Launched in 2005 by Yogendra Vasupal, Sachit Singhi, and Rupal Yogendra, StayZilla aimed to fill a significant gap in the market - affordable and reliable accommodation for budget-conscious travelers.

At a time when India's tourism industry was booming, but options for affordable stays were limited and unorganized, StayZilla emerged as a solution to this pressing issue.

The startup's vision was ambitious: to create the largest online marketplace for stays in India, covering everything from small guesthouses in remote locations to budget hotels in major cities.

However, despite its early success and the massive potential of the market, StayZilla faced numerous challenges, including intense competition to difficulties in scaling its operations across India’s diverse landscape.

Ultimately, the startup shut down in 2017, citing an unsustainable cash burn rate and operational difficulties.

Thus, StayZilla's closure became a cautionary tale about the challenges of scaling without proper planning.

Let’s look at their start-up journey!

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Founding Story - The Problem that StayZilla Solved:

The story of StayZilla began with a simple observation: despite the rapid growth of India's tourism industry, there was a glaring gap in the market for affordable and reliable accommodation.

Yogi, who often traveled for work, found it challenging to find budget-friendly places to stay, especially in smaller cities and rural areas.

The existing options were either too expensive or lacked the basic amenities that travelers expected.

They realized that many small hotels and guesthouses across India were not listed online, making it difficult for travelers to discover them.

The hospitality industry was largely unorganized, and options for budget travelers were either too limited or of substandard quality.

While luxury hotels and high-end resorts catered to affluent travelers, the majority of Indians - students, backpackers, and middle-class families - struggled to find places that fit their budget without compromising on basic amenities.

Moreover, the concept of homestays - where travelers could stay in someone's home - was virtually unknown at the time, even though it had great potential in a country like India, where hospitality is deeply ingrained in the culture.

This is why it’s often dubbed as the AirBnB of India.

They saw an opportunity to create a platform that would connect travelers with these underutilized accommodation options, providing a win-win situation for both.

Travelers would get access to affordable stays, and property owners could earn extra income by listing their spaces on the platform.

The company was founded as Inasra in 2005 and later rebranded to StayZilla in 2010.

This was because of the USP of the company - people could stay in various ‘zillas’ (districts) in India conveniently.

Business Model:

At its core, StayZilla functioned as an online marketplace that connected travelers with a variety of accommodation options, ranging from budget hotels to unique homestays.

The platform was designed to cater to the growing demand for affordable stays across India, particularly in smaller cities and rural areas that were often overlooked by other travel booking platforms.

StayZilla's primary revenue model was commission-based.

Every time a traveler booked accommodation through the platform, StayZilla earned a commission from the host.

This was a straightforward model that aligned with the company's goal of offering affordable options while still generating revenue.

They had 55,000+ properties on the website, even in little known places like Ziro and Theni.

Funding Rounds:

The company initially remained bootstrapped.

In 5 rounds, it raised $31.6 million from a total of 44 investors.

The seed round was of $500K from angel investors.

Matrix Partners then supported the company in Series A, B, and C, with Nexus Ventures also joining in.

This infusion of capital was pivotal in scaling Stayzilla’s operations across the country, allowing the company to tap into new markets, especially in tier-2 and tier-3 cities.

The funding StayZilla received was instrumental in scaling its operations. With the capital, the company could aggressively expand its reach, listing more properties in previously underserved markets.

In addition to scaling its operations, StayZilla used the funding to enhance its technological infrastructure.

Even with these funds, the company had to lay off 210 employees, close branches in various cities to reduce operational costs, and cut down on marketing spend by focusing on advertising on Ixigo, where consumers were more likely to make a decision, rather than FB and Google Ads.

But it still could not sustain.

The Closure of StayZilla:

As the homestay and budget hotel market in India became increasingly crowded, StayZilla found it difficult to maintain its market share against well-funded competitors like OYO Rooms.

Because StayZilla was a first-mover in the home-stay industry, it had to create market demand.

When competitors started introducing discounts, the company had to follow suite to maintain edge.

Though they were able to create 8000 homestays in 900+ towns, the costs kept adding.

The consumers were given heavy discounts out of the company’s pocket.

While this is a model that many start-ups initially adapt after funding, it becomes very difficult to sustain the finances in the long term, especially with high operational costs.

The aggressive marketing also incurred additional costs. In 2016, their marketing spend saw almost a 5x increase than the previous year!

Though the revenue also increased, the losses were more than that. This, coupled with the marketing spend, meant financial trouble for the company.

Moreover, they also introduced a referral scheme which performed too well - they ended up spending INR 20 lakhs in just 5 days of the launch of this scheme!

Moreover, their core focus was on acquiring new customers, sidelining retention - a major mistake.

Because of this, the users could have just used the app for the discounts and never looked at it again.

The retention was also tainted by the poor customer service, which meant bad word-of-mouth for the brand as well.

Consumer grievances just remained words in a review rather then direction to optimize better and scale.

StayZilla’s journey, from a promising startup to its eventual closure, is a story filled with both inspiration and caution for the Indian startup ecosystem.

On one hand, StayZilla demonstrated the potential of tapping into India’s burgeoning travel market, particularly in smaller cities and rural areas.

The brand successfully introduced the concept of homestays to a wider audience, offering travelers unique and affordable experiences that were previously hard to find.

While Stayzilla’s rise showed what was possible, its fall serves as a reminder of the importance of sustainable growth and a solid business model.

Why the Founder Was Jailed:

One of the most shocking and controversial episodes in StayZilla's journey was the arrest of its founder, Yogendra Vasupal, in March 2017.

This sparked a heated debate within the Indian startup community about the challenges entrepreneurs face.

The entire situation stemmed from a business dispute between StayZilla and a Chennai-based advertising agency called Jigsaw Advertising.

According to Jigsaw, StayZilla had defaulted on payments totaling approximately ₹1.72 crore. On the other hand, StayZilla argued that the services provided were unsatisfactory and that the amount claimed was not justified.

Now, any service business can have a dispute over payments - which is a civil issue that’s to be resolved by the parties involved.

But the situation escalated quickly when Jigsaw filed a criminal complaint against Yogendra Vasupal, accusing him of cheating and criminal intimidation. The local police in Chennai acted on the complaint and arrested Vasupal.

Many saw the arrest as a heavy-handed approach to what was essentially a civil dispute, rather than a criminal matter.

The tech start-up community came together to form a #HelpYoogi group. Notable support also came from PayTM’s founder Vijay Shekhar Sharma.

This incident showcased the need for better legal protections for startups in India, especially when dealing with business disputes.

Yogendra Vasupal spent nearly a month in jail before he was granted bail for INR 14 lakhs.

For Stayzilla, this was one of the final nails in the coffin.

The company, already struggling with operational challenges, couldn’t recover from the negative publicity and the financial strain caused by the legal battle.

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