Chennai-based Inasra Technologies Pvt Ltd, the startup behind budget hotel booking site Stayzilla.com, has defied naysayers who gave it no chance against large online travel agencies in India. It has just raised $15 million in its Series B round, attracting investors to its differentiated offering. It also created a profitable exit for several of its over three dozen angel investors who exited in the latest deal led by Nexus Venture Partners with participation of existing backer Matrix Partners. Techcircle.in caught up with Yogendra Vasupal, co-founder and CEO, to talk about the journey, future plans and strategy to push its platform further.
You dropped out of college to start this venture. How did you start this business?
I dropped out of college twice. First time I dropped out because I was making money online. Only after I dropped out I realised that college is a good alibi to spend quality time with friends. So I again joined the college and again dropped out in the final year. In the meantime, I was freelancing online, developing small websites, had 15 websites on my own and advertising income was coming. I was also an Amazon.com affiliate in 2002. By the final year at the college, I was earning Rs 1 lakh a month.
But I realised that making money is not equal to creating value. That is when I called up our co-founders Sachit (Singhi) and Rupal (Yogendra). They, being from a business background, were in right from the first five minutes of our conversation.
We looked at various business ideas, models and segments such as books because we were an Amazon.com affiliate. In fact, we also looked at diapers as a category. But we finally settled down with accommodation.
Then we registered our company to bring accommodation service providers like hotels, lodges, guest houses or any other entity willing to provide the same as a short-term rental, online.
At what time did you decide that budget rooms were your mainstay?
We realised that we were quite early for alternative accommodation service providers like homestays or paying guests. The easiest one to bring online at that point was hotels and we started bringing structured stay. However, by 2005 we realised that alternative accommodation like homestays was coming as an inventory for us organically. So from there on we started focusing more on alternative stays along with structured stays.
How has the growth been since then?
By early 2012, we were doing around 30 room nights a day and we had not raised any funding and we grew on our own cash flow. That year we took $0.5 million angel funding from Indian Angel Network for scaling up rapidly. When the money came in, we were doing around 40 room nights a day in March 2012. By December 2012, we did 250 room nights a day and we again hit the market to start looking at Series A funding. By June (2013) we had got Matrix (as an investor) and the company again grew 7x to 1,750 room nights in December 2013. We did 4,000 room nights in December 2014—close to 12x growth from 2012 to 2014.
The interesting aspect is that in January 2014, we had 15 per cent of inventory as alternative stays and by December 2014, it was 36 per cent; by January 2014 only 5 per cent of our sale was from alternative stays segment but by December 2014 that was closer to 40 per cent. We saw that there was a lot of interest in the market with respect to this market and we went to market in October (2014) end and we had closed (a deal) with Nexus by December and the formalities and everything got completed in January. Now we are looking at growing the company from 4,000 room nights a day to 40,000 room nights a day in two years. We currently have around 25,000 properties listed in 1,200 cities with average rooms per property of 20. We want to take that up to 50,000 properties in a year. That is an ambitious target we have set in a market which nobody believed had more than 15,000 properties.
What is the average ticket size of these rooms per night?
Room ticket night value is around Rs 1,050 and transaction size goes to around Rs 3,150.
What is your employee strength? How do you plan to expand the team?
From a company perspective, in December 2014 we did Rs 14 crore of gross room night sales and we had a 330-member operations team but only three people handling managerial position, with co-founders still doing multiple roles. Each of us was handling two functions. Now we are looking at aggressively building the team.
We are currently a 400-member team and by the year end we are looking to enhance the team size to 600 and further to 750 by April 2016. A lot of hiring is going to be in non-operational verticals—engineers, product personnel and managers. We are looking for people who have experience with travel tourism or marketplace in general, including at senior positions.
Why not establish yourself as a non-hotel room provider?
Looking at five to 10 years down the line, I don't see a world where there is a separate alternative stay provider or marketplace and then there is a separate hotel marketplace. It is going to converge. We focused on having a hybrid marketplace right from the beginning because the structured rooms have not come online yet. A lot of them are not getting sold online; so this is a great opportunity to build a hybrid marketplace for rooms. It doesn't matter whether the room is in a hotel or a homestay. A lot of unmet demand is opening up and much of these supplies cannot cannibalise anybody else's business; in fact, it only unlocks those demand.
What is the ratio of revenue you are getting from hotels and non-hotels?
Forty per cent comes from non-hotels and the remaining from hotels.
You have always said that you don't consider OTAs as your competitors. But you have overlapping inventories....
Why I don't consider OTAs as our competitors is the fact that Indians took 75 million passenger trips on flight in a year when they took close to 3 billion train passenger trips and 6 billion bus passenger trips. Even to date, OTAs have not managed to crack train and bus ticketing. So those are our customers and we are serving rooms for them. We are not focused on the four or five star customers as of now; so from that perspective we are clearly segmented in terms of the rooms. Secondly, packages account for majority of revenues for OTAs; we are not into packages and we don't want to get into packages. Our focus is just the rooms marketplace. So just where we are positioned as business is different. Our growth strategy is also different. While they take (air) ticketing perspective towards the stay segment, we take a service perspective. While they bank on the demand-led side, we take it from a supply-led side. The more properties we bring online and the more supplies we offer, the more our demand side grows. We don't have to go on TV. When we are doing 4,000 room nights a day, it is equivalent to what the other big guys are doing and we have not spent Rs 300 crore on TV. So our strategy is different.
What's your go-to-market strategy then?
We want to focus on supplies because more supplies gets us more demand. Around 15 per cent of our customers come because our supply has guided them to book with us. We need to put in a lot of resources and expand our supply side market and ensuring that it gets standardised. When you as a customer end up booking a room, you must have some basic guaranteed levels of quality across India, across tier IV, V and VI cities. Tier I is fine but when you look in tier V and VI cities, we know of properties which do not have even restrooms within the property.
Why would you think that customers would opt for Stayzilla and not one of the OTAs?
Everybody knows the players in the OTA segment. In fact, each of them probably does at least 3 million flight tickets and the next tab is hotels. They are struggling to do 100,000 transactions a month. They are not unknown; still they are not able to take the transaction numbers up. The reason is that this business is not a pure ticketing business. You have to have an end-to-end marketplace.
How many angels have exited in the recent funding round? What is the stakeholding of founders and employees?
Around 23 angel investors have exited, freeing close to 10 per cent stake of the company. Convincing angels to exit is a very difficult thing—there is an emotional value attached to it. These are the people who made us what we are today. But it is a continuous cycle. There needs to be space made in the chart table for new investors to come in for the following rounds.
We (founders and ESOP pool) currently own 48 per cent stake in the company.
Would you be looking to raise your next round later this year?
We will go out in the market by August-September and will be looking for a much bigger round. However, we want to be cautious. I have seen a travel bubble in 2008. There were almost 28 players in the market; most of them died. What got us through those times was focus on fundamentals. Capital (infusion) should be (used) as a barrier to entry.
(Edited by Joby Puthuparampil Johnson)