Richmond-based investment firm Harbert Growth Partners has led a $20 million funding round in WhyHotel, a District of Columbia-based company that operates temporary pop-up hotels in newly built, luxury apartment buildings.
WhyHotel was co-founded by Jason Fudin and Bao Vuong, who is originally from Richmond.
The company operates 100- to 250-room pop-up hotels in new apartment buildings, giving developers a way to earn money from units during lease-up while providing travelers with another lodging option that includes amenities such as a full kitchen.
WhyHotel is part of an innovation trend in the hospitality and real estate industry, said Tom Roberts, a partner with Harbert Growth Partners who is serving on the WhyHotel board of directors.
It can take developers 18 to 24 months to fully lease new luxury apartment units, Roberts said. WhyHotel shares revenue on pop-up hotel rentals with the apartment developer.
“The model is very profitable at the unit level both for WhyHotel and the developers,” Roberts said.
Harbert Growth Partners, founded in 2002, invests in emerging growth companies. Its previous investments have included Shipt, an online, membership-based grocery marketplace that was acquired by retail giant Target Corp. for $550 million in 2017. The company also has invested in some Richmond-based businesses, such as clothing retailer Ledbury.
The investment is Harbert’s 11th from the firm’s fourth fund.
Also participating in the investment round were Camber Creek, Highland Capital Partners, Working Lab Capital, Geolo Capital, and Revolution’s Rise of the Rest Seed Fund, along with Mark Nunnelly, former managing director of Bain Capital Partners.
The investment round was announced Wednesday.
The money will be used to expand WhyHotel’s operations into multiple cities, the company said. The company currently has three pop-ups operating in the D.C. area and one in Seattle, with others planned for 2020 in large U.S. markets.
“We are constantly exploring new markets to see where our product makes sense, and that includes Virginia,” said Fudin, the company’s CEO, in response to questions about plans to operate more pop-ups in Virginia.
Fudin said the company’s hotels cater to business and leisure travelers as well as families looking for the space and comfort of a home-share with around-the-clock service from a hotel staff. “The business and leisure traveler both value a more spacious apartment layout,” he said.
The company also plans to use the investment funds to ramp up Hospitality Living, its real estate development arm, which plans to complete its first development in 2022. The company has raised more than $35 million since its was founded in 2017.
“I would say in five years’ time, the business is going to be a mix of permanent hotel operations in addition to pop-up hotels, but the pop-up hotel business is, in itself, a big opportunity,” Roberts said.