# Stayzilla (2007 – 2017)

- URL: https://girisimcikafasi.com/en/startup-graveyard/stayzilla/
- Sector: Travel
- Country: India
- Total funding: $34 million
- Cause of closure: Business model failed

## What did it do?

Stayzilla was a Chennai-based accommodation marketplace that connected travellers in India with homestays and budget hotels. It started in 2007 as a budget hotel aggregator and switched to an Airbnb-style homestay model in late 2015. It brought thousands of hosts in more than 900 towns onto its platform.

## Why did it shut down?

There was hardly any market for homestays; the company had to create both hosts and guests with its own resources. A discounting war in the travel sector and far better-funded rivals put pressure on it to match prices. By the founder's own admission, the company focused on metrics such as transaction volume rather than cash flow; in its last financial year it lost USD 14 million on revenue of around USD 2 million. When it failed to land a targeted USD 40 million round, the company suspended its service in February 2017.

## The story

In February 2017 Yogendra Vasupal, co-founder and CEO of Stayzilla, made an unusual confession in the blog post announcing that the service was being suspended. He wrote that over the previous three or four years he had come to value vanity metrics such as gross transaction volume and room nights over cash flow and working capital, and that somewhere along the way he had lost his way. These lines were the farewell letter of a company that had tried to create India's homestay market almost from scratch.

Chennai-based Stayzilla began operating in 2007 as a platform bringing budget hotels together. According to Vasupal, the first seven years were built on negative working capital, positive cash flow and growth financed from the company's own resources. In late 2015 the company turned to homestays with an Airbnb-style model. A USD 20 million Series B came in 2015 and a USD 13 million Series C from existing investors in May 2016; Matrix Partners and Nexus Venture Partners were among the backers, and total investment reached USD 34 million. The company said it had built 8,000 homestays in more than 900 towns and offered more than 50,000 places to stay.

The problem lay in the market itself. As Vasupal described it, 18 months earlier there had been neither supply nor demand for homestays outside a few small areas; the company had to create, nationwide and on its own, both the hosts and the guests who would choose this kind of accommodation. The discount-led growth race that took hold from 2015 onwards also forced it to match prices. According to data from Tech in Asia, Stayzilla lost USD 14 million on revenue of around USD 2 million in its last financial year, while rivals such as Oyo had far larger war chests. The team was cut from 600 people to 200, but 12 months were not enough to change direction.

In February 2017 new bookings were halted and the company announced it would restart with a different business model. In March 2017, according to reports cited by Medianama, Vasupal was taken into custody following a complaint by an advertising agency over unpaid dues; the company's management denied the allegations, and Vasupal argued that the agency's services had been deficient. In September 2017 it was reported that India's company law tribunal, the NCLT, had initiated insolvency proceedings against Stayzilla.

Stayzilla shows that a start-up shouldering the cost of creating a market on its own must not lose its cash discipline when well-funded rivals start a discounting war.

## Lessons

- If you are creating a market from scratch, cost out building both sides by concentrating first on a single region rather than the whole country.
- Track metrics such as transaction volume and room nights on the same dashboard as cash flow and working capital.
- When far better-funded rivals start a discounting war, choose a niche where you can compete on service rather than price.

## Sources

- [Stayzilla, India’s Airbnb for homestays, closes its service](https://techcrunch.com/2017/02/23/stayzilla-gonezilla/)
- [Stayzilla to shutdown operations; plans to 'reboot' with a new business model](https://www.medianama.com/2017/02/223-stayzilla-shutdown/)
- [Stayzilla CEO Vasupal taken to police custody after allegations of non payment](https://www.medianama.com/2017/03/223-stayzilla-ceo-vasupal-police-custody/)
- [Insolvency proceedings against Stayzilla ordered by NCLT: report](https://www.medianama.com/2017/09/223-insolvency-proceedings-stayzilla/)