Sonder Underwhelms in Public Debut

Sonder, the San Francisco-based startup that operates hotels and leases apartment buildings for short-term rentals, made its stock market debut Wednesday in a special purpose acquisition company merger, and saw its share price drop about 8 percent.

The Nasdaq, where Sonder trades, was slightly down, 1.6 percent for the day.

Founded in 2014 by Francis Davidson, Lucas Pellan, and Martin Picard, Sonder merged with the Gores Metropoulos II SPAC, and Sonder’s common stock began trading at $8.95 per share under the symbol SOND on Nasdaq. The transaction closed Tuesday after the SPAC’s shareholder approved the merger January 14.

Sonder announced in October that it would begin its life as a public company with a $1.925 billion valuation, having lowered it from an earlier $2.2 billion estimate, and delaying its once-anticipated business combination from late October 2021 until today’s coming out event.

The company said it would start out as a public company with $310 million in PIPE (private investment in public equity) proceeds, as much as $450 million in cash, and it would tap into $165 million in delayed draw notes to support both existing operations, and new initiatives.

In a LinkedIn post today, founder Francis Davidson traced the evolution of the company — it was initially known as Flatbook — from renting out empty sublets in 2014 as short-term rentals to raising funding and debuting as Sonder (SOND) on Nasdaq eight years later.

“I would have never imagined that today, we’d be sharing that the startup I incorporated in a basement as a college student would become publicly traded,” Davidson wrote in the post.

Sonder announced last week that in the second half of 2021 it had added more than 25 buildings to its U.S. ranks in more than a dozen cities. Those cities included Boston, Miami, New York City, Philadelphia and Washington D.C, Atlanta, Dallas, Nashville, New Orleans and San Antonio, for example.

Sonder’s business model is to enter into long-term leases with building owners and provide a variety of accommodations, heavily focused toward urban locations. The company said it had 16,000 contracted units in 10 countries, including more than 35 cities, as of September 30.

“The U.S. continues to be a high-growth market for us with a strong and varied supply of real estate, and we plan to continue expanding aggressively,” said Martin Picard, co-Founder and Global Head of Real Estate at Sonder in a statement Thursday.

Sonder describes itself as a “next-generation hospitality company” that aims to disrupt the traditional guest experience through better technology and exquisite design, but it will have a lot of competition in trying to make that happen an in building a brand.

The way SPAC deals work is that a company without its own operations raises money and goes public, and then finds a startup to combine with in order to take the target company public. SPACs are often considered a less costly way for startups to go public, avoiding certain banking fees, than the traditional initial public offering route.

The bar to going public through a SPAC is often lower than via an initial public offering.

SPACs were a popular means for startups to go public in 2021, although investors’ enthusiasm seemed to waned late last year in many cases because the market soured on companies, such as Sonder, that were not profitable. Among short-term rental-oriented companies, Vacasa in the U.S. and HomeToGo in Germany debuted on stock markets through SPAC mergers in 2021. Australia’s Alloggio went public through an IPO.

Sonder’s most recent revenue outlook for 2021 was $200 to $205 million, which would be a 17 percent increase at the midpoint over its initial forecast, and it forecast an adjusted loss of $240 million, also a 17 percent increase.

Note: This story has been updated to add comments from Davidson from a LinkedIn post about the startup’s odyssey, and to detail its share price drop on the first day of trading.

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