Hostel Provider Selina’s New Funding Will Allow It to Survive Crisis: CEO

Selina, which provides travelers with co-working spaces, hostel-style lodging, and activities, has raised about $60 million in extra funding, sources told Skift. The startup, founded in Panama, declined to comment on the funding total but confirmed it had raised more financing “in that range.”

“We have the funds now to get through the crisis and to be strategic enough to get stronger,” said co-founder and CEO Rafael Museri.

Before this financing, Selina had raised $225 million in venture equity funding from investors such as Access Industries, Grupo Wiese, and Colony Latam Partners. It had also secured more than $300 million for a real estate investment fund.

“We have had some country-level real estate fundraising in specific geographics,” Museri said. The company plans to continue opening properties, such as its first one in London later this year, sources said.

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Before the global pandemic, Selina promised a booming business, betting that it could turn distressed real estate into revenue-generating lodging at scale. Founded in 2015, Selina grew at a time when private market investors were willing to fund millions in early losses for startups. In the past year, it went from running 46 properties in a dozen countries to having more than 110 leases, with close to 70 open properties.

But the pandemic has jeopardized Selina’s ambitions. Local governments have idled most of its properties during the epidemic.

By mid-March, the company feared it was heading toward bankruptcy within weeks, sources said, though the company disputed that account. In early April, the company had about 200 workers at headquarters split into groups to come up with strategic plans for survival.

At the hotel level, Selina slashed rent and labor costs. Executives contacted landlords and “in most cases” negotiated a reduced price, Museri said.

Since the start of the crisis, the company has had to furlough “a few hundred” workers. In March, some workers created a crowdsourced campaign to support the unpaid workers. More than 150 employees contributed to the fund, which raised about $37,000.

“That’s just a small part of our effort,” Museri said, adding that there’s an additional part of the company’s overhead that goes to supporting emergency relief help for the basics for front-line workers.

The brand will have to carefully manage the appearance of taking millions in fresh funding while still giving unpaid leave to workers in some Latin American countries that have limited public safety nets.

“We told each of our general managers that they need to check in with their workers to find out if their families need basics,” Museri said. He said most of the company’s workers qualify for unemployment help from local authorities. “If it’s about basics, we’re going to jump in to help.”

Model Talk

Two distinctive parts of Selina’s business — an emphasis on hostel-style lodging and a focus on co-working among location-independent workers — appear to be under pressure. No one knows which traveler behaviors will stick and which will fade when governments lift travel restrictions, but a return to business-as-usual seems unlikely for awhile.

The popularity of bunk beds or dorm-style facilities with strangers may be off-trend until authorities no longer require social distancing. The economic crisis may also mean that remote working by digital nomads employed by free-spending startups has gone out of fashion for at least a year.

Selina has counted Adam Neumann, the co-founder of co-working company WeWork, among its backers, and most of Selina’s 48 properties in Latin America contain co-working spaces. WeWork has slashed thousands of jobs since its initial public offering imploded last year and Neumann departed.

Selina’s model differs from WeWork’s. WeWork made the majority of its revenue last year from a handful of major cities where venture-fueled startups were adding headcount faster than they could sign long-term leases on office space, as analyst Byrne Hobart noted looking at the company’s financial documents.

In contrast, Selina makes most of its revenue from other markets.

“In global remote cities, the rent-per-key is 30 percent less than New York, but the revenue per square meter is just 10 percent less,” Museri said. Museri pointed hopefully to data from China that suggests the budget lodging sector there has been recovering faster than the average hotel.

Hostel Takeover?

Museri noted that the company’s main emphasis would remain in what he called the “global remote hostel” category. Few well-capitalized brands are competing in that hostel sector, including Generator, Freehand, and Mama Shelter as well as potential rivals like Original Hotels whose launches may be in question. (For context, see Skift’s story, “The Big-Money Reinvention of the Humble Hostel.”)

Museri voiced optimism about the location-independent working part of Selina’s concept.

“Millions of people were forced into remote working, and some of them fell in love with this concept,” Museri said. “Many, many companies now realize that, without a fancy office, you can get a lot done.”

Yet such talk may be wishful thinking. A mid-April survey of 1,000 human resources professionals in the U.S. by the Society for Human Resource Management (SHRM) and the consultancy Oxford Economics found that 95 percent expected to return to their current level of on-premise workforces by year-end.

Another key part of Selina’s model is to turn distressed real estate into revenue-generating lodging. Yet working with owners of distressed properties can present challenges. In December, Selina opened a 126-bed hotel in the Chelsea neighborhood of New York City. In February, a lender filed to foreclose on the property’s owner, Grupo Habita. The owner is unrelated to Selina, which provides management services, but it highlights the complexities of working with such partners.

The company has failed to meet promised opening dates for a few properties, such as in New York and Florida. For example, Selina had told Skift it had negotiated to open a property in the Bowery neighborhood of New York City in December 2018. But that opening has never taken place. Have there been delays in city permitting? Problems with the lease? Selina didn’t say.

“One of the reasons I left Selina was that it was a mess inside the company and they were hiring and staffing in an inefficient way,” said one former employee at the company-wide level who left prior to the pandemic and who spoke on the promise of anonymity. “The new funding is a great opportunity for them to clean house and grow in a structured way.”

The end of easy fundraising means that the company’s leaders must introduce operational rigor, while still encouraging its front-line staff to improvise as needed, experts said.

Managing guest expectations through a revival in tourism may prove tough. Selina has premised its brand on providing a range of activities to build “community.” Museri predicts only 40 percent occupancy in the second half of the year. If lower occupancy can support only a lower level of staffing, how can Selina deliver on its brand promise?

“If you’re coming to a Selina property and there’s no rooftop party with live music as usual in, say, June, can we do something instead like a cooking workshop with 15 guests in a common kitchen where all the guests introduce themselves to each other?” Museri said. “We’ll try to do our best with little labor to deliver a unique experience. In some ways, it’ll be easier to inspire connection during this period when we only have a small number of guests.”

The company will have to cut some positions to weather the crisis. “If you build for 70 percent occupancy with 28 employees per property, and now you’re moving to 40 percent occupancy for the next several years, you might be able to keep some but not all,” Museri said. “Profitability’s the new game.”