When you look at the investors who are involved in the latest Series C funding of $70m for “affordable accommodation provider” RedDoorz, you see a clear pattern – every single one brings a different skill set – and for the first time, CEO and founder Amit Saberwal said he “had to say no to money from people not adding strategic value”.
“For the first time, we were over-subscribed and that’s a good feeling,” said Saberwal who left a nine-year career with MakeMyTrip to start RedDoorz in 2015.
For the first time too, he believes unicorn status is within reach “in the next three years”. “It’s not an outlandish claim anymore, it is possible,” said Saberwal. But more about that later.
Recalling the early days when he had to go begging for funds, Saberwal said, “There was no fund raising eco-system then and there was a big gap to get to Series A, then B. It gets easier as you prove your business model.” (The company has raised US$140m since founding.)
This latest round was led by Asia Partners for whom RedDoorz is its first portfolio company. Asia Partners is a new fund focused on growth-stage investments in technology and technology-enabled companies in South-east Asia, set up by two veterans, Nicholas Nash and Oliver Rippel.
In 2018, Nash led the successful IPO of Sea, South-east Asia’s leading Internet company, on the New York Stock Exchange in 2018 – raising approximately $1 billion of primary capital at that time. Rippel was the CEO of B2C e-commerce for Naspers and oversaw the exit of Flipkart to Walmart in August 2018.
Said Nash and Rippel, “Our mission is to help build and mentor South-east Asia’s next generation of tech unicorns. Our team has a unique combination of investing and operating skills to help companies such as RedDoorz become true market leaders. We have every confidence in the team’s ability to capture the enormous opportunity which exists in the affordable travel segment. This investment affirms our belief in RedDoorz’s vision and plan for the region.”
Joining Asia Partners are Rakuten Capital, bringing its Japanese e-commerce expertise, and Mirae Asset-Naver Asia Growth Fund, bringing its South Korean expertise in search and e-commerce. Existing investors Qiming Venture Partners (invested in Meituan) and International Finance Corporation (IFC) also participated.
“Jungle Ventures, our first investor, has also followed all our rounds,” said Saberwal.
Smart money better than any money
To Saberwal, picking the right investors is critical to a startup that’s at the stage of growth that RedDoorz is at – investors who understand where it wants to go with its business and not put undue pressure which might cause it to lose focus.
“Focus got us to where we are now. Our first focus was Jakarta, Bandung and Jogjakarta and we dug deep there before we moved anywhere else. We solved the problem hoteliers faced and that we faced – our tech was always behind the problem. Then we had to solve for the customer – who are they? Is $20 or $30 the sweet spot?
“Once we solved it, then we raised funds from good investors. Of course, we don’t have a “big daddy” like Softbank but this gives us discipline. The DNA of a company takes shape now – discipline, focus and core business fundamentals. It cannot be put in when you have 5,000 employees.” (RedDoorz has 1,000 employees out of whom 81 sits in Singapore headquarters.)
Said Saberwal, “Our business model is established and now we need money to grow geographically as well as dig deeper into existing markets.”
Unicorn goal not an ego kick, but a key milestone
The goal is to reach unicorn status “within the next three years” – either through an IPO or exit. But why is it so important to reach unicorn status, I asked? Said Saberwal, “Our primary responsibility is to return money to investors, it is a big milestone in our journey, it is not an ego kick.”
He acknowledges it is a tough market today in terms of capital and where at least two unicorns – Tink Labs and Honest Bee – have floundered but he’s unfazed. “You have to look at the good examples, startups have a 95% failure so you can’t focus on those. Look at the Go-Jeks and Travelokas of this world.”
Yanolja, the South Korean budget accommodation startup, recently celebrated self-proclaimed unicorn status after it received a US$180m deal from Booking Holdings and GIC in June. OYO, of course, is the biggest unicorn in this accommodation space.
Saberwal is not intimidated. “We are from India, we never got scared. Being fearless is one of our attributes, that’s why our logo and mascot is Reddy, the honey badger, it’s the most fearless animal. It’s MakeMyTrip conditioning. We are not scared by big announcements made by the competition.
“OYO has a global mandate, from China to America, Argentina to Saudi Arabia. It is into co-living, co-working. It has more of a conglomerate approach.
“I am a big admirer of Booking.com – focus was how it grew. Ctrip focused on China and nailed it. This is what we want to do – focus and then see where that takes us.”
Tech gets you 70% of the way, the secret sauce is local business acumen
Clearly, focus has paid off. In July, RedDoorz, which is in 80 cities, did 500,020 occupied room nights and this December, it is projecting one million. All four markets it is in – Indonesia, Philippines, Vietnam and Singapore – are showing growth and the company is growing five times, he said.
In Singapore, it is the largest hostel operator and the third largest hotel chain (after Accor and Hotel 81), with 1,000 room inventory.
Getting to this spot has taken a lot of hard work and heavy lifting. Acquiring of hotels had to be done, door to door literally. It onboards 200 hotels a month and it has trained more than 10,000 people who work in its hotels.
“The final step is still done face to face,” said Saberwal who once naively dreamt of building a tech platform where hotels could onboard automatically and consumers could come and book directly.
It then had to solve for distribution and knew it couldn’t rely on OTAs and third parties. It built a direct pipeline and brand with 70% of its customers now booking on its website.
It then had to build a distributed management structure, to have local management teams across the region supported by a tech centre in India and now, with the new funding, it will build a second tech centre in Vietnam “to be more nimble”.
“Tech only gets you 70% of the way, the secret sauce is the business acumen on how to work in every market,” he said.
“My learning is the market today rewards growth. If you are growing 5x, 6x, and you are within touching distance of core metrics, it is much easier to raise funds. VCs want to fund companies that will return capital, not a lifestyle business, what they call zombie startups.”
The biggest learning he took from Deep Kalra, who founded MakeMyTrip and remains group CEO is “how to build an excellent organizational culture where the company is always bigger than the individual”.
Being focused doesn’t mean it does not consider opportunities for other models. “If we get into co-living, we will reinvent it. Right now, it’s a real estate play. There is some merit to look at it for longer stays,” said Saberwal.
“When we started, Asheesh (Kunwar Asheesh Saxena, CTO) and I thought we would build a $100m company and we would have done something good. Now we are looking at $5b. Accommodation play is so big, we have just scratched the surface. In the two-star category and below, there are 125,000 hotels in South-east Asia alone. By year end, we will have 2,000 RedDoorz franchises.
“It is such a big opportunity.”
• All images credit: RedDoorz