Mumbai: Budget hotels chain FabHotels has raised $25 million in a Series B funding round led by Goldman Sachs, a top company executive said.
FabHotels works on an asset-light model, partnering small hotels under a franchise model to provide standardized services. Accel Partners, an existing investor in FabHotels, also participated in the round. In July 2016, the start-up raised $8 million in a series A round from Accel Partners, RB Investments, Mohandas Pai’s Aarin Capital and Qualcomm Ventures. “The focus in past 12 months has been on investing in technology. In the next 12 months, we want to triple our technology team and double the number of rooms from the 5,000 that we have today," said Vaibhav Aggarwal, co-founder and chief executive officer, FabHotels.
FabHotels was started in 2014 by Aggarwal and Adarsh Manpuria. Aggarwal had previously worked for coupon website GroupOn and helped set up online furniture retailer FabFurnish for German Internet giant Rocket Internet. Manpuria was also previously at Rocket Internet as a venture development associate.
FabHotels has more than 225 franchise hotels in over 20 cities, including Mumbai, the National Capital Region (NCR) and Bengaluru, Aggarwal said. The firm typically partners with budget hotels having 20-40 rooms.
“Such unbranded budget hotels, with over one million rooms of capacity, make up the largest and most fragmented hospitality segment in India today," said Aggarwal.
While it looks to double the number of hotel rooms under its platform, FabHotels will look to focus on select cities, which are business hubs. For now, it will avoid tourist or leisure destinations. “We have grown four times in a year, but we have not added too many cities. We have focused on key metros and on cities which are regional business hubs. While there is no aversion to expanding to tourist cities, as a young company, we took the call on focusing on business hotel destinations. We do have a presence in Goa though. Our focus would be on not going beyond top 30 cities," Aggarwal said.
According to Aggarwal, the business has seen robust operating metrics so far. “Our occupancy is 85% plus and average daily rate (ADR) is Rs2,000-plus, which is the highest within this segment," he said.
FabHotels is following Chinese examples like Home Inn and China Lodging, which have built billion-dollar budget hotel chains. However, it is not the only tech-focused start-up.
Treebo Hotels, founded by Rahul Chaudhary and Sidharth Gupta, former executives at fashion website Myntra, is also creating a similar model. Treebo, which has a portfolio of over 50 hotels is looking to raise around $25 million, Mint reported in January.