This VC went long on HotelTonight and it paid off; here’s how.

Brian O’Malley has enjoyed a lot of success as a venture capitalist, thanks to bets on Bazaarvoice before it went public, and Dollar Shave Club before it was acquired by Unilever, and many other companies that have sold or gone public. It’s one reason that O’Malley, who began his venture career with Battery Ventures and stayed for nearly a decade, has been poached time and again, first joining Accel Partners for almost five years and, more recently, hopping over to Forerunner Ventures.

Interestingly, all three firms are investors in one company that O’Malley has known from nearly its outset and whose cash and stock sale for a reported $465 million to Airbnb, announced last week, he is still celebrating: HotelTonight, “The O’Malley family went long on HotelTonight,” he said in a call Thursday. “Now,” he laughed, “we’re long Airbnb.”

For your Sunday reading, an oral history from O’Malley about how he stumbled upon HotelTonight, and remained connected to the company across its nine year history.

I’d originally met Sam [Shank HotelTonight’s CEO] way back. He had TravelPost,com, a travel blogging platform. I really liked him, but i didn’t think it was a ‘venture fundable’ company, [meaning i didn’t see] an explosive opportunity. But Sam is the kind of guy you file away in the back of your head. I knew I’d like to work with him sometime.

Then, I think it was the last week of 2010, I was at home reading up on new things and I came cross this announcement about this new thing called HotelTonight. I was looking at mobile services at the time. We [at Battery Ventures] were invested in Groupon and we saw how much customers loved this whole last-minute-deal angle. But it was hard for Groupon to [drill deep] across categories, given that merchant needs are different. The industry needed verticalized [players] and [HotelTonight] fit nicely in that sweet spot, so I did a little digging, and lo and behold, it was Sam Shank and his partner Jared [Simon] behind the company. I reached back out to Sam and said, ‘This is a great idea; I’d love to catch up with you.’

They were [running a company called] Dealbase [that aggregated and compared hotel deals] and HotelTonight was their mobile offering, so I got together with him and we set it up in a way where we wrote a [letter of intent to Dealbase’s angel investors] to spin HotelTonight out of Dealbase and make it its own company. But to do that, we wanted not just the technology but the team.

They had pretty well-known angels, so I went and talked with them, and some of them were not very excited about having the team go to this new company, so we set up this structure where Dealbase shareholders would get 50 percent of HotelTonight if they came over, and if they didn’t want to come over, we’d buy their shares. I think all of them came over eventually, though some were more curmudgeonly about it. Hopefully they appreciate it now! Then we put together a large option pool for the team and put together a syndicate, including myself at Battery, Theresia [Gouw] when she was at Accel, Kent Goldman [then of First Round Capital], and Kirsten [Green, the founder of Forerunner Ventures] was a small investor as well. And that’s what helped start the company.

At the time, I was one of the first customers, and I remember checking into one of their hotels in New York, and the hotel had never heard of HotelTonight but there on the fax machine was my booking reservation; that was the technology that was available at the time.

Then we [at Battery] led the Series A, we split it with Accel. I was already on the board from the seed round, then Theresia joined the board at the Series A.

When I left Battery [to join Accel] it was the smoothest transition. When you leave a firm, you leave behind [your companies]; your investments belong to the fund and not to you. But this was more seamless because Theresia was transitioning out of Accel [to start her own firm, Aspect Ventures] around the time that I was joining. So I think I was off the [HotelTonight] board for about a month. Then I took Theresa’s seat at Accel and [longtime Battery investor] Roger Lee went on my seat. Then at Accel, we led HotelTonight’s last round of financing.

It’s kind of serendipitous that all three firms where I’ve worked were shareholders.

[As for the outcome of the company], we’d talked about an IPO a while ago. It was growing really quickly. It’s a large business now with well over a hundred million [dollars] in [annual] revenue. it’s profitable. It has a lot of the characteristics you’d want. And they’d been approached by a variety of partners over time. But Sam and [Airbnb CEO] Brian [Chesky] have a special relationship. They’d known each other since even before HotelTonight.

And it’s great when you can clearly fill a void, and continue your mission under a bigger umbrella. Airbnb is rapidly growing a good business. It has done a great job of winning the hearts and minds of customers. But it had a gap in that it hadn’t focused on hotels and last-minute travelers, and it gets a lot of interest in those areas, so we thought the companies culturally would really complement each other, but also that the products would complement each other.

Decisions are always led by the team, and this is one where they were really excited about it, and we were super supportive of that. It’s the funny thing about all these deals, though. Yes, you can get a banker like Qatalyst [Partners] involved.  But a lot of it comes back to relationships.

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