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Rental Startup Domio Faces Likely Shut Down After Failing to Raise Funds

Domio, a short-term rental startup founded in 2016, has laid off most of its staff, is looking to sell its assets and could shut down, according to two investors in the company and documents viewed by The Information.

After failing in an effort to raise at least $10 million in capital, the company laid off the majority of its employees earlier this month and decided to pursue an alternative to bankruptcy known as an assignment for the benefit of creditors, a form of insolvency in which a third party oversees the sale of a company’s assets, the two investors said. The events come three months after The Information published an investigation showing Domio had flouted local rental laws in some cities, used misleading online identities to rent homes on Airbnb and engaged in other questionable business practices.

The Takeaway
• Short-term rental startup plans to shut down after unsuccessful fundraising
• Domio board hired Sherwood Partners to sell assets earlier this month
• Move follows The Information’s story about Domio business practices

Domio interim CEO Jim Mrha confirmed that the company is in the midst of the assignment for the benefit of creditors process in a statement to The Information two days after this article’s publication, adding that the company is continuing to serve customers.

In response to The Information’s reporting, Airbnb in August suspended all of Domio’s accounts for violating its terms of service. Airbnb, which unveiled the prospectus for its initial public offering on Monday, has faced criticism from regulators and housing advocates over the proliferation of large-scale short-term rental schemes like Domio’s. The platform’s meteoric rise over the past decade has spawned a cottage industry of businesses seeking to turn private homes into de facto hotel rooms at scale, attracting the ire of city officials in areas where Airbnb is popular, such as New York.

In late September, Domio’s co-founders, CEO Jay Roberts and Chief Strategy Officer Adrian Lam, resigned from their roles at the company and stepped down from its board of directors. As a result, Airbnb reinstated Domio’s accounts, saying in a statement at the time that Domio had requested the move “after its board removed all members of its leadership team present at the time of the unacceptable activity.”

The pandemic and the temporary Airbnb suspension put Domio in a tough financial spot. Though it had laid off more than half of its employees between January and August, as well as receiving a loan of between $2 million and $5 million under the Payroll Protection Program in April, it was not enough.

After the departure of Roberts and Lam in late September, Mrha, hired in March as Domio’s chief financial officer, took over as interim CEO and joined its board of directors. By October, Domio’s management team was seeking to secure roughly $10 million in capital to keep the company afloat, said an investor in the company familiar with the matter.

Since its founding in 2016, Domio has raised nearly $70 million in venture capital, along with $50 million in debt, from well-known firms that include GGV Capital. Its most recent funding round, which it announced in December 2019, brought its valuation north of $100 million, the investor said.

In late October and early November, Domio executives spoke with multiple parties, including existing investors, about raising a new round at a significantly lower valuation, one closer to the figure it commanded in its first funding round several years ago, the investor said. The effort was unsuccessful.

Jordan Levy, founder of SBNY, a VC firm that invested in Domio in 2018, said in an interview that the company was unable to raise capital after The Information published its investigation.

On November 11, Domio’s management team informed investors that they had failed to raise additional capital and would be pursuing an assignment for the benefit of creditors with Sherwood Partners, a consulting firm that works with distressed companies, a person familiar with the matter said. The day prior, a document processing firm formed a Delaware corporation called Domio (Assignment for the Benefit of Creditors) LLC, according to a filing with the Delaware Division of Corporations.

“Unfortunately, conditions precedent to close this round were not achieved,” read a note from Domio management to its investors, which The Information reviewed. “In addition, our bank has pulled our loan. Given the aforementioned actions from our lender, we had to let go of a majority of our team on Friday.”

The note also said that “there is a scenario where Domio is able to operate” after completing the assignment for the benefit of creditors process, but didn’t offer any specifics. Domio still appears to have active listings on its own website and on Airbnb for rentals in Nashville, Miami and New Orleans, where it recently signed multiyear master lease agreements to convert apartments and townhomes into short-term rentals.

In an email, Mhra said Domio is "in the midst of a planned financial re-engineering across all facets of its business through an Assignment for the Benefit of Creditors (ABC) process, which includes a realignment of its portfolio.” He said the company will continue to serve guests through its property listings, including new ones it plans to add in Miami, Puerto Rico and Mexico by the end of the year.

Last Thursday, a director at Domio posted a message to an unofficial Slack group of current and former Domio programmers that sounded a note of finality about the company.

The message, which was viewed by The Information, read: “whelp, the Domio ride is officially over! today is the last day for nearly all team members as we go through the insolvency process with the bank.…Domio has been a wild ride for sure.”

Domio’s primary investors, GGV Capital, Upper90 and Tribeca Venture Partners, didn’t respond to multiple requests for comment. A representative of Sherwood Partners also didn’t respond to requests for comment.

Update and correction: This story has been updated with a statement from Domio's interim CEO, noting that the company continues to serve customers while it goes through an insolvency process. Last week, a Domio director posted a message to a Slack group for current and former Domio programmers. An earlier version of this article misstated the Slack group's affiliation with Domio.

Paris Martineau (@parismartineau) is a reporter at The Information covering Amazon, logistics and e-commerce. If you have worked for or with Amazon, she would like to speak with you about your experience. Using a non-work device, contact her via Signal at +1 (267) 797-8655.