Post $25M Funding, Russian Startup Ostrovok Slashes Staff To Aim For Break-Even

Posted: June 17, 2013 in Europe, GT
Tags:

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It was only in March that one of Russia’s hottest
startups — hotels booking service Ostrovok.ru –
raised $25 million in a Series B round led by billionaire
investor Yuri Milner. We said at the time that this
market is very capital-intensive, especially in a
market like Russia. But today we learn just how difficult this might be in the mid-term. Today the
company has announced on their blog that they are
letting go of a third of their staff. Staff will be
compensated with 3 months full salary and bonus,
and their options will also vest. To Ostrovok’s credit
they are making the news public so that their staff can find new positions: “If you need great people,
write to Kate (katya@ostrovok.ru)”. The reason, blogs cofounder Serge Faguet, is that
they want to “take the company to break even”
something they said they’d wanted to do last year.
However, it’s clearly not happening as fast as they
predicted, hence the lay-offs. Unfortunately, the hotel booking space is a crowded
one in Russia, and despite there being a rising middle
class in Russia, the cost of travel can take out a
hefty chunk from people’s expendable income. And while Ostrovok probably needed cash to scale
up, the margins in travel booking are well known to be
thin, requiring a lot of scale to make sense. It’s the
age old problem of burning cash to get to that scale –
or cutting costs to make the numbers work better. Faguet however is, understandably, trying to be
upbeat about this move, noting that brand recognition
is up “20%”, and he says they have hit 100,000
bookings and “are growing more than 50%” in the last
quarter. Faguet told us via email: “The story is pretty simple…
We’ve taken on too many people and projects
simultaneously and, after raising our Series B,
decided to pull back and work in a more focused way
(and make ourselves more attractive for future
fundraising). We still have over 130 people at the company.” He goes on to say on the blog: “Our strategy remains
exactly the same as before, and the quality of
customer service will not change.” So is seems it’s more of a case of a startup cutting
lots of side projects and focusing on what it does
best.

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