Venture Capital Legend Tim Draper Looks to Franchise Hostels

Tim Draper, the venture capitalist who made his fortune through investments in early internet hits like Hotmail in the 1990s, is backing a new accommodation startup that has big ambitions.

Draper Startup House, the eponymous chain of 30 hostels across 25 countries that caters to both entrepreneurs and investors, offering them workshops, a digital community and funding opportunities, was founded in 2018 but took on the veteran investor’s name in late 2019 after the 64-year old billionaire reached out to founder Vikram Bharati.

Bharati, a former banker, originally called his business Tribe Theory, and now plans to scale the hostel network by using a franchise model. It’s so far helped 35,000 companies around the world through its network, but he wants to ramp that up to a million by the end of the decade.

The Rise of Entrepreneurial Tourism

Bharati said he developed the idea for Tribe Theory after traveling and spending time in hostels after leaving his job at JP Morgan in 2014. As an older backpacker he said he saw things differently.

“I realized I loved the culture, but the only thing missing for me was the business angle,” he said. “The hostels all offered the same things: the tour guide, the pub crawl, the parties. That’s fantastic, but I felt these spaces could do more.”

Eventually landing in Singapore in 2016, he later bought a struggling hostel in 2018, with the backing of the Japanese investment firm he worked for, realizing it was a hub for investors who came through its doors to meet local startups. Despite the pandemic the business expanded, although five locations — including one in remote work-friendly hotspot Lisbon, in Portugal — were forced to close.

With its deep pockets, Startup Draper House has directly funded 20 companies so far, and helped 40 others through its partner funds. Companies joining the program gain access to the 23 global venture capital funds in the Draper Venture Network.

“We want to build a million businesses, and be in 100 countries. We’re calling it ‘entrepreneurial tourism’ and want the spaces to be business embassies … a new chamber of commerce where a lot of business activity happens,” he said. “You travel from one place to the next and get plugged into this business ecosystem that we’ve created.”

As Draper Startup House embarks on a mission to grow, another household investor is hot on its heels.

Andreessen Horowitz led a $12 million funding round for Launch House, which runs in-person and virtual programs for startups, in February this year. It describes itself as a “multidimensional social space for the next generation of founders, engineers, creators and others building the future.”

It represents an evolution on the hacker houses that emerged in San Francisco’s Bay Area, and Launch House will host residency programs at its physical locations in Los Angeles and New York. Members can also choose to live nearby.

​Launch House members have raised funding from venture firms like Sequoia, Paradigm and Kleiner Perkins, as well as Andreessen Horowitz.

‘It’s a Lot of Work’

With so many operations in place compared to your typical backpacker hostel, or even a fully fledged hotel, Bharati hopes taking the franchise route will ease the workload.

“It’s a lot of work,” he said. “We’re changing our strategy for growth. We’ve internationalized the concept, and we’ll commercialize it via franchising. Once we hit that, it should make our lives a little bit easier.”

The goal is to have 10 to 15 franchising agreements in place before raising a new round of funding.

As well as Launch House, Selina is another “indirect competitor” as it begins connecting more entrepreneurs and businesses. Bharati said he was a fan, having stayed in its properties during his globetrotting.

To some extent Draper Startup House also competes with lodging company The Student Hotel, which this week sold a majority stake to Singapore’s sovereign wealth fund, GIC and Dutch pension fund manager APG. GIC and APG also have stakes in CitizenM, another work-focused hospitality company.

However, Bharati said that his distribution strategy is perhaps the most open. All distribution channels are used, including Booking.com, and while there may be “specific titling” when it comes to marketing to entrepreneurs, he believes the pool of guests would be too small if it restricted entry to an exclusive group of startups.

“Overall we want to build a commercially viable business,” he said.

So-called entrepreneurial tourism has the potential to thrive in the new era of remote work, and is another example of how hospitality is blending with other industries. Fashion labels have made their mark, with hotels from Bulgari and Versace for example, while even retail (think Muji) and magazine publishing houses have crossed over.

The challenge for Startup Draper House will be to keep its backpacking roots. If it takes out all the fun in its bid to expand, there may be a point when its franchised hostels end up looking like WeWorks.

Sidenotes

It may be time to rethink a few industry definitions. It’s not just metrics, such as measuring “friendships,” that are changing, because the framework around durations could be getting outdated.

There’s the argument for alternative accommodation to disappear, with sectors like short-term rentals gaining market share on hotels. (On that note, what does “short” mean today when some brands hone in on terms like “living?”)

The opposite here is “microcations,” a buzzword Allianz Partners claims it invented. They’re classed as a getaway of four nights or fewer in duration, and taken at least 100 miles away from home. Its latest Vacation Confidence Index survey suggests more Americans will be opting for these this summer. More Americans are also planning  “multi microcations” this year.

Next up, digital nomads. One expert is now questioning the best way to measure what they get up to.

“I found out the average trip length for nomads is probably more like 4-6 months, instead of the 71 days that I measured until now,” wrote Pieter Levels, founder of resource website Nomad List, on Twitter. “Before I was using city trip length, but people move around in a country even if they live there.”

Nomad List has a very big community, and it has opened up its data. Comments from Levels’s post relate to other metrics: rather than trip length, should it be measured on average number of days per year per country?

The discussion continues on LinkedIn. “If digital nomads are staying on average 4-6 months, this shows that either (a) lots of them are taking advantage of digital nomad visas which allow you to stay 3-12 months in a destination or (b) lots of them are overstaying their tourist visas (typically 3 months) or are simply doing visa runs (the obvious solution pre-pandemic but not as simple anymore as frequent visa runs are much higher risk in lots of countries),” wrote expert John Lee.

One analyst responded he had seen digital nomad stay lengths increase, with more nomads staying closer to home. “This can get around visa issues, especially for American and European digital nomads who can cover a lot of ground without needing a visa,” wrote Steve King of Emergent Research.

As borders reopen, it’s going to become more difficult to track patterns. Digital nomad visas are useful, in that they allow countries to build a clear picture of who’s working where, but some people may prefer more freedom traveling around as tourists, frequently crossing borders to stay under the radar.

10-Second Corporate Travel Catch-Up

Who and what Skift has covered over the past week: Accor, EasyJet, Expedia, Heathrow Airport, IATA, Mondee, SkyWest Airlines, Tripbam, Trip.com, Turkish Airlines.

In Brief

Diversity Travel Amps Up Recruitment Drive

Manchester, UK-based Diversity Travel has launched its biggest ever recruitment drive to boost its headcount by more than 50 per cent by the end of the year.

The travel agency specializes in the charity, not-for-profit and academic sectors, and said flight bookings had increased by over 200 percent from the end of May, compared to January, with travel to and within the US increasing by 196 percent.

The conflict in Ukraine brought its services into focus with the company helping frontline aid workers travel to the borders of the war-torn country. It also wants to ensure it has the staff to serve its clients, which include Save The Children, the Salvation Army and University of Edinburgh, as the travel recovery begins.

It currently employs 160 people to provide travel management services. In the past six months, the business has employed 75 people across all levels and in May had its largest ever cohort of new reservations team members with 12 new recruits.

“Demand at the moment for our services is off the scale and beyond any of our expectations,” said Stu Booy, customer service director. “Visits to our website are up by almost 40 per cent in the same time, and new clients are coming on board all the time.”

Hubli Launches Sustainable Meetings Option

Hubli, an online booking tool for meetings, off-sites and group stays, has launched a new platform to help custoemrs reach their sustainability targets. Hubli Green allows meeting and event planners to choose venue locations based on the lowest carbon emissions, book sustainable spaces and remove high-waste items from meetings.

It will also show pricing data per city, allowing users to decide where to meet based on both emissions and price. “If sustainability solutions sit outside your booking tools, they will never be used,” said founder and CEO Ciaran Delaney.

Hubli’s global inventory now includes 185,000 spaces including hotels, business centres and other venues, and is used by American Express Global Business Travel.

Airline Data Analytics Firm Cirium Builds Carbon Calculator

Cirium has built a new tool it claims can calculate the most accurate, historic, and predicted flight emissions data in the marketplace. It’s been “commended” by Virgin Atlantic Airways and American Airlines, and it has also partnered with insurance firm Zurich, which will use it to measure its own corporate travel emissions and influence its travel strategies.

Curium said the advanced methodology provides a standard and accurate picture of carbon emissions and fuel burn calculations per flight and aircraft seat, taking into account data elements including aircraft and engine specifications, airline schedules, and actual flight operations.

“With travel being such a large category of emissions, these types of relationships are key to leading sustainable business travel programs of the future,” said Kara Brayton, Zurich’s assistant vice president, head of corporate travel management.