Four European entrepreneurs put ?€3,000, all they had, into their digital start-up which rents out long-term accommodation to students and professionals.
Just 18 months later, they had secured €1.1 million in funding, and had grown from seven employees to 100, from a handful of properties to more than 4,000 across the EU.
Alejandro Artacho is CEO and founder of rental site Spotahome, which specialises in long-term accommodation. He spoke to EURACTIV deputy news editor James Crisp. You can listen to some of the interview on Soundcloud or read the full transcript below.
How is your website different to Airbnb? And why did you set up Spotahome?
That’s more for travellers, the marketing is aimed at holidaymakers, tourists, short-term stays. As for Spotahome, I hate viewings, and we’ve seen that a lot of people feel the same and hate wasting their time on them. Bringing that offline experience online solves that problem.
Are you attempting to have a disruptive effect on the industry? How has the real estate industry reacted?
There are some smart real-estate agents that work with us, others see us as a threat. They need to adapt and modernise. The former work with us because they realise they can save money and the value of their company subsequently increases. As we give them more time to get more properties, their portfolio expands. We’re a marketing platform.
Uber is often held up as a disruptive influence on the market and has been controversial.
I see us more like Booking.com. The hotel lobby didn’t go against them and it is actually helping the industry.
Real estate is traditionally not digital. Will there be a point where the ‘digital economy’ is just the economy?
I think so. Definitely.
How old is your company?
You’ve managed to secure access to finance. How did you get it?
We’ve managed to secure finance three times. We left our jobs in February, launching a primitive website, working out of one of our apartments, struggling to find money for rent. We spent all of our cash on photographers to go to the properties and catalogue the interiors!
In March, we properly launched and had our first booking almost immediately, a 15 month let, which made us a lot of money but that went straight to our service providers.
We had initial concerns that people wouldn’t commit to a let without seeing the property in person, but it hasn’t been the case. After our initial success, three to four weeks after our first bookings, we organised a meeting with venture capital investors in London.
All in all we’ve raised about €1.1 million in investment in a year and a half. We showed that our business model works and we went from a handful of properties to about the 4,000 we have today. We started with nine properties and with a team of seven people. It’s about 4,000 properties and 100 people currently. There are four founders and we put everything we had into this, around €3,000.
We took very little salary and our expenses were very low. I was lucky enough to have friends that were willing to let me sleep in their floor! Eventually, family and friends believed in us and invested €125,000. That saw us through until January, when we secured two more rounds of venture investment. Five months later, a third fund joined us.
In order to get that funding, did you have to give up some equity? How do you keep control of your baby?
Growing the business and making it more valuable is what we are interested in. There’s a vicious cycle of needing money to grow and needing to show growth in order to get money. Finding a balance is crucial, showing enough growth to get investment and hold on to enough equity.
For the investment from friends and family, we drew up contracts that delayed the valuation of the company until the next form of investment was found. Then we issued them with shares. This is to reward the increased risk they took. That strategic movement allowed us to increase our value and hold onto about a third more of the company than we would have under normal circumstances.
Did you ever consider crowdfunding?
Venture investors are partners. We try to choose serial entrepreneurs with a global outlook and contacts, who can network. It’s not just about the money. It’s about the people you get in your team.
Do you think EU money should be used to support private companies?
Since we are creating jobs, yes.
Are you worried that controversies like Snowden and Safe Habour could lead to toward data protectionism in Europe?
Yes. I’m worried. We need to respect consumer data, but we need a balance. If it gets to a point that this lowers the quality of services and limits us, then it’s something to be concerned about. If it doesn’t, I’m happy.
How could policymakers have made it easier for you to start up your company?
We have a holding company in the UK because it is more flexible and easier to get capital than in Spain. I would tell the Spanish government to make things more flexible when it comes to new companies, lower costs, decreased bureaucracy etc. In Spain, you’ll spend at least €1,000 initially on pretty much nothing. Why not make it free? We’re going to create jobs in the end. When we expanded into Italy, we spent a lot of time figuring out VAT regulations and costs. This all hinders the process of a starting a company.
How does the EU tech-sector compare to China – a place where you have lived and worked?
In China you need a lot of connections, while in Europe it’s more about what you do, the product etc. There’s a constant fear among European start-ups are going to launch and expand into China. Once you’re there what do you do? Go it alone or seek out connections with the government? If you partner up with a Chinese company, how do you protect yourself?
Is this something the EU can help with? By pushing for changes in international negotiations?
Look at the US, its talking more and more with China. It’s a big market for all of us.