Tech fund Coatue leads $45 mln funding into startup HotelTonight

SAN FRANCISCO, Sept 5 Thu Sep 5, 2013 12:00pm EDT

SAN FRANCISCO, Sept 5 (Reuters) - Technology hedge fund Coatue Management has led a $45 million funding round into accommodation service HotelTonight, the latest example of the burgeoning interest among hedge funds in Silicon Valley start-ups.

HotelTonight, which allows travelers using smartphones to book rooms at the last minute, plans to use the cash to further expand around the world, including Asia. It announced the news in a press release.

The founders aim to boost discretionary hotel stays, in which a guest did not necessarily need to stay in a hotel. That market currently represents just 15 percent of the hotel market, said HotelTonight co-founder Sam Shenk in an interview Tuesday, but he believes it could rise to about 25 percent over the next few years.

"If we could make it very easy and convenient to book a hotel, we could generate demand," Shenk said, describing his thinking when founding the company in 2010.

Unlike discount sites such as Priceline and Hotwire, HotelTonight allows customers to book only for stays beginning the same day. It works only through a smartphone app.

A check on Tuesday showed availability at establishments like the Ace New York, the Hollywood Roosevelt, and Le Meridien in Dallas.

Coatue is making the investment from a new $375 million fund dedicated to private technology companies, according to the release. GGV Capital also participated, along with existing investors Battery Ventures, Accel Partners, US Venture Partners, and First Round Capital.

Other hedge funds that have recently made bets on privately held Silicon Valley companies include Tiger Global, which in May invested $50 million in Automattic, the company behind the WordPress blogging service. In January, Tiger Global led a $444 million equity investment in online survey company SurveyMonkey; in April, it led a $60 million financing round for online ticketing service Eventbrite.

Last year, General Atlantic invested $100 million in cloud-storage company Box and $50 million in apps-consulting company Appirio.

With companies waiting longer to go public, more of the gains in valuation take place before their initial public offerings, hedge fund executives say, increasing their motivation to invest while the companies are still private.