Would you invest in @Lodgify?

Previously posted on Linkedin.

I have recently been asked to name a startup I would invest in and explain my reasons therefore. Although many startups came to my head, explaining the why isn’t that easy. Do I have an investment strategy? Do I have a preference for any sector, geography or the stage of investment? Do I have a programmatic way (as Tomasz Tunguz puts it) to analyze a startup? I don’t but rather trusted my gut feeling when thinking about startup investing.

It is not difficult to find some help here and build your own process. To name a few, authors, Rob Johnson, Antonio Manzanera and Mahendra Ramsinghani  for instance, have gathered the most common factors applied by investors in their initial assessment. I will focus on market and competitive advantage. For obvious reasons I will not analyze the team in my assesment, although most VCs agree that this is the most important factor. And now let’s move to my reasons.

For those of you who don’t know Lodgify, check its CrunchBase profile or visit its website. The intro on their landing page gives you enough information to gain an overall picture of this startup.

“CREATE YOUR OWN VACATION RENTAL WEBSITE WITH A “BOOK NOW” BUTTON”

“MANAGE ALL YOUR LISTING ADS FROM ONE PLACE”

How big is the market? Only the European Vacation Rental sector accounts for $42B according to Lodgify’s cofounder Marco De Gregorio but Lodify’s Total Addressable Market is far smaller, since nowadays is “still just” a SaaS company and is not, as a consequence, targeting the entire cake. As we will see now, that may change.

Is it a hot sector? It certainly is, Airbnb and Wimdu (distant competitors of Lodgify, for now), amongst others, are disrupting the Travel/Vacation Rental industry. There are indeed several lawsuits against these startups of the so called new economy and legislators have entered the arena…

airbnb-vs-booking

AirBnB (red) and Booking.com (blue) interest over time / Source: Google Trends

Is there any  (sustainable) competitive advantage? Hard question, especially after doing some benchmarking:

Closest Competitors (Vacation Rental Software): BookingSync, Kigo, LiveRez, Barefoot, Streamline, ITSolutions, V12. [Source: Steven Gilbert (BookingSync co-founder), Quora.]

Distant Competitors (Hospitality Platforms): AirBnB, Wimdu, HomeAway (VacationRentals.com)…

Amongst the closest competitors the main difference would be the target user. Many of them target Vacation Rental Managers, while it looks like Lodgify targets real state owners (the jackpot). Moreover, not all of them offer website builder tools, but are focused on reservation systems. Ease of use it’s also a great point in favor of Lodgify, especially considering its customer type.

lodgify-review

Lodgify’s Customer Reviews / Source: capterra.com 

So far I couldn’t say whether or not there is a competitive advantage although I’d say that, as a brand, Lodgify seems to be well positioned.

Although the fact that the market (as a SaaS product for real state owners with minimum computer skills) is big and growing is already a good enough reason to have one of these startups in any investors’ portfolio, for me the most important factor to invest in these companies, is their potential to make the transition from product to platform  and scale up.

Both “content-first social product” and “single-user utility” are concepts covered by Sangeet Paul Choudary in his amazing book “Platform Thinking

Indeed, besides the tools helping owners to manage their listings in a variety of portals/platforms, Lodgify provides owners with the necessary tools to create simple and responsive websites (think of owners’ vacation rental websites as pictures on Instagram, or restaurants managing bookings on Opentable) and is therefore creating supply. The effort owners make by building (and improving) their websites it’s also a big advantage for these companies (and future platforms) over “traditional” hospitality platforms such as AirBnB, since the time invested by owners, acts as a hook, reducing user churn dramatically.

Making a decision of this kind is never easy, especially when you cannot afford to screw up in 9 out of 10 investments, but consider the pros:

  • big and growing market,
  • right timing (they are following the tenets of disruptors),
  • scale (from product to platform) and
  • exit possibilities (strategic buyer).

On the flip side, in Lodgify’s case I can’t see a clear competitive advantage, although I could not access the team , business plan and forecasts.

What would you do?

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About Francisco José Hidalgo-Barquero

Asesor de Fusiones y Adquisiciones. Consultor de Negocio.
This entry was posted in Análisis estratégico, Capital Riesgo and tagged , , , . Bookmark the permalink.

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