Sonder closes $170m Series E round

US: San Francisco-based hospitality startup Sonder has announced it has closed a $170 million Series E round, led by Fidelity, WestCap Group and Inovia Capital, which brings its valuation to $1.3 billion.

The startup also announced that it was expecting to raise additional capital from new and returning investors, which would ultimately bring the total for the round to around $200 million.

Just last month, we revealed that the hospitality unicorn was in discussions with Fidelity and WestCap about raising funding for the company in the region of $150 million to $175 million.

At a time when the travel and hospitality industries are feeling what Sonder calls “the most severe downturn it has ever faced”, the startup believes it is well positioned to lead the rehabilitation of the sector in the coming months and years, despite the fact that it laid off 22 per cent of its workforce and furloughed a further 11 per cent of its staff in March.

According to The Information, those made redundant or furloughed accounted for up to 400 people at a time when bookings of its 5,000 apartments across the United States were down by an estimated 20 per cent. Sonder currently operates around 5,000 apartment units in over 30 cities worldwide.

In a press release, Sonder said: “We’re extraordinarily grateful for the confidence our investors, team members and guests continue to place in us during these unprecedented times, and we take absolutely nothing for granted. This is validation of the progress we’ve made on the strategies we outlined at the outset of the pandemic to ensure Sonder would survive the crisis and emerge a stronger company.

“For example, our focus on innovation enabled us to quickly pivot towards providing longer stays for guests in need of housing during the pandemic. Deployed in mere days following the first travel restrictions, this initiative was essential to our success over the last few months, leading to a higher-than-average occupancy rate of no less than 40 per cent at the height of the pandemic,” it added.

Sonder acknowledged that it had had to make “extraordinary, and at times painful, cost-cutting measures” but the decisions were made to ensure the long-term success of the business.

The startup has placed an emphasis on developing the “contactless” guest experience in its self-contained spaces due to the Covid-19 pandemic, by introducing digital check-ins, keyless entry, professional cleaning, and no lines or crowded lobbies. This, it says, has led to Sonder maintaining a global occupancy rate of 75 per cent during the pandemic.

Sonder said: “With this new funding, our priority is to scale Sonder carefully and responsibly. We will continue to engage with our real estate partners about new exciting locations as well as innovate on the guest experience and continue to ensure Sonder remains a great place to work for our employees.

“We’re excited to develop new ways to deliver a better stay for our guests including new features, services and partnerships. Our work has only just begun, but we are optimistic about what the future holds for Sonder, our guests and the future of travel,” it added.

The company signs multi-year leases in residential buildings and rents out units with hotel-standard amenities for short-term stays. Prior to this raise, it was believed to have raised $400 million since its founding in 2012.

Since March, Sonder has committed to pivoting towards an extended stay business model. Around a thousand employees are reported to be working at the startup’s 12,000+ rental units and hotel rooms in 28 cities spanning six countries.

Market competitors which operate their buildings with master leases [leasing and converting a full building or individual units into fully-furnished, branded short-term rental units] have also been heavily impacted by the travel restrictions prompted by the coronavirus. Stay Alfred closed down last month, just a year and a half after a $47 million raise, while Lyric and The Guild have been forced to lay off significant portions of their teams.