Growth Capitalism: WeHostels Case Study – Building A Startup That Will Attract Strategic Buyers
In November 2013, youth travel app WeHostels announced that it had inked a deal to be acquired by StudentUniverse, one of the leading global players catering to student discount travelers. The news was greeted with excitement across the Latin American technology community given the company’s deep roots in the region. A graduate of Start-Up Chile and the NXTP Labs accelerator program, its investor base includes a number of venture capital firms and individual investors who are highly active in Latin America. Moreover, both CEO Diego Saez-Gil and Co-Founder Alex Torrenegra are Endeavor entrepreneurs.
As an investor in WeHostels, I couldn’t help but recall a time when such an exit was only a pipedream. I distinctly remember the early days of my career as a venture capital investor when strategic acquirers were elusive. At the time, the firm where I was working had invested in a booking engine called Viajo.com with the feeling that either Expedia or Travelocity would eventually buy the company. That, in fact, never happened. After the dotcom crash, Viajo eventually merged into Despegar, which remains an independent (and very successful) company. Neither Expedia nor Travelocity has bought its way into Latin America, at least to date.
The playbook for companies during the first wave of Latin American startups was relatively simple. Build a local version of something that works elsewhere and then sell out when the timing makes sense. Today, companies such as WeHostels don’t sit around with hopes of being acquired. Instead, many companies from the region today have a strong presence in Latin America but are building products for a global audience that should one day attract global strategic acquirers.
Yet, for every WeHostels, there are hundreds of startups that will not attract strategic interest. The acquisition by StudentUniverse was not the result of serendipity. Rather, I believe that the StudentUniverse deal came as a result of several key strategic choices that helped it to distinguish itself from the very crowded marketplace of travel startups and apps.
1. Pack Your Bench With Winners
One of the things that impressed me about WeHostels when I first met Diego and Alex was the quality of the company they were keeping. In the first months of the company’s life, WeHostels amassed a number of crucial relationships, such as those with Start-Up Chile and NXTP Labs. With those in place, the team made a strategic decision to raise capital from a group of investors that included two critical factors. First, the group was geographically diverse, with investors from the United States, Europe, and Latin America. Second, the group included investors with early stage investing experience, knowledge of the travel industry, or both. A number of the individuals who wrote checks to WeHostels were seasoned travel industry executives who understood the vision of the company and could actually work to promote its interests in their networks across various geographies.
2. Take Calculated Risks
In the summer of 2012, WeHostels erased its website. The decision was not capricious, but rather was based on data that showed organic traffic to mobile was growing 3x faster than desktop traffic. Moreover, the team believed there was a distinct advantage to focusing on mobile and the competitive landscape showed that there was ample room for improvement. Given that reality – as well as the need to focus both management energy and capital – WeHostels decided to exclusively commit to a mobile strategy. While this move seemed slightly audacious at the time, it was based on data, as well as a careful read of secular trends in the consumer tech space. Still, it required a good dose of conviction to make that decision. In the end, the move to mobile paid off. WeHostels positioned itself as a mobile-centric travel company and a natural acquisition target for companies looking to build out stronger mobile capabilities. The headline from PandoDaily on the day of the acquisition says it all: “Web 1.0 travel site StudentUniverse buys its way into mobile with WeHostels deal.”
3. Build Credibility in Your Industry
Even though WeHostels raised capital from a collection of boldfaced names in the travel industry, the team worked to further raise its profile in the travel space. This initiative fell squarely on the shoulders of Diego Saez-Gil, who traveled the globe to build the company’s brand. He also built bridges with the universe of companies that could either partner with or potentially acquire the company in the future. His efforts were helped in 2012 when the company was named the “Most Innovative Travel Startup of the Year” at the PhoCusWright Conference. This honor, along with sustained efforts to remain on the radar screen of all of the relevant industry players, ensured that WeHostels continued to be top of mind.
4. Run Lean, With Zero Ego, & Be Persistent
Beyond these critical elements, the success of the WeHostels team can also be attributed to a combination of execution, focus, attitude, and heart. The best way to attract a strategic acquirer, beyond having an excellent product, is to build the kind of team that a buyer would be proud to integrate into its organization.
The WeHostels story showcases both lessons and inspiration for the legions of startups that are coming out of Latin America. It’s also hopefully a sign of times yet to come. Less than two months after the WeHostels acquisition was announced, Comenta.tv, another NXTP alum, revealed that it had been acquired by Denver-based Wayin. I’m not sure what they’re putting in the water over at NXTP Labs, but this acquisition, also by a strategic player, highlights one indisputable fact: Latin American born startups are building technology-based products that are attracting buyers from outside the region.