Startup pitch: Pillow, after its $2.7M raise, will run your short-term rental for you

During a gold rush, the safest business model is to be selling picks, shovels, and other mining supplies.

Today’s closest thing to a gold rush may be the drive to make it digitally seamless for small-time property owners to rent out their spare rooms and second homes.

One of the companies positioned to service that market is Pillow Homes, an on-demand property management service for short-term rentals. Last month it announced that it has raised $2.7 million.

One of Pillow’s distinctive claims is that it can predict occupancy and daily pricing better than the typical owner can. Its homeowner clients stand to benefit from securing the optimal rental price, not just outsourcing the duty of handling plumbing problems at two o’clock in the morning.

Pillow’s other unique service is an optional offer of pre-determined monthly income for a homeowner, in exchange for letting the startup handle all the reservations and of maximizing the rate.

The San Francisco-based startup began life by servicing the city and nearby Napa — two areas that have some of the highest concentrations of rentals via services like Airbnb. Having added Oakland, Berkeley, Marin County, Sonoma, and Los Angeles, it plans to expand to other locations this year.

It acts as a supplementary service for rentals via platforms like Airbnb, TripAdvisor’s FlipKey, HomeAway, and VRBO.

Pillow created this Vine to capture its pitch:

Q&A with CEO Sean Conway:

Tell us how you founded the company, why and what made you decide to jump in and create the business.

My co-founder Justin Miller and I are travel enthusiasts, and together we created Pillow as a way to free homeowners to be able to travel more and earn more.

With Pillow, homeowners now have the ability to offer their guests the unique experience of staying in a real home, combined with a standardized set of amenities, features, and service they can count on–all without ever having to lift a finger.

In other words, Pillow is for people that want to rent their home but don’t have time or know-how to do it effectively and efficiently, or they want to maximize their income and give a great experience for guests without worry or work.

The founding team has a strong entrepreneurial spirit and from a small living with a five person team they’ve grown to 20 team members in an office situated in SOMA.  

How did the initial idea evolve and were there changes/any pivots along the way in the early stages?

We were originally named AirEnvy, but in January we rebranded as Pillow to better represent our emphasis on hospitality.

We initially saw the opportunity to disrupt the current property management industry, that typically charges commissions of 30%-50%, by introducing technology to add efficiency and give owners a better return on their investment.

We have evolved beyond property management to finding ways to better connect guests and hosts with services they need.

We have already started building on this by building partnerships with Lyft, for airport transfers, and Dollar Shave Club, offering razors to our guests.

There are long list of partnerships that we are looking to build to help connect brands with our guests and owners.  

Size of the team, names of founders, management roles and key personnel?

The startup has 22 salaried employees, plus about 50 contracted vendors, who include its property managers, cleaners, maintenance experts, plumbers, and laundry workers in three cities.

We are growing fast and are hiring for several positions.

The founders include Sean Conway (CEO), Justin Miller (head of product), Todd Conway (head of digital marketing), Mariusz Lapinski (lead engineer), and Dan Palumbo (lead engineer).

We recently brought on our head of operations Paul Wellons, our contact center manager Adam Brandon, and our head of marketing Hannah Russin.

Funding arrangements?
This winter we closed a seed round from 18 investors, such as Peak Ventures, Structure Capital, Homebrew, Expansion Venture capital, and SherpaVentures, plus individuals who are in real estate and technology.

Estimation of market size?

The short-term rental industry is seen as an $85 billion industry in the US and Europe. We could help service a large share of those transactions.

Competition?
Our competition in this industry would include FlipkeyVR, Vacasa, and traditional property managers.

Revenue model and strategy for profitability?

We work very similar to a subscription-based company, we take 12%-15% commission from each reservation.

Recently we have started to offer our Fixed-Income Guarantee, where we offer guaranteed monthly rental income regardless of seasonality. We have 85 criteria, including number of bedrooms and amenities.

We also have a Pay-Per-Booking service for homeowners who prefer flexibility.

What problem does the business solve?

We are making it effortless to earn passive income from renting out your place while you’re gone.

Many people either don’t have the time or knowhow to rent out their place short term and we are working to take out the hassle.

Why should people or companies use the business?

People should use our business for a several reasons. Firstly our services help bolster the sharing economy, making it easier to share your home.

Secondly we work to make it so homeowners can make passive income that can help out with some of the costs that come along with home ownership, returning the excitement to the American dream of owning a home.

And thirdly we are adding standardization to a relatively unregulated industry, providing a level of reliability and security to the short term rental industry.  

Lastly, we pride ourselves on transparency and guarantee you’ll earn more from us than renting it out yourself or any other property manager.

What is the strategy for raising awareness and the customer/user acquisition?

Until two months ago we were mainly acquiring properties through word of mouth and providing an awesome product.  

We have built a customer success team that will ensure this will continue to thrive and grow. We also have a breakthrough product offering the Fixed- Income Guarantee that will be sure to turn heads.  
Where do you see the company in three years time and what specific challenges do you anticipate having to overcome?

In the next three years we expect to be in hundreds of cities across the globe. We will grow as platform and brand that is recognized as hip and homey host and guest alike.  

The major challenges for the next few years will be found in being able to effectively scale and mold our business model around the ever changing short term rental legislations we’re beginning to see.

What is wrong with the travel, tourism and hospitality industry that it requires a startup like yours to help it out?

We see ourselves as a hospitality platform. Currently in this sector we see very little utilization of technology.

We are using big data and technology to more efficiently manage multiple properties and in doing so we are able to help earn homeowners more money and spend less time managing their property.

What other technology company (in or outside of travel) would you consider yourselves most closely aligned to in terms of culture and style… and why?

We like to think our culture and style are very similar to that of Lyft.

We look to be a company that is fun and interactive and provide a brand that people can trust.  

Our desire is to create a community around our brand and really embrace the power of the crowdsharing economy. We look to be a brand that is professional yet approachable and we think Lyft embodies this perfectly.

Which company would be the best fit to buy your startup?

A company like Airbnb would probably be the best to buy us, it would really centralize the entire short term rental market from marketing, booking, pricing, guest experience and so on.

Describe your startup in three words?

Hassle free income.

Tnooz view:

Pillow has a large market to profit from: There are 7 million second homes in the US and currently only 1.3 million of them are rented out.

Growth in short-term rentals is a near certainty, as new digital and mobile services take friction out of property management.

There are also hundreds of thousands of Americans who are routinely using Airbnb to rent out their main dwellings. Many of them might prefer to pay someone else a reasonable fee to handle the property management work on their behalf.

Pillow’s rates are around 12% to 15%.

The typical commission for second-home property management services is between 8% and 12% nationwide, though it varies by local supply and demand.

CORRECTION: That range of commissions is for “long-term” property management. Short-term property management has many more moving parts involved, and it costs more–as much as 35% in high-demand areas and times, between mom-and-pop shops and professional companies.

Pillow’s executives have solid entrepreneurial and technical backgrounds–a definite asset.

In short, this startup ticks the boxes for what you want in a promising company. We’re optimistic that Pillow Homes will be as good as gold.

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Sean O'Neill

About the Writer :: Sean O'Neill

Sean O’Neill had roles as a reporter and editor-in-chief at Tnooz between July 2012 and January 2017.

 

Comments

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  1. David Chambat

    Great article thanks – and an interesting concept too. The Property Management industry is indeed a very traditional industry that uses very little of technology, especially here in Asia. However the big question in my opinion will be to scale, as written here, to “hundreds cities across the Globe” ; with a few local properties, the article says the company already has “50 contracted vendors, who include its property managers, cleaners, maintenance experts, plumbers, and laundry workers ” … how to handle such an ecosystem across borders ? Very challenging. Anyway good luck – and maybe see you in Asia one day. Cheers!

     
  2. Kirby Winfield

    Nice to see the AirEnvy rebrand, solid value proposition. But Sean, I think you have it wrong on the average commission taken by a property management firm in the US – rates are closer to 30%.

     
    • Sean O'Neill

      Sean O'Neill

      Thanks, Kirby. I had conflated the averages for *long-term* property management, such as the 10% often cited in San Francisco, with *short-term* management. I’ve updated the post, and I regret the error.

       
      • Kirby Winfield

        Cool – vacation rental property management is not an awesome business, margin wise, but it isn’t THAT bad. Still, I think the reason we are seeing a ton of consolidation in the traditional VR management space is that margins are compressing and scale (number of units under management) is really the only way to make $.

        It would be interesting to look at whether some of the long term PM firms are looking at the short term space…

         
        • Sean O'Neill

          Sean O'Neill

          Excellent points. I agree, that would be interesting… Thanks!

           
 
 

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