Airbnb Inc. is leading a $160 million funding round for a small, luxury-rental apartment startup, the third investment in six weeks as it beefs up offerings ahead of a eventual stock market listing.
For Airbnb, the deal arrives just weeks after it confirmed investment in Indian hospitality brand OYO for a rumored $100 million to $200 million, as well as its acquisition of HotelTonight in March.
San Francisco-based Lyric transforms premium apartments into studios with hotel-quality cleaning services and around-the-clock online support for business travelers looking for short-term visits or stays of as long as 200 days. With only 380 suites on offer across the U.S., Lyric may seem like an insignificant investment for a powerhouse like Airbnb. But its interest likely stems more from Lyric’s mission: to change the negative reputation of the short-term rental industry, especially in urban environments.
“We are really good at regulatory compliance," Lyric’s co-founder and Chief Executive Officer Andrew Kitchell said in an interview. The startup is fully compliant in all 13 cities it operates in, he said.
After launching in San Francisco more than a decade ago, Airbnb changed the way people travel by persuading millions to open up their homes to strangers, but it’s also run afoul of city regulations in some of its biggest markets, including New York and Paris.
Real estate firms and building owners are loathe to trust short term rental providers today, Kitchell said. “We spend a huge amount of time saying: ‘Hey, this narrative about Airbnb and short term rentals is wrong," he said.
Lyric was the first company to be issued a short-term rental permit in Austin and Nashville. It’s the only company legally allowed to operate short-term rentals in Orlando and has partnerships with 20 of America’s top real estate firms, Kitchell said.
Last valued at about $31 billion, Airbnb has been working to expand listings and transform its identity as it gears up for an IPO likely next year. The company wants to shed its image as a disruptive startup that doesn’t play by the rules and instead aims to become a regulatory-compliant one-stop shop for holidaygoers to book flights, accommodation and tourist experiences.
Airbnb has been busy over the past year expanding its reach. In March, the company spent $463 million to acquire HotelTonight and earlier this month invested a reported $100 million to $200 million in Indian hotel chain OYO.
Those investments, coming on top of the acquisition of French property management company Luckey Homes in December and Danish meeting platform Gaest in January, have helped Airbnb bolster its position and keep a hair ahead of rival Booking Inc. with 6 million listings, compared with 5.7 million at its larger competitor.
Hence the appeal of Lyric. “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," said Airbnb’s president of homes, Greg Greeley.
Lyric’s other investors include Tishman Speyer, RXR Realty, Obvious Ventures, SineWave, former Twitter executives Dick Costolo and Adam Bain, as well as existing investors Barry Sternlicht, SignalFire and Tusk Ventures. The latest financing round brings Lyric’s total funds raised to $175 million, it said in a statement. The cash will allow it to expand to as many as 2,000 units, and invest in a proprietary technology and data platform.
Lyric joins others in the apart-hotel space receiving investment attention such as Sonder, which has raised $135 million, as well Domio, which counts $67 million in funding.
Added to the mix yesterday was Austin, Texas-based Locale, which landed $2.5 million in funding.
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.
Simon Lehmann, CEO and founder of AJL Consulting: “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.
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