Japanese vacation rental management startup H2O raises $7 million Series B from investors including Samsung Ventures

Japan’s tourism industry is booming, but it faces a hotel room shortage, especially in Tokyo as it prepares for the Summer Olympics. H2O addresses the market opportunity with a platform that helps vacation rental owners manage their properties. The startup announced today it has raised $7 million in Series B funding from Samsung Ventures, Stonebridge Ventures, IMM Investment and Shinhan Capital, bringing its total raised to $18 million.

H2O (the name stands for Hospitality 2.0) allows owners to manage operations, housekeeping and bookings from different online travel agencies on its platform, lowering the cost of doing business. The company also recently launched H2O, a vacation rental brand, to expand its real estate development business, including a new hotel near Universal Studio Japan.

The company began in 2015 with Wahome in South Korea, a home cleaning service, before launching H2O two years later after acquiring several hospitality management companies in Japan, including a housekeeping service for vacation rentals. There are currently about 5,000 managed rooms connected to the platform, which is used by about 25 online travel agencies. Since the third-quarter of 2018, revenue has doubled every quarter, says founder and CEO John Lee.

Lee, who studied hotel administration at Cornell University and previously worked in banking at Morgan Stanley, told TechCrunch in an email that there were three market trends that made launching a hospitality business in Japan compelling: strong domestic tourism, increasing inbound tourism and a huge shortage in accommodations. It first focused on allowing flexible housekeeping bookings for vacation rental properties. Then in 2018, H2O expanded to full hospitality management services, including property, yield, revenue and operations.

Lee said that he believes “the core value of the hospitality industry is how to increase the yield of the real estate. I always believed that managing one building with high fixed costs (front desk, housekeeping department, etc.) was very inefficient from building owners point of view.”

H2O’s property management system works by syncing three calendars: guests, rooms and housekeeping. All are linked and automated to prevent double bookings and make sure housecleaning services are available. This allows H2O’s software to manage revenue, inventory and yield on a per room basis and schedule guests and cleanings.

The platform also allows clients to manage multiple properties at once and offer smart locks, online check-ins and chat-based customer service.

In June 2019, Japan implemented the Housing and Accommodations Business Act (also called the minpaku law, after the Japanese term for private residences rented out as short-term accommodations, similar to properties on AirBnb), formally legalizing and regulating vacation rental management. Lee says the new regulation allowed more real estate investors, who already owned other types of hospitality properties, to enter the minpaku market. H2O manages properties under four licenses, including hotel, ryokan and kanishokuksho, but the majority of its properties are under the minpaku law, which allowed it to grow its B2B business.

The average daily rate for accommodations on H2O was around $160 in 2019, with an average occupancy rate of 87%. Of the property owners who use H2O, the majority, or 70%, are real estate property managers, 20% are local property owners and 10% are overseas real estate funds. About 60% of guests who use H2O to book accommodations are inbound travelers (of that number, 40% are from China, 40% are from Southeast Asia, 10% are from South Korea and 10% are from other countries), while the rest are domestic tourists.

In press statement, Eric Kim, senior investment manager at Samsung Ventures, said “We’re pleased to be part of the fastest-growing hospitality company in Japan. H2O has already proven product market fit within Japan, and we expect them to continue to thrive as they expand outside of major cities.”

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