?

“It seems like they want to have their hands in different pies of fast-growing hospitality brands,” said AJL’s Lehmann. I don’t see a particular difference in terms of some of these players from a value proposition standpoint, like technology, growth rate, etc. I don’t see a particularity as to why they would choose this one over another, but it’s interesting enough that they want to have a hand in this type of business.”

Fraiman alluded to the fact that he and his co-founder, Andrew Kitchell, have known Airbnb’s co-founders “for most of the last decade,” and he said that Lyric had been working with Airbnb for the past 14 or 15 months on a larger endeavor to better understand this particular serviced apartment sector.

“Airbnb launched a pretty detailed effort to understand all the professional operators in the category, and they ultimately picked someone they want to work with,” Fraiman said. “We spent a lot of time with that team developing and sharing our vision for where we thought the ecosystem was going, and to identify what would ultimately matter most to guests and how to do it in a regulatory compliant fashion. And along the way, too, to think about the ideal rest of the investor syndicate in the round.”

In the same press statement announcing the funding round, Rob Speyer, president and CEO of Tishman Speyer, one of the investors, wrote, “Lyric resides at the crucial intersection of hospitality and real estate. We were attracted to its pioneering technology and superior customer service, which we value tremendously in our own business.”

That same release also touts that Lyric has partnered with 20 of the National Multifamily Housing Council’s (NMHC) top 50 real estate developers.

Airbnb has been investing in a variety of companies as of late. Just yesterday, the company closed its acquisition of HotelTonight, and a few weeks ago, the company invested up to $200 million in India-based Oyo Rooms. Last year, it also acquired a French property management company called Luckey Homes for an undisclosed sum.

And while Airbnb continues to emphasize its desire to be an all-encompassing travel brand, it still isn’t always entirely clear how these recent deals will ultimately add up toward achieving that goal.

What the Future Holds for This Space

It’s clear, given the amount of funding pouring into companies like Lyric and its peers, that the investment community is banking on these hospitality disruptors. But what happens when the cycle ends and there is an oversupply where the types of margins that we see today don’t quite exist anymore?

That, Lehmann, pointed out, is the bigger question that companies like Airbnb and Lyric and their investors have to ask themselves.

He also said he thinks it’s “dangerous” for startups like Lyric, Stay Alfred, Sonder, Domio, and others to formulate exit strategies that bank on their ability to sell themselves to Airbnb, who is actively developing a number of preferential distribution partnerships with a variety of property management companies and accommodations brands worldwide.

And for Airbnb, too, striving for exclusive inventory makes a lot of sense, but at what cost to its business?

“I don’t think this is a very sustainable model,” he said. “Either you are a marketplace or you go deep in value proposition to own the technology and property management and lock in the inventory.” To Lehmann and other industry observers, you can either be a marketplace or a supplier — it’s impossible to be both.

As for Lyric’s plans for the future, Fraiman said, “It’s critically important that we be able to build a large, independent, beloved hospitality company. We think that the market is thirsty for it. We know travelers want it, and that’s our goal. We’re obviously spending a lot of time talking with not only Airbnb but all of our investors about that. We have deep alignment among our stakeholders and that’s the goal and that’s what we are building toward.”

He continued, “What people used to think of as a niche within travel is going to become one of the main ways people live and travel in the world in the future, and I think Lyric has a huge opportunity to be a key part of that story.”

Skift Editor’s Note: The press statement from Rob Speyer has been updated.

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Tags: airbnb, funding, lyric, travel startups

Photo credit: One of Lyric's "creative suites" in New Orleans. The company announced today a $160 million funding round led by Airbnb. Lyric

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