Hmlet gets $6m lifeline from Sequoia, Burda, and others; shuts down Australia ops
It hasn’t been a particularly easy past year for Hmlet. The Singapore-based property tech and co-living startup had recently announced layoff after layoff amid efforts to adjust its business.
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Hmlet said that its headcount has been further reduced from 100 employees by the end of December 2020 to around 70 to 80 staff members currently. Meanwhile, co-founder Yoan Kamalski had stepped down as CEO.
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The company, however, could get a new lease on life. Hmlet told Tech in Asia that it has raised US$6 million in a series B+ round co-led by Sequoia Capital and Burda Principal Investments. Existing investors including Aurum Investments, Reinventure Group, and Beeblebrox also participated.
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The Hmlet team / Photo credit: Hmlet
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Hmlet declined to comment on its valuation following the fundraise.
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“In March, we were the only investor who was willing to put money into Hmlet. The company is worth saving,” said Peter Kennedy, senior advisor at Burda Principal Investments. Kennedy, who also serves as the startup’s interim CEO, was responsible for convincing existing investors to join this financing round.
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In addition, the company is closing down its operations in Australia, as it wasn’t on par with the performance of other markets such as Hong Kong, Singapore, and Japan.
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Five staff members will be laid off and given four extra weeks’ worth of severance pay, in accordance with Australian labor law.
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The capital injection and cost-cutting will give Hmlet a runway of 18 to 24 months before its funds are depleted. However, talks are ongoing to pump in more money into the startup by the third quarter of 2021, with existing investor Mitsubishi Estate potentially joining the round.
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Hmlet has significantly decreased staffing on the tech front, among other cost-cutting efforts, to slash its burn rate by about 60%. It also aims to drive up occupancy of its spaces by 3x to 3,000 rooms from 1,000 rooms to hit breakeven point.
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The company has also shuttered Hmlet Listed, a rental platform for landlords, agents and tenants, after conducting a pilot program of the venture in Malaysia and Thailand. Meanwhile, it has generated “material revenue” from Hmlet Interiors, its interior design arm, which is still operating in Singapore.
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One of Hmlet’s properties / Photo credit: Hmlet
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With the newly raised funds, the startup will diversify into managing properties that have been acquired by existing hotels in Hong Kong, Singapore, and Japan. Hmlet will also invest in distressed hotels in the Asia-Pacific and turn them into co-living spaces.
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In February 2020, Hmlet said it was moving towards an “asset-light” model of helping landlords run their co-living spaces. That’s because of the high upfront and ongoing costs that come with leasing, managing, and sprucing up properties.
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“It became clear that we couldn’t sell [leases] at the high prices we had pre-Covid, and we also had no termination clauses in the leases, which we now do. We couldn’t even get out of the leases and were left with this massive overhang of lease clauses… we got absolutely clobbered,” said Kennedy.
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That said, the company viewed the leasing model “as highly scalable yet sustainable” despite the steep operating costs.
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To move towards profitability, Hmlet is adopting a mix of head leases and management contracts.
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It will continue with head leases, which involves renting an entire location from a landlord and then dividing up spaces for leasing out to occupants. Kennedy said this would allow Hmlet to better negotiate with property owners, as the company would take over the burden of renting out as many rooms as possible.
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The startup is also taking on management contracts, which entails signing an agreement with a landlord to provide management services of a space for a fee of about 8% to 10% of the total rent.
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While head leases have a larger margin compared to management contracts, Hmlet is studying the economics of both to improve its margins.
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The company will also appoint its next CEO within six months to steer its way back to normalcy. “Burda Principal Investments prefers to promote people from within the firm than someone outside who doesn’t know about the startup’s culture,” said Kennedy.