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🛏️ The Airbnb of India died
How StayZilla went from 18,000 to 0 listings (a $34M mistake)
Admond Lee
August 11, 2024
Hey Founders,
Welcome to The Runway Ventures — a weekly newsletter where I deep dive into failed startup stories to help you become the top 1% founder by learning from their mistakes with actionable insights.
Today’s story is about how the Airbnb of India died. Let’s get to it! 🚀
Today at a Glance:
☠️ 1 Failed Startup → StayZilla
⚠️ 2 Mistakes → Founder lost his focus (blinded by GMV)
🧠 3 Lessons Learned → Focus on fundamentals (not vanity metrics)
🔗 The Runway Insights → How to be more concise
💰 Southeast Asia Funding Radar → Skuad, the 5-year-old global payroll, got acquired by Payoneer for $61M in cash
☠️ 1 Failed Startup: StayZilla
🚀 The Rise of StayZilla
In 2005, 3 passionate travellers (Yogendra Vasupal, his wife Rupal Yogendra, and his friend Sachit Singhi) came together to launch Inasra Technologies (before it was rebranded to StayZilla in 2010) as a homestay network — the Airbnb of India 🇮🇳
😎 Fun fact → Zilla means district in India.
The Problem — 😮💨 Tier II and III cities in India often lacked accessible and affordable accommodation options for travellers.
While the big hotels in metro cities were all online and easy to book, the smaller, more authentic places to stay (i.e. homestays) were practically invisible to digital travellers.
The Solution — 🛏️ StayZilla aggregated and brought India’s vast and diverse network of homestays online for travellers to find and book these accommodations.
🙋🏻♂️ For travellers — They got access to affordable, authentic, and unique stays even at Tier II and III cities in India.
🛏️ For homestays — Property owners got access to local and global customers by having a digital presence.
 | The problem they were solving was massive. And the solution StayZilla provided was a no-brainer. 🤝🏻 It was a win-win and it revolutionised how people travelled in India with huge potential. |
At its peak, StayZilla boasted over 18,000 listings in more than 1,200 cities across India, making it a go-to platform for travellers seeking local and unique accommodations.
The company was particularly focused on providing options in lesser-known towns, ensuring that even remote areas had visibility for potential visitors. By 2013, StayZilla was achieving around 500 bookings per day.
StayZilla = GodZilla (at its peak)
💰 Because of its rapid growth and traction, StayZilla secured $34 million in funding over several rounds, including a notable $20 million (Series B) in 2015 and $13.5 million (Series C) in 2016 from investors like Matrix Partners and Nexus Ventures.
⚡️ With the financial backing, StayZilla grew like crazy by aggressively expanding its services and marketing efforts, leading to widespread recognition across major Indian airports and travel hubs.
📉 The Fall of StayZilla
StayZilla was riding high, being hailed as the next big thing in India’s booming startup ecosystem — until it wasn’t.
🦖 The very factors that contributed to StayZilla's rise also set the stage for its downfall. Despite being a pioneer in the homestay market, StayZilla faced numerous challenges that ultimately led to its closure in February 2017.
📌 Here’s what happened to GodZilla (I mean StayZilla):
2015 — Inasra Technologies was founded as an online travel agency for hotel booking.
Founders bootstrapped with their savings for almost 5-6 years.
Their early days of profitability gave them stable financial support to continue running the business.
2010 — The company was rebranded to StayZilla, pivoting to a homestay aggregator model, including different options from ultra-low-budget rooms to luxury stays.
2012 — 🌱 Raised $500k (Seed Round) from Indian Angel Network.
2013 — Achieved 500 bookings per day and expanded to over 15,000 listings.
☘️ Series A — Raised from Matrix Partners (undisclosed amount)
Feb 2015 — 🪴 Secured $20M in Series B funding from Matrix Partners.
2016 — 🌳 Raised $13.5M in Series C funding from Matrix Partners and Nexus Ventures.
StayZilla’s balance sheet looked like a mess with massive yearly spending.
With 5 months of runway left, the team wanted to raise another round for $20M, but failed.
🪓 The last resort? Cut down their costs by:
Cutting down marketing spend
Laid off 210 employees and new hires
Closed down their branches in different cities
Feb 2017 — 🥵 Finally, Vasupal announced that StayZilla would be shutting down operations and shared the reasons for its failure.
Mar 2017 — Vasupal was arrested on charges of defrauding an advertising agency (Jigsaw), marking a dramatic and public end to StayZilla’s saga.
🤯 Vasupal was put in jail for almost a month before he got bailed out for INR 14 lakhs.
🙏🏻 From GodZilla to DeadZilla, StayZilla's story is a classic example of how initial success can quickly turn into failure without proper management and adaptability.
Despite its innovative approach and first-mover advantage, StayZilla couldn’t sustain its growth amidst fierce competition, operational challenges and legal troubles.
🥵 What started as a revolution in Indian travel ended as an epic downfall with shattered promises.
Want to learn more about StayZilla’s downfall?
Stayzilla will reboot its operations (shared by Yogendra Vasupal, the founder himself)
⚠️ 2 Mistakes
Mistake 1: Founder lost his focus (blinded by GMV)
The initial 7 years were all about having negative working capital, positive cash flow, and a sustained ability to fund our own growth. Those were the only metrics we tracked. In the last 3 to 4 years, though, I can honestly state that somewhere I lost my path. I started treasuring GMV (gross merchandise value), room-nights, and other ‘vanity’ metrics instead of the fundamentals of cash flow and working capital.
This was actually shared by Vasupal in his article.
When they first started, they bootstrapped and focused on the fundamentals of cash flow and working capital.
However, once they got funded by VCs (after Series A), somehow they lost their focus and grew StayZilla at all costs.
🤔 But how did growing at all costs kill StayZilla? Here’s what they did:
💸 Spent too much to create supply and demand
Because demand and supply for homestays were non-existent back then, StayZilla invested extensively in both sides of the marketplace, creating homestays as well as guests who would choose a homestay across the country.
This high burn reduced their runway significantly.
😯 Invested heavily in educating the market
For Tier II and III cities in India, most people didn’t have access to basic infrastructure and education.
StayZilla had to educate them on how to use the Internet and how to use its product to list or rent homestays.
Both financial and opportunity costs were very high.
🩸 Used discounts to grow at a loss
Since 2015, the travel industry has became very competitive with other players like MakeMyTrip and Goibibo.
To sustain growth, StayZilla was forced to match prices by introducing a 2-week discount period on all listed properties on its website.
This increased their bookings by 80-90%, but 60% of those bookings were made by the hotels themselves. The hoteliers basically gamed the discount campaign using a trick called Round Tripping — where hoteliers faked the bookings to earn the spread from the discounts for offline customers.
Mistake 2: Poor customer service
Google reviews from StayZilla’s customers
Surprisingly, from the customers’ reviews, it seems that there were various cases of defrauding customers and hotels.
Customers paid and made accommodation bookings on StayZilla’s platform.
However, there was no confirmation of the bookings when customers went to the accommodation.
StayZilla deducted the charges for the services and no refund was given to customers.
👎🏻 Poor customer service → Lack of trust in consumers
The mismanagement of the operations and the lack of communication among stakeholders (management of StayZilla, hotels, resorts, and customers) caused a lack of trust in consumers that resulted in a bad reputation and high customer churn.
🙅🏻♂️ In short, nobody wants to feel cheated.
🧠 3 Lessons Learned
Lesson 1: Focus on fundamentals (not vanity metrics)
As StayZilla grew, the founders became obsessed with vanity metrics like GMV (gross merchandise value) and room-nights, losing sight of the fundamentals that had sustained them in the early days.
They spent heavily to create demand and supply, investing in educating the market, and offering deep discounts to drive growth. However, this high burn rate quickly depleted their runway and led to unsustainable losses.
🌟 Key Takeaways:
🧐 Don’t get distracted by vanity metrics
As tempting as it is to focus on growth at all costs, never lose sight of your financial health.
Always prioritise cash flow, profitability, and sustainable growth over temporary numbers that look good on paper but don’t pay the bills.
Make sure your business is profitable and self-sustaining before chasing scale.
💰 Having too much money could be a trap
When you are bootstrapping, you have limited resources. You’re frugal and think creatively to get revenue from customers with positive cash flow.
When you’re funded by VCs, suddenly you have lots of cash sitting in your bank account. You’re somehow pressured to spend the money and think that money could solve all problems.
In short, know the game you’re playing. At the end of the day, business is business. If you don’t achieve PMF, you’ll die. If possible, get to profitability ASAP.
Lesson 2: Take care of your customers
Always prioritise customer service and reputation. Your customers pay the bills, not your investors.
🌟 Key Takeaways:
💟 Customer trust is everything
In any business, especially in the hospitality industry, trust is your most valuable asset.
Invest in reliable customer service, clear communication, and transparency in your operations.
Ensure that your customers always feel valued and respected, and that any issues are swiftly and effectively resolved.
A single bad experience can lead to a lost customer, and in the age of online reviews, that can quickly snowball.
Lesson 3: Adapt to market changes and competition
As the travel industry became more competitive, StayZilla struggled to adapt. They were forced to match prices by introducing deep discounts, which led to hoteliers gaming the system and further eroding their margins.
StayZilla's inability to differentiate itself in a crowded market ultimately contributed to its downfall.
🌟 Key Takeaways:
📊 Leverage data for decision-making
Use data analytics or machine learning to understand customer behaviour, predict market trends, and identify areas where you can differentiate yourself from competitors.
By making data-driven decisions, you can stay ahead of the curve and quickly adapt to market shifts.
⚡️ Stay agile and pivot fast
Sometimes, adapting means making a significant shift in your business model.
If the market is moving in a direction that your current model can’t sustain, be willing to pivot.
This could mean changing your target market, offering, or even the fundamental way your business operates.
🔗 The Runway Insights
💰 Southeast Asia Funding Radar
Skuad, the 5-year-old global payroll, got acquired by Payoneer for $61M in cash (Link)
Secai Marche raises additional $2.1M in Series A round (Link)
k-ID raises $45M in Series A round from a16z and Lightspeed to make it easy for game developers to comply with child safety and data privacy regulations (Link)
UnaBiz, an SG-based IoT startup, secures $25M in Pre-Series C round funding for international expansion (Link)
Mushroom Material bags $5M seed funding to convert agri waste into eco-friendly packaging (Link)
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That’s all for today
Thanks for reading. I hope you enjoyed today's issue. More than that, I hope you’ve learned some actionable tips to build and grow your business.
You can always write to me by simply replying to this newsletter and we can chat.
See you again next week.
- Admond
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