- Zeus Living, an Airbnb-backed startup that focuses on corporate housing, laid off almost two-thirds of its staff in three months.
- The startup is now planning to shift its business model as clients cancel millions in contracts and occupancy drops.
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Airbnb-backed corporate housing startup Zeus Living is shifting its business model after it slashed headcount and its valuation nosedived over the last few months.
Zeus offers furnished, 30-day minimum stay properties in six metro areas to business travelers and partners with companies that have an ongoing need for employee housing. The coronavirus dealt a huge blow to the business-travel economy, thanks to stay-at-home orders and clients culling their own staff.
Now, the company is shifting away from exclusively renting homes from landlords and bringing in furniture to make the space move-in ready for clients, by adding an online marketplace, like Airbnb or booking.com, where landlords would be able to list directly.
Zeus, which grew quickly in 2019, cut headcount in March and May, shrinking from 240 people to 89. It saw its valuation halve to $105 million when it took a $15 million bridge round in equity and debt from existing investors, Bloomberg reported in May.
During a 10-day period in March, clients cancelled $2.5 million in contracts and occupancy dropped from 90% to roughly 50%, Zeus CEO Kulveer Taggar told the startups’ landlords in late April. At least $10 million total in contracts have been canceled since early March through early June, a Zeus spokesperson said.
Typically, Zeus signed leases with landlords that guarantee payment every month, regardless of occupancy. It would make money by charging clients a premium over the rent that they were paying for the homes.
On April 2, it told landlords it wouldn’t be able to pay any rent for April or May. The landlords banded together to demand answers from the company, which had announced a $55 million Series B round led by Airbnb just four months earlier.
Days later, Zeus said it would be able to pay landlords, but only if they renegotiated their leases to a revenue-sharing agreement that would only pay out when occupied with a customer.
Tensions with landlords
A Facebook group comprised of Zeus landlords erupted, with landlords helping each other leave contracts or attempt to negotiate terms.
Ultimately, according to one former employee and two landlords, some landlords were allowed to stay on their original contracts. These three sources requested anonymity, citing fear of retribution or non-disclosure agreements.
One landlord told us the changes pushed them to stop working with Zeus. The landlord had signed up with the startup — which they said paid less than a traditional tenant — because rent was always guaranteed.
On an April 20 call, Taggar apologized to a group of landlords for the dramatic series of changes, and said that the company was providing documentation for landlords requesting an abatement on their mortgages because they hadn’t been paid.
“We are asking for this opportunity to slowly rebuild the trust, and go back to the first four years of the business,” Taggar told the landlords, according to a recording obtained by Business Insider.
“We are not in a super-rich position right now, but also not at super risk of going broke, but we are in a precarious position,” Taggar told the landlords. Minutes later, he switched to: “I wouldn’t necessarily say we have funds,” Taggar said. “We are pretty broke to be honest.”
Since it was founded in 2015, Zeus exclusively used traditional leases to rent properties, in turn operating them and renting them back out to individual and corporate clients.
Many real-estate startups have looked to shift away from this kind of lease-heavy setup following WeWork’s dramatic IPO implosion in 2019.
“My business model of committing to leases across all these portfolios, they (VCs) were just not going to fund it,” Taggar said during the call. “They didn’t want us to have these liabilities or this capital intensity.”
Zeus was renting multiple properties that weren’t making any money, Taggar told landlords, and new properties cost at least $10,000 to design and furnish.
At the time of the April 20 call, 52 of 390 unique landlords had signed the revenue-share agreement. A Zeus spokesperson said that as of Wednesday, 25% of landlords had stopped working with the company.
Why Zeus is looking to third-party listings
The second round of layoffs at Zeus hit the operations business especially hard. According to three former employees Business Insider spoke to, workers worried the firm could cease its property management business and look more like a booking.com for corporate housing.
Zeus is planning to open its website up to third-party listings as an addition to its operated properties, the company confirmed to Business Insider.
Taggar told Business Insider in an interview on Thursday that he used the booking.com analogy as a reference when describing plans to staff, but Zeus will continue to operate properties while also starting to list third-party rentals.
He said he’d been thinking about revenue-share contracts for years, and Zeus began to offer them in the first quarter, initially aiming for a gradual transition.
The company is responsible for paying cancellation fees to landlords who didn’t sign revenue share contracts. One landlord we spoke to received two months of rent, for example.
Zeus is now back up to 75% occupancy, Taggar told Business Insider, and nearing profitability in three cities.
“2019 was the year where we were expansionary and set down roots in the markets,” Taggar said. “2020 was the year to make more money per home and become profitable.”
Zeus had raised a $55 million Series B in 2019 —including a $15 million investment from travel giant Airbnb. It was already looking for more funding when the pandemic hit, according to Taggar on the April 20 call, having spent much of the money from the Series B fundraise in 2019.
The company was responsible for monthly payments on 2,400 leases to single-property and institutional landlords and had a $3 million a month payroll pre-layoffs. Zeus also offers generous health and dental benefits, and free catered lunches for workers.
Zeus fully refunded its clients who cancelled due to the pandemic, Taggar told Business Insider, further digging a financial hole.
The company had applied for, and received a roughly $5 million PPP loan. Executives later gave the money back, telling Business Insider it had other sources of capital.
At a meeting announcing the bridge round in May, Taggar said it would give Zeus a five-to six-month runway of cash, according to one former employee with direct knowledge of the comments.
On May 12, employees were laid off by their managers, instead of in mass Zooms as in previous rounds. Severance was now two weeks plus a week for every year of employment — more than the earlier round. Some employees’ last day would be May 15, while others would stick around until June 12.
Zeus backer Airbnb itself slashed 1,900 jobs on May 5.
Short-term rental startups, like Sonder and Lyric, have likewise cut headcount. Stay Alfred, another short-term rental company, shut permanently in May.
Read more:
- How the coronavirus will change vacations forever, according to 10 travel industry leaders
- Silver Lake just added to a string of bets in the struggling travel sector by leading a $108 million investment in vacation property startup Vacasa
- Airbnb might not get much of a bounce from the rebound in short-term rentals
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