How HotelTonight Went From Burning Millions to Planning an IPO

Last summer, Sam Shank set out to raise a new round of funding for his last-minute hotel booking startup, HotelTonight. He was confident. He'd never had trouble raising money before, and though his company wasn't a unicorn, it was something of a travel industry darling. Besides, growth was up and to the right. Yet in meeting after meeting, venture capitalists ignored the growth numbers Shank provided and kept asking him about the company's finances, especially the $2.5 million-plus HotelTonight was burning every month. He couldn't get them to agree to a valuation he felt the company deserved.

Shank, 43, was like a lot of other startup CEOs, flush with cash from earlier rounds and so focused on the day-to-day he didn't notice that VCs had suddenly become parsimonious. "As a CEO, you never get told the world has changed," he says. Once he realized raising a new round was going to mean a low valuation or a complicated term sheet, he walked into his Monday morning executive team meeting in October and told them there was a new plan: getting to profitability with the resources they had left. That meant cutting staff—fast. "I remember telling them, 'Okay, there's going to be a change—we're going to have to do layoffs,'" he says. "It was one of the first times I had to vocalize it. I had trouble even completing the sentence."