How Francis Davidson Sonder started in his university apartment

When Francis Davidson completed his first year of study at McGill University in 2012, the then 19-year major in philosophy and economics wanted to earn extra money, and he rented out his apartment for the summer.

By subletting Davidson’s three-bedroom apartment in downtown Montreal to vacationers in rental areas such as Home Away and Airbnb, Davidson was able to bring in more than $ 14,000, while paying about $ 5,000 in rent for the apartment for the summer. Make it.

Then Davidson continued. He started managing the empty apartments of other students at McGill, and then students in other cities. After three years, he left college to build the business into a global hospitable technological start.

The company Davidson, Sonder, now rents and owns properties with more than 5,000 listings in 35 cities around the world. Sonder is currently valued at $ 1.3 billion after raising more than $ 550 million from venture capital firms as well as investors such as former baseball player Alex Rodriguez and funds backed by Jeff Bezos and Elon Musk.

Now 28 is Davidson Sonder’s co – founder and CEO. Looking back, he tells CNBC Make It that he ‘had no idea I wanted to be an entrepreneur’ when he started renting out his college apartment. “I think I surprised myself too.”

Before Sonder, Davidson was just a teenager looking for a cheap summer home so he could rent out his three-bedroom apartment while his roommates were away.

‘I sent a bunch of people who advertised for subletting … And I said,’ Listen, if you do not find anyone, … let me know a day before you leave, then I’ll give you a thousand dollars for the whole summer. And that’s maybe 20% of your rent. But if you want a free thousand dollars, just call me, ” says Davidson.

Most of the people he reached with the offer told him to get lost, but he found one person. “So I basically got a two-bedroom apartment next to McGill for a thousand dollars for the summer,” says Davidson.

Meanwhile, he started working to make the best use of his empty three-bedroom apartment and his roommates.

“What prompted me to do it the first summer was actually just math on it,” says Davidson, who literally goes to the Home Away holiday home (which has since been renamed Vrbo) and investigates how other apartments are advertised. what they ask. “Airbnb was launched four years ago and the popularity of such sites has made Davidson realize that the tourism industry is seeing something of a move away from hotels and staying in quaint properties,” he says.

“So, I then built a model to estimate how much income my apartment would generate compared to the cost of operating and paying the rent. And there was a big difference in difference, like a pretty good margin. “

After the bookings began to roll in, Davidson did his best to ensure guests enjoyed their stay. He will greet them with a bottle of wine and even service their cars themselves to offer the luxury of a hotel stay, in addition to the more local, authentic experience that accommodation in an apartment entails.

Davidson also thought the part-time business had room to expand because he knew many other McGill students who did not use their apartments during the summer. And his experience proved that there was a solid market.

After discussing his first summer five-figure income, Davidson doubled the part-time concert the following summer by enlisting a partner with fellow student Lucas Pellan, who helped him score at other McGill students’ apartments. With the expanded model, they brought in nearly $ 60,000 in income that summer (with about $ 23,000 of the amount used to pay rent on the apartments, and the rest was the profits that Davidson and Pellan could share with the other students).

“I also did full-time summer classes to speed up my degree,” Davidson adds. “So it was a good concert.”

A year later, Davidson and Pellan moved into more student apartments in Montreal and ten other cities. Davidson posted job postings online, looking for ‘entrepreneurial students’ in other cities who wanted to make money by following his money-making model by doing subletting.

The model was simple enough that Davidson could write it all down – from the websites where he listed apartments and the prices he would ask, to some of the benefits he would like to offer – and passed on the instructions.

‘I actually just wrote down in a PDF what I did to make it happen in Montreal, and shared it with a bunch of other entrepreneurial students and then shared the profits with them, and that’s how we managed to get in.’ a lot of cities to work without capital, ”explains Davidson. “It was basically just saying, ‘Here’s what I did and let’s split the profits.’

“I did the bookkeeping myself in a spreadsheet and accounting software,” he says.

That summer, the revenue from the side performances reached within the six-digit range, bringing the total revenue over three summers to more than $ 1 million.

At that point, Davidson could see that he had more than just a ‘cute summer business’ on his hands. “I was definitely completely committed at that point,” he says.

In the fall of 2014, Davidson and Pellan brought their new venture, then called Flatbook, to a local tech accelerator in Montreal called FounderFuel.

There, Davidson is starting to get excited about the prospect of transforming his summer bustle into a full-fledged, global “hospitality brand” that will combine the mobile booking and diverse accommodation options of other alternative rental companies like Airbnb or Home. Away with the quality and convenience of a reputable hotel brand, like Hilton, he says.

He does this by working with property developers and landlords to rent apartments, or even entire buildings, to rent out the units for short-term rentals via a proprietary app. Each unit has a full kitchen and lounge setup, allowing the business to provide the convenience of short-term apartment accommodation with the quality assurance required by a hotel aircraft.

Davidson admits his overall vision for the company was’ pretty outrageous’, even from that early point: ‘It was like,’ Hey, we think we can make a revolution for hospitality, ‘”Davidson said. that his goal is always ‘for most people to have experiences that feel really luxurious without having to break the bank.’

The prospect helped Flatbook, which later became Sonder, in February 2015 raise a $ 6.5 million seed investment from a group of venture capital firms led by BDC Venture Capital and Real Ventures (the firm behind FounderFuel).

By this time, however, Davidson had devoted so much time to setting out his business plans that in a few months he would have barely attended any of his classes.

“I tried to make it to the finals, and failed my most mathematically challenging class, [Honors] Econometrics, ” says Davidson about an advanced class he took as an honors economics student.

Eventually, Davidson left school with only one semester left. He remembers his mother suggesting that he should ‘probably’ study at some point, but at the time he was so set on his plans that he would always follow his gut.

‘I honestly do not even know if [my parents] tried to convince me not to do it, it was just like in the decision-making process, ”he says.

Davidson and Pellan poured their millions of dollars into seed money to hire employees to expand the technology platform for Sonder’s online bookings and begin the process of renting real estate to offer rental units. In 2016, they moved the company to San Francisco, to gain access to a larger pool of technological talent and to be closer to the wealth of venture capital money in Silicon Valley. (That year, Without raised another $ 11.1 million from VC firm Spark Capital in San Francisco, followed by another $ 32 million from Greylock, another Bay Area firm, in 2017.)

Since then, the company has grown steadily, reaching a $ 1 billion valuation by 2019. At the time, the company said it was approaching $ 400 million in revenue annually. However, the 2020 coronavirus pandemic shook the world economy, and the hospitality industry was particularly hard hit as tourism and business travel declined.

Last year was ‘the hardest year for us’, says Davidson. ‘It was difficult, I think, for many people, and especially the hospitality [and] travel industry. ‘

Indeed, in March 2020, Sonder had to lay off more than one-third of the then 1,100 staff members of the company or lay off more than 400 people. (At that time, bookings in the hotel industry dropped by 70%, and a report by the American Hotel & Lodging Association estimates a 50% drop in total revenue for the industry by 2020.)

Davidson did not want to discuss specific revenue totals for 2020, but he said in December that ‘the business in terms of revenue is about where it was at this point before Covid’, despite the fact that Sonder added more properties over time and the expected revenue will continue to climb.

However, Davidson also says that Sonder was ‘very happy’ compared to many competitors, thanks to some strategic decisions the company made in 2020. Without, for example, in March last year, a new marketing campaign was launched with discounts on properties with a long stay of two weeks or longer (previously the average stay at a Without unit was four to five nights) to take advantage of the fact that the remaining travelers are more likely to book longer stays in the pandemic, Davidson says.

Hotels with longer stays performed better than the rest of the hotel industry in 2020, while sites like Airbnb and Vrbo also outperformed their traditional counterparts in the industry, and people booking holiday homes to get away during the pandemic.

As a result, Davidson accounted for about 80% of Sonder’s 2020 revenue, and the discussions helped Sonder boast an occupancy rate of about 80% on his thousands of offers around the world. This has been favorable compared to the rest of the hotel industry, where occupancy rates fell by more than 50% in 2020, he says.

Meanwhile, with so much emphasis on social distance, Davidson says Sonder has also benefited from the fact that the company offers social services, such as online sign-ups and a virtual concierge service.

That relative success enabled Sonder to re-employ a number of people who were on the road later in 2020, Davidson says.

Sonder also achieved a win in June 2020, when the company announced its latest fundraising round, with an additional investment of $ 170 million led by Fidelity, WestCap and Inovia Capital, which valued Davidson’s start at $ 1.3 billion .

Davidson says the investment round in the midst of an extremely difficult year felt like a “big vote of confidence” and provided a “big boost to the team.”

Davidson and Sonder are now set to introduce more and more properties for rent to put the company in an excellent position to expand its share of the online booking market for accommodation once Coronavirus fears and travel restrictions hopefully in 2021 and 2022 will relax.

“We think our future is just as promising as last year or last year,” he says.

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