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Why boutique rental startups spring up but hard to stand on their own feet

Update: 2018-01-12

A new breed of vacation rental startup offering upscale apartments to tourists is attracting interest from venture capital firms. But some investors are staying away, worried that tight regulations in some of North America’s hottest real estate markets will limit the startups’ growth.

Two early entrants in the market, Sonder and Parallel Travel, have raised significant venture capital around the concept of branded, design-driven rentals, including previously undisclosed rounds. Yet four other investors pitched by the companies told The Information they weren’t interested in funding them, in part because of regulatory constraints in places like San Francisco and New York designed to preserve housing for permanent residents.

Sonder, has raised about a $30 million in a previously undisclosed Series B round from Airbnb investor Greylock Partners and Greenoaks Capital last year and is now seeking an additional $50 million in venture capital, according to three people briefed on the fundraisings. Another startup, Parallel Travel, raised a more than $20 million Series A round recently from New Enterprise Associates, Fifth Wall Ventures and others, people familiar with the matter said.

The startups are riding a wave of popularity that began with Airbnb, and they are confronting similar regulatory hurdles. Unlike Airbnb, which allows owners to rent rooms or entire homes directly to travelers, the new startups typically lease floors of entire buildings and convert the properties into boutique hotel-quality apartments. The companies list their properties on Airbnb and other platforms including Booking.com and HomeAway, alongside more familiar peer-to-peer rentals.

For now, they are more friend than enemy to Airbnb, depending on the travel site to surface their listings. Both Sonder and Parallel Travel are still small, without enough lodging offerings or brand power to make much of a dent in the hospitality sector or Airbnb marketplace. Sonder CEO Francis Davidson said travel booking sites like Airbnb and Booking.com are racing to offer people more lodging options in cities that blend stylish accommodations with reasonable prices.


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