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VENTURE CAPITAL

HomeAway scores $250 million, competitors warned

By John Cook on November 10, 2008 at 10:10 PM PST

Comments (8) | Permalink

Venture capital | Web | Escapia | SecondSpace | Zillow

One might think that a provider of online vacation rental properties wouldn't be faring well in this tough economy. Don't tell that to the investors who just plopped a whopping $250 million into HomeAway, the profitable Austin, Texas-based company that operates a directory of more than 115,000 vacation properties.

The Wall Street Journal says it is the largest venture deal in the country in the past eight years. And it quotes HomeAway investor Todd Chaffee who says the funding is "a statement of 'game over' [for competitors]."

That might not sit well with Seattle area rivals Escapia and SecondSpace. But on a positive note, at least HomeAway says it plans to use some of the capital for acquisitions.

Still, Escapia and SecondSpace will have to figure out new ways to survive against the financial behemoth. SecondSpace faces the bigger challenge, since its ResortScape business competes directly with HomeAway. The Bellevue startup, which is backed by Ignition Partners, also recently encountered some rough patches with layoffs, a lost contract and the departure of its CEO.

The lead investor in the HomeAway deal -- Technology Crossover Ventures -- has ties to Seattle's Internet industry. It was a big backer of Expedia, the Bellevue online travel agency. And it is among the investors in Zillow.com, the Seattle online real estate startup that has raised $87 million.

Founded in 2005, HomeAway has raised more than $455 million. That compares to the single digit millions raised by SecondSpace and Escapia.

Bill Furlong said:

on November 11, 2008 at 6:44 AM

Thanks for your coverage of vacation rentals, John. As CEO of Escapia, I am always glad to see investors place significant bets on the vacation rental industry.

Escapia takes a different approach to the vacation rental business than HomeAway. While HomeAway focuses on letting owners rent their units direct (think FSBOs in home sales) with a classified ad on the HomeAway network, Escapia targets the other half of the industry that is managed by professional vacation rental managers. Our solution focuses on providing the best web hosted software used by rental agencies to manage and market their rental units. And instead of classified ad listings, we provide a commission-based pay for performance distribution network with over 30 distribution partners (including our own site, www.clearstay.com). Our solution leverages the back end to make vacation rentals easy to find, easy to book with great prices and guest reviews so you can find a great place.

So, while HomeAway does have a formidable bank account and owns the rent-by-owner business, we're the leader on the property manager part of the business. And we're convinced that the latter holds the promise that consumers expect in online travel.

Thanks again for the coverage of the industry.

Bill Furlong
CEO

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Satbir Khanuja said:

on November 11, 2008 at 1:06 PM

John- Quite a round by HomeAway. They deserve congratulations! I would, however, like to point out that SecondSpace and our ResortScape.com property are not “rivals,” nor do we “compete” with HomeAway.

There is a big difference in our businesses: HomeAway is a vacation rental service, while SecondSpace’s ResortScape.com and LandWatch.com are Web destinations where people buy, not rent, their home away from home.

I hope this clarification is helpful and, again, congratulations to HomeAway, as this round demonstrates the incredible opportunities online in connecting consumers with services they desire.

Satbir Khanuja
CEO- SecondSpace Inc.

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John Cook said:

on November 11, 2008 at 4:22 PM

Thanks for the clarification. I would be interested to know if each of you anticipate HomeAway moving more onto your turf given the recent capital infusion.

I would think that selling rental properties would be a natural next step for HomeAway.

Thanks again for the comments.

John Cook

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Lou Gray said:

on November 12, 2008 at 10:08 AM

John,
$455M? "Game over?" Not a sign of victory to me.

You once wrote about the possibility of an inverse correlation bw amount of $ raised and success -- that would seem fitting here as well. With such a huge infusion of capital, HomeAway runs the risk of having public company trappings. Put another way, without a dominant public company as their competition, HomeAway becomes the less innovative/nimble public-company-like target of highly focused start-ups.

Another thing: if a 5X return on investment is a double up the middle, does HomeAway really expect to deliver a $2.3B liquidity event to their investors, let alone a $4.6B homerun (sounds like gov math to me)!? Never mind the recruiting nightmare this must be in the face of entrepreneurial common shareholders that come to start-ups for the promise of a real return on their sweat equity.
But hey, at the very least, I’m glad to see that investment $s are still flowing . . .

Lou Gray
CEO, DreamBox Learning
www.dreambox.com

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John Cook said:

on November 12, 2008 at 10:35 AM

Lou,

Good points.

That is true. Massive rounds of capital do not guarantee success as we have seen before with companies such as Teledesic, HomeGrocer, Terabeam and Metawave.

These folks certainly are swinging for the fences. I've also noted that swing-for-the-fence mentality before with Zillow.com. It is backed by $87 million from a number of investors including TCV, which is placing the bet on HomeAway.

It will be interesting to watch.

John Cook

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Tracy Lotz said:

on November 22, 2008 at 8:21 PM

To Lou's point LiveRez (http://LiveRez.com) is a highly focused and lean start up in Eagle Idaho with nearly 15 years of experience in the Vacation Rental space. We are self funded and highly motivated to compete in the VRMC (Vacation Rental Management Company) space. The view from our office is Idaho St. HWY 44 and 18 Wheelers, not the Seattle Skyline. We got all of our desks at the used desk store. To say we are lean and hungry would be like saying that King Kong was just another Monkey.

With all due respect to Bill Furlong there is no company in the VRMC space that dominates like HomeAway dominates the VRBO market. First things first, along with their recent funding HomeAway is a profitable company. Secondly Instant Software, not Escapia has by far the most VRMC customers in the space.

While LiveRez is a Boise area company we have several Seattle connections. Former Microsoft, Visio and Frazier Technology Venture veteran Gary Gigot has been instrumental in the direction of the company and Seattle's Altus Alliance team members Dave Chase and Bill Lawler have had been a great help with our sales and marketing efforts.

HomeAway is far and away the leader in the VRBO space. The VRMC space is up for grabs.

Cheers!

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Tracy Lotz said:

on November 22, 2008 at 8:21 PM

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Dave Hopcroft said:

on January 12, 2009 at 1:47 PM

I watch with interest as companies burn through VC money.

Instant Software has installed more than 2,000 software solutions for clients and is currently the largest software supplier in the Professionally Managed Vacation Rental market - our online solution has transacted more than a billion dollars in reservations over the last 3 years.

As the CEO of Instant Software - the one thing I can attest to, as a certainty, is that there are no shortcuts in this industry.

In the years it took us to attain the position of market leader, we did so without any VC money. I could have taken the easy route of using other people's money.... but then I might have had taskmasters with, perhaps, different agendas - we remained focused on our clients.

VRBO is different, the "Pay to Play" (sorry couldn't resist) to VRBO clients is a minuscule compared to the investment of a PMC.

You can't 'just throw money' at the PMC market, it takes time to build a reputation, it takes a stellar product and it requires the trust of the Management Companies.

I wish HomeAway the best for their future - but I would caution people who do not differentiate between the two segments of this industry.....

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