Stayzilla, India’s Airbnb for homestays, closes its service

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Rocket Internet’s Zalora is retreating from two more countries in Asia

Stayzilla, an Airbnb for homestays in India, is closing down its service.

The company was founded six years ago and had raised $34 million from investors, including a $20 million Series B in 2015. Now is the time to pause and “reboot” however, CEO and co-founder Yogendra Vasupal explained in a blog post.

The company reached a network of over 50,000 accommodation options across more than 900 towns in India, and clinched deals with local government tourism organizations, but it looks like it ran out money — although Vasupal did not mention the current financial situation and did not reply to our request for clarification.

The financial situation was likely tight because Stayzilla didn’t raise anything like the warchest of others in the business of digitizing accommodation. Oyo Rooms, which operates a network of budget hotels, has pulled in close to $190 million from backers, that’s important because margins are tight and revenue tighter still. As Tech In Asia first noted, both companies generated $2 million in revenue during the last financial year. While Oyo’s losses were higher — $52.5 million versus $14 million — it has the financial cushion to absorb them. Then there’s also the colossus that is Airbnb, which has increased its focus on the Indian market.

Indian media had reported that Stayzilla was keen to raise $40 million last year. Things didn’t quite go to plan as it closed a $13 million Series C from existing backers in May and nothing more since then.

Vasupal was particularly reflective in his post, explaining how, as a founder, his own objectives were altered as the company ramped up.

“The initial 7 years were all about having negative working capital, positive cash flow and a sustained ability to fund our own growth. Those were the only metrics we tracked. In the last 3–4 years, though, I can honestly state that somewhere I lost my path. I started treasuring GMV, room-nights and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital,” he explained.

He mentioned that the size of the company was reduced from 600 to 200, but ultimately it was too late to avoid the inevitable.

“The last year has been a focused attempt to get back to our initial, and stable, value system. However, 12 months was just not enough time to shift paths, when we were already 36 months down a dramatically different path,” he wrote.

While Stayzilla was a trailblazer for making nationwide travel more accessible, Vasupal conceded that market education and demand creation drained resources.

“The travel marketplace does not have local network effects and, therefore, we can’t really take a focused city-by-city approach in terms of matching supply and demand. The demand and supply for homestays was non-existent 18 months back, excluding a few small pockets. As a result, we had to invest extensively in both sides of the marketplace, creating homestays as well as guests who would choose a homestay across the country. We were actually successful at this — we have created 8000 homestays in over 900 towns — but this stretched us thin,” he explained.

Nonetheless, he stated his belief that there is a future for Stayzilla if it is able to pivot to the demands of the audiences it has gotten to know over the course of its business.

“Our hosts still have a lot of needs that are unmet and problems that are unsolved. That’s something that excites me. I see Stayzilla becoming a hassle-free distribution channel going out to the right audience, wherever they may be. We will look to work closely with both online and offline travel partners to offer the best of Indian homestays to their valued customers,” he said.

It’s quite unheard of for founders to share their negative experiences this candidly, particularly in India and the rest of Asia. Vasupal said the experience had been a cathartic one that he hoped would help others.

“I am at a crossroads. I am looking at this as a clean start to get back to the roots I am comfortable with. I know there are a lot of other founders at the same juncture. I would like to share with you the song that set the perspective for me the first time I heard it. I hope this helps you find your path as it helped me,” he wrote.

Given the challengers that are present in India right now — impacting big companies like Flipkart and Snapdeal right now to earlier stage startups — Vasupal’s telling of his story is refreshing. Hopefully other founds who suffer disappointing events this will consider sharing their experience to aid the ecosystem.

You can read the full post here.