Co-living startup Zolostays Property Solutions (Zolo) is in early-stage talks with growth investors to raise up to $100 million for its Series D round through a mix of equity and debt options, according to a top company executive.
“We will use the fresh funding to expand our coverage into new cities and we’ll be looking at a couple of acquisitions in the co-living and student housing segments. Additionally, we are looking to expand into international geographies including South East Asia and the Middle East next year,” said Nikhil Sikri, chief executive of Zolo in an interview.
Zolo had last raised $56 million in a Series C round led by Investcorp, Nexus Ventures Partners, Mirae Assets and existing investor Trifecta Capital as well. Other investors in the company include Alec Oxenford, founder of OLX, Chennai-based Olympia Developers and Patni Computers Family Office. To date, Zolo has raised around $90 million in financing.
Zolo was founded in 2015 by Sikri, his wife Sneha Choudhry and his brother Akhil Sikri. The trio was earlier working on an edtech named called Augbrain in 2014-15. However, the trio decided to enter into managed housing segment after discovering that the paying guest accommodation space did not meet consumer needs in terms of quality and service.
Zolo began expanding into space in 2015 and today it has around 50,000 beds across 300 properties in 13 cities. Sikri told FE that the start-up is now targeting to hit 100,000 beds by end of 2022.
Currently, Zolostays offers both shared and private rooms for rent on its platform. It works with both property developers and owners on a revenue-sharing model and leased model. Sikri said that the demand for private room housing has soared post the pandemic, and is expected to double in the next year.
The co-living segment has witnessed a healthy resurgence in demand especially as several IT companies and tech startups have begun moving employees to office spaces, putting an end to the work from home trend. Sikri said that after the first wave of the Covid-19 pandemic in 2020, the occupancy rate at Zolo’s properties recovered by around 68%. For FY21, Zolo closed its financial year with a revenue of Rs 54 crore.
Apart from just a fully managed room, Zolostays also provides amenities like WiFi, housekeeping, repairs & maintenance, food service, and DTH connections at its properties which is included in the monthly rent. However, despite acquiring customers in their early career cycle, the average lifetime value (LTV) of a Zolo customer is only around 3-3.5 years, according to Sikri. To improve this number, Zolo is considering expanding into family housing options in the near future.
Besides shared living spaces, the co-living market has been increasingly focusing on offering fully managed apartments and independent buildings on rent by directly tying up with individual owners. With dwindling rental yields and large amounts of inventory lying unsold in the real estate segment, co-living startups have been looking to onboard these unsold properties.
“In the co-living segment, the life time value (LTV) of a user is below 3 years, but the internal rate of return (IRRs) for a property owner on Zolo is still handsome 20% above the current rental market. However, we have started looking into providing different products to increase the lifetime value of the same customer by launching family housing or fully managed homes,” added Sikri.
Investors are also turning bullish on the co-living and managed housing segment with Zolo’s biggest competitor Stanza raising $57 million in debt financing led by Kotak Mahindra Bank and RBL Bank, last week. Another Delhi-based co-living startup Your-Space had secured $10 million in its Series A round of funding led by Shantanu Rastogi of General Atlantic, Ajay Gupta’s family office Ajax Capital and Holy Basil Consultancy Private Limited in January 2022.