Credit crunch, what credit crunch? HomeAway, an online vacation rental marketplace, has just raised a quarter of a billion dollars in a VC funding round, the biggest of its kind for an internet company in eight years.
With a financial crisis, VC money getting scarce and start-ups cutting jobs and costs, the funding is not only enormous, but counter-cyclical as well.
Yet HomeAway seems to be a special case. It was founded in 2005 and has set about consolidating the hugely fragmented market of vacation rentals, with the aim of becoming an Expedia or Orbitz-type aggregator in this sector.
It raised $49m initially from Austin Ventures and Redpoint Ventures and used it to pick up five rivals. A $160m round in 2006 funded the purchase of VRBO.com and HomeAway now has 11 vacation rental sites in its portfolio.
Owners typically pay $300 a year to list their properties on its sites.
The new funding will be used to wipe out its debt from acquisitions of $88m – a wise move in these debt-crunched times – as well as fund deals for other sites, who may sell themselves cheaply in a recession. There will also be more spent on marketing, with HomeAway still far from being a household name.
Brian Sharples, chief executive, says HomeAway had the right characteristics to attract competition among venture capitalists to fund it:
“We will do just under $100m in sales this year, we’re cash flow positive and quite profitable, 40 per cent of our revenue comes from outside the US and it’s a fairly predictable subscription-based business,” he says.
In addition, he points to research that the market is worth an estimated $48bn in the US, UK, Germany and France combined and says more owners of second homes are likely to want to rent them out in a recession.
Jeff Brody, a founding partner at Redpoint Ventures, says HomeAway is clearly a category killer and a large fundraising round is a good strategy, particularly at a time when no one is interested in new flotations.
“I do believe you will be seeing more substantive later-stage rounds in companies that ordinarily would be public by now and a lot of that has to do with the fact that there are committed pools of capital for late-stage investing that is not going away, so the best deals are being actively sought,” he says.
“We’re seeing a flight to quality. Those companies that have exceptional financial metrics and opportunities in front of them are much less impacted by the valuation corrections and the deleveraging that you’re seeing across the board.”
There is no valuation available based on the new investment round but the size of the commitment from Redpoint, Institutional Venture Partners and Technology Crossover Ventures (TCV) suggests the VCs view HomeAway as eventually being in the same league as another TCV investment, Expedia, which currently has a market capitalisation of $2.4bn and forecast revenues this year of $3bn.
