The pandemic has made many property owners reevaluate their relationship with their properties and how to manage inventory. Property owners are increasingly shifting their offerings to the hospitality side to optimize revenue streams. For travelers, the destination of choice used to be Airbnb for short-term rentals but consumer frustration with the platform has increased leading to opportunities for other companies in space. Kasa Living is a hospitality operating system that allows property owners to provide upscale accommodations in multifamily apartment buildings, single-family homes, and boutique hotels to travelers who are looking for an enhanced and consistent guest experience. By integrating a technology-first approach into the operations process combined with introducing simple but desired amenities, Kasa has been able to increase property profitability by over 50% for owners. The company is capital efficient as it does not assume leases but instead operates the properties on behalf of the owners, collecting a revenue share for providing end-to-end services like customer service, revenue management, corporate sales, housekeeping, distribution management, and accounting and finance to the owners. Kasa operates properties on behalf of some of the leading property owners including Greystar, AMLI Residential, and Starwood Capital as well as local hospitality investors and developers across the country in cities like New York, San Francisco, Alexandria, Austin, Atlanta, Dallas, Denver, Ft Lauderdale, Los Angeles, and Miami, Nashville, and Scottsdale to name a few.
AlleyWatch caught up with Kasa Living CEO Roman Pedan to learn more about the business, the company’s strategic plans, latest round of funding, which brings the company’s total equity funding raised to $126.3M, and much, much more…
Who were your investors and how much did you raise?
Kasa just announced our $70M Series C fundraise. Citi Ventures and FirstMark Capital led the all-equity round with participation from new investors New York Life Ventures and Fireside Investments. All major existing investors including RET Ventures, Zigg Capital, and Ribbit Capital participated in the twice upsized and oversubscribed round.
Tell us about the product or service that Kasa Living offers.
Kasa has built the industry standard end-to-end hospitality operating system, seamlessly combining technology with operational expertise to enhance the experience for today’s modern travelers while simultaneously improving profits for owners. Kasa operates a diverse range of over 70 investor-owned accommodations, including multifamily apartments, single-family homes and boutique hotels in 43 U.S. cities and growing. Kasa consistently improves property profitability by >50% and uplevels property review scores meaningfully across a wide range of channels. Kasa operates the number one rated properties in their category on Tripadvisor in Seattle, Chicago, Denver, and Austin, as well as top-5 properties in San Francisco and Pittsburgh.
What inspired the start of Kasa Living?
The idea to start Kasa germinated when I first heard of Airbnb in 2010 and was also working as a hotel and apartment investor. The concept seemed like it answered an unmet need from travelers, yet it itself was imperfect.
As an owner, I noticed that most hotels were using archaic on-premises operational technology and were not adapting to serve an increasingly digitally native consumer. At the same time, apartments that were built with hospitality-oriented physical programming in mind (think luxury cabana laden pool decks, co-working lounges, and fully equipped gyms) were simultaneously banning Airbnb from their properties due to trust & safety concerns for other residents. Something had to change.
I started Kasa while attending Stanford Business School to solve these problems for guests and owners alike. We deliver a reliable experience to guests, since we control the experience end-to-end while guaranteeing trust & safety to owners through a robust set of proprietary security tools.
Starting Kasa while I was still in school meant leaving in the middle of class to answer calls from guests and maxing out a credit card to buy furniture. From sleeping on the floor of our first Kasa apartments and assembling Ikea furniture before our first guest showed up, to becoming the industry-standard operator for institutional property owners and guests seeking tech-enabled hospitality like no other, I’m humbled by how Kasa has continued to evolve. And yet we recognize that we are still very much at Day 0.
How is Kasa Living different?
Kasa has the proven ability to dramatically improve property profitability by >50%. Our unique mix of technology and high-touch service enables us to deliver great guest experiences at far lower operating costs than a traditional hospitality business model.
Other companies that have tried to innovate around how real estate assets operate (like WeWork) have grown by signing long-term leases with their properties. We have taken a different approach which mirrors the one taken by Hilton, Marriott, and Hyatt. We sign management agreements in which we charge a percentage of the revenue that we generate for our owners.
This means we pass along the increased profit that we generate to our owner partners without taking the growth-at-all-costs long-term lease risk which has been the Achilles heel of others. It also means that in order to succeed, we need to deliver outstanding results to our owner partners. When we do, we build true net promoters of our partners which fuels our supply-side expansion.
Overall, this perhaps subtle difference in business models – signing leases vs. signing service agreements – has had a profound impact on the way we have built our product, how our unit economics and risk look, and what our growth says about the outcomes we drive for our partners.
What market does Kasa Living target and how big is it?
Kasa uses technology and operational expertise to deliver seamless stays to all kinds of travelers. From families looking for a fully furnished 2-bedroom apartment, to business travelers looking to check-in without waiting in line at a front desk, our properties are great for any type of traveler. We find synergy with property partners who seek strong financial results without sacrificing quality, as is evident from our high guest review scores across platforms like Google and Tripadvisor.
The ultimate end market that we have the ability to serve over time is so large that it almost is irrelevant as a constraint to the business for the foreseeable future. The broader hospitality market is measured in the multiple trillions, and even the very narrow niche of US-based properties across apartments and boutique hotels that we target measures in the hundreds of billions in market size.
Our focus has actually been conversely on making the world smaller and defining niches of properties in which we can dominate as the industry standard.
What’s your business model?
Kasa manages and operates tech-enabled, professionally managed flexible accommodations on behalf of investor-owned properties. Kasa can flexibly partner across a diverse range of property types depending on owners’ needs including multifamily properties, boutique hotels, and investor-owned vacation homes. We handle every part of the end-to-end hospitality operation for the owner. This includes managing customer service, revenue management, corporate sales, housekeeping, distribution management, accounting and finance, etc.
We get paid a fee equal to a percentage of the revenue that the properties that we manage generate and the owner reimburses us for any property-related operating expenses that we incur.
How are you preparing for a potential economic slowdown?
We have reached a point where our core operations are profitable. We raised money to invest in discretionary high ROI projects which make our product either deliver more profit to our owner partners or create a better guest experience for our guests. We are able to dial our investment up or down as market conditions change. This allows us to control our own destiny which is crucial ahead of an economic slowdown.
We also in many ways are a product that can do better during periods of market dislocation. On the guest side, because we lower the costs of operating hospitality, we can often win on price to the guest while still delivering superior profitability to the owner. On the owner’s side, times of market stress mean owners are in greater need of solutions like Kasa, since we help owners greatly lower their cost structures. This greater need serves as a tailwind for our growth.
Finally, our fundraise positions us with the strongest balance sheet in the industry. In downturns, cash is king, and those who have it are able to better exploit opportunities that may be out of reach by others who do not. We hope to be able to use this balance sheet strength to our advantage in the case of a downturn.
What was the funding process like?
It’s a tough market but we have only ever fundraised in difficult markets. In some ways, we’ve trained in the hardest gym of fundraising environments, and were ready for this period.
We signed our term sheet for our Series B in July 2020 when it was unclear if travel would ever return again. We raised our Series A as WeWork was failing in its IPO and many investors were incorrectly pattern-matching our company to theirs. And we raised our Series Seed during the first round of quantitative tightening in December 2018 when the Nasdaq sold off by >17% in a month.
Hard and constrained times make for gritty, hardened, and creative companies, and while the environment was difficult, we felt validated that the distinctiveness of our story shone through.
What are the biggest challenges that you faced while raising capital?
Hearing “no” about our life’s work is always a gut punch. And no matter how a fundraise goes, you are bound to hear “no” a lot. But while it stings at first, it can be a moment of learning and motivation. We made a point to solicit as much and as detailed feedback as we could from any rejection across each of our rounds. This has helped us hone our model and strategy over the years. And of course, every rejection is an opportunity to fuel the never-ending fire to prove them wrong.
Spending time on fundraising takes away focus from day-to-day building of the business and the joy of serving both our owner and guest customers.
Bridging the gap for investors between the complexity of the mechanics of our business with the simplicity and coherence of our strategy, narrative and vision.
Demonstrating the profound difference in financial performance, risk, and underlying business dynamics between our management agreement-based business model and the lease-based model that has caused companies like WeWork to falter.
What factors about your business led your investors to write the check?
We’ll share three important factors among many:
Our success in increasing profitability after taking over properties has earned us the trust of the most discerning real estate owners and attracted interest from a consortium of real estate investors. These partners have dedicated over 1.5 billion dollars to date to invest in real estate powered by Kasa, setting the stage for rapid, capital-efficient expansion. This not only makes our path to growth very obvious but also establishes us as the industry standard provider for the sector.
Kasa’s ability to serve multiple property types at a low-density, increasing their profitability means Kasa can operate in more unique (and a higher number of) locations. Our unique blend of technology and operational expertise makes Kasa the industry standard operator allowing us to provide guests with more distinctive and underserved locations outside of the traditional “big box” hotel clusters.
The marketplace dynamics of our business have some unique characteristics. First, the mechanics of our business model lead to negative CAC on both the demand and supply side. Second, we have been demonstrating early empirical signs of strong barriers-to-entry in the business, including early brand and network effects, among others.
Our success in increasing profitability after taking over properties has earned us the trust of the most discerning real estate owners and attracted interest from a consortium of real estate investors. These partners have dedicated over 1.5 billion dollars to date to invest in real estate powered by Kasa, setting the stage for rapid, capital-efficient expansion. This not only makes our path to growth very obvious but also establishes us as the industry standard provider for the sector.
Kasa’s ability to serve multiple property types at a low-density, increasing their profitability means Kasa can operate in more unique (and a higher number of) locations. Our unique blend of technology and operational expertise makes Kasa the industry standard operator allowing us to provide guests with more distinctive and underserved locations outside of the traditional “big box” hotel clusters.
The marketplace dynamics of our business have some unique characteristics. First, the mechanics of our business model lead to negative CAC on both the demand and supply side. Second, we have been demonstrating early empirical signs of strong barriers-to-entry in the business, including early brand and network effects, among others.
What are the milestones you plan to achieve in the next six months?
We are constantly opening properties across the US. Look out for multiple openings coming up that will be added to the Kasa platform in the coming 60-90 days.
We are also constantly improving our platform to improve profitability for owners and the guest experience. One improvement we have rolled out that affects both is AI-powered guest communications which assists our team in handling >50% of guest interactions. It leads to less expensive operations for owners and faster, crisper, and more accurate responses to guests.
What advice can you offer companies in New York that do not have a fresh injection of capital in the bank?
Do whatever you can to control your own destiny and try to focus all of your energy and resources on the absolutely most essential elements of your mission. Sometimes you don’t know something isn’t essential until desperation induces you to focus away from it. Of course, this is all easier advice to give than to follow when actually in the arena.
Where do you see the company going now over the near term?
We have a very simple approach and we intend to intently focus on it. Every day, we work to make our owners more profit, our guests have better guest experiences, and to open up more properties so guests can experience us in more locations. That simple formula is going to be our focus for the foreseeable future. We are building into a massive market so it’s a simple formula that can lead to great impact and value.
What’s your favorite fall destination in and around the city?
A staycation at one of Manhattan’s best hotel properties, Kasa Lantern Lower East Side. 🙂
