Deal focus: Fabhotels gets room to grow

“The budget hotel experience in India is broken, in terms of reliability, consistency and customer satisfaction,” says Vaibhav Aggarwal, CEO of India’s FabHotels. “The average customer has to spend about 25-30 minutes to book a $30 per night budget hotel room. That is not optimal. You don’t spend that much time booking a cab, a flight, or any other standard service.”

With a Series B round of $25 million from existing investor Accel Partners and newcomer Goldman Sachs Investment Partners – a VC arm of Goldman Sachs Asset Management – FabHotels hopes to lead the way out of the budget hotel swamp. Technology promises to hold the key to the breakthrough.

With over 5,000 rooms in budget hotels across India, FabHotels is a market leader but also a small fish in a huge pond. There are an estimated 1-2.5 million rooms in the country’s budget hotel space, meaning that even the most generous assumptions give the company a market share of less than 1%.

Nevertheless, FabHotels believes it has earned its reputation as a leader. Operating on a franchise model, the company manages independent budget hotels under the FabHotels brand. It claims more than 25% of its franchisees have gone on to manage multiple properties with the company. The company provides guidelines and trains staff to standardize service across all branches, conducts regular audits, sets pricing, and handles reservation and booking. But all of these services are supplemented by a technological backend that FabHotels sees as its greatest differentiator in the market.

Beyond its consumer-facing online booking platform, this technology allows FabHotels to tabulate and compare audit results across its hotel network to identify common issues. It also gives the company an edge in determining the most competitive prices for its rooms.

“I should be able to vary the pricing based on my occupancy, season, competition, reviews of the property, and even any search trend that’s happening,” says Aggarwal. “We have an in-house pricing engine that we call Jarvis, which helps us do this on a real-time basis on the property level for all of our 225 hotels.”

Having proven the viability of its business model on a small scale, FabHotels now intends to focus on building its market share in India, with regional or global expansion still well in the future. However, it still intends to learn from experienced operators in other markets, and believes its latest investor will provide a critical advantage in making those connections.

“The network that GSIP will be able to provide globally should be very helpful, with international connections to [Goldman Sachs investee] China Lodging and some of the US-based budget hotel players,” says Aggarwal. “And it’s a very marquee brand name to have as a partner. It’s a strong validation for the team who has been working on this for almost the last three years.”

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• Topics
• South Asia
• Early-stage
• Technology
• Real estate
• India
• Accel Partners
• Goldman Sachs