The warning signs were there.
Long before guests were abruptly kicked out of Sonder by Marriott hotels this month, Airbnb rival Sonder was struggling with sloppy accounting, a slew of lawsuits and a stock price so low it was nearly delisted from the Nasdaq.
Bankruptcy filings and Securities and Exchange Commission filings show how clear the signs were and raise questions about why Marriott, the world's largest hotel chain, got involved with the former unicorn.
The San Francisco-based startup, founded in 2014, rented out apartments and hotel rooms en masse, redesigned them in a minimalist style and rented them out to travelers. This is the brainchild of a Canadian Francis Davidsonwhich is the ideal of a 2010s founder: VC-backed, college dropout, Forbes 30 under 30. He suggested “revolutionary” promise: Goodbye poorly designed Airbnbs with quirky hosts. Hello, optimized rentals managed using modern technology.
In August 2024, he unveiled his resistance initiative: a deal between Sonder and flagship company Marriott that was hailed as a way to bring that vision into the future.
“Bringing this deal to fruition—along with the multifaceted and complex capital raising I orchestrated—was the most difficult thing I have ever done,” former CEO Davidson wrote in June.
At the time, analysts praised the deal, noting that it would add 9,000 rooms to Marriott's portfolio, a key figure for the hotel giant's valuation. Saunder said costs will drop by as much as $50 million once the deal closes.
In retrospect, the Marriott deal may have been less of a legitimization and more of a Hail Mary. Since going public with a $2 billion valuation in 2021, Sonder has faced layoffs, lawsuits and multiple executive departures, including Davidson.
“Marriott, no lie, they saved the company with their agreement last year,” Logan Ford, who previously worked in sales at Sonder. fired last week, Business Insider reported.
The $76 billion hotel giant never came to Saunder's aid again. In court filings in Saunder's bankruptcy case, Marriott said that after the company helped cover about $1.5 million in payroll, Sonder demanded as much as $50 million from the company to pay for shutdown operations. Marriott refused, and soon after the door Hotel Sonder asks guests to vacate their accommodation.
Thousands of clients suddenly found themselves without accommodation.
Now some in the industry are wondering how Marriott missed the warning signs. “I don't know how anyone with an ounce of business sense could think this was a good idea,” said Alan Ray, president of Atlas Hospitality Group, a California brokerage firm that tracks hotel ownership and financing trends.
“The partnership with Marriott is what essentially kept the company afloat for the next year,” Ford said, “and when it ended, there was nothing left of it.”
The unicorn that survived the pandemic
At the height of the COVID-19 pandemic, Sonder laid off a third of its staff and was sued for allegedly refusing rent. Sonder has denied the claim and litigation is ongoing.
In 2021, a company that received unicorn status two years earlier, it announced it was going public through a SPAC at a valuation of $2.2 billion. SPACs—or special purpose acquisition companies—offered what many startups considered a faster and less scrutinized route to going public than a traditional IPO.
Sonder survived while his competitors such as Lyrics closed and was now on its way to becoming an “iconic brand of the 21st century”.CEO Davidson told Business Insider at the time.
“That kind of financial discipline and really quick response to the pandemic has allowed us to outperform many of our competitors and put us in a relatively strong position,” Davidson said.
The company's public market debut was lackluster. Sonder shares fell 8% on their first day of trading.
The downward spiral continued. The stock traded below $1 for much of the next year, leading Nasdaq to threaten to delist it.
In 2024, there was another round of layoffs—this time 17%—and Sonder was hit with lawsuits accusing the company of failing to pay rent or mismanaging its buildings.
One of the New Orleans hotels Sonder managed, the 100-year-old Jung Hotel, said the startup had tarnished its reputation. There was insufficient security, causing the hotel to become a “magnet for violent crime” and a “war zone,” the landlord said in the lawsuit. The complaint also says the hotel was not properly cleaned, with toenails on the sheets and blood on the linens.
Sonder disputed the claims and the suit was settled, as was a lawsuit Sonder filed in 2022 against the then-owner of the Jung Hotel.
“FRAUD – DON'T WORK HOTEL,” reads one online review, according to a 2023 Jung Hotel complaint. “Just another short term rental place that Saunder has captured poorly. You have been warned.”
The San Francisco hotel sued, saying Sonder had not paid rent and owed more than $1.2 million as agreed to in a lease termination agreement. Sonder denied the claims and the suit was settled.
The company's accounting also had problems. In 2024, Sonder said in an SEC filing that its financial statements since its debut as a public company could not be trusted after review by an auditor.
Shares fell 38% and Sonder said in filings that it was asking lenders not to call in loans or otherwise penalize the company for mistakes.
Despite this, Marriott took a chance. Six months after announcing two years of poor financial reporting, Sonder announced a deal with Marriott. All Sonder properties will now fall under the Sonder by Marriott Bonvoy brand.
“When we did the deal back in August 2024, everyone at the table agreed that joining Marriott's distribution would boost Sonder's revenue,” Davidson told Business Insider this week. “The fact that there ultimately appears to have been a decline I think was a big surprise to all parties involved.”
Saunder declined to comment for this post.
Sonder rooms have allowed Marriott to increase its “net unit addition,” or the number of rooms it can rent, a key metric that is closely followed by the next metric. Wall Street investors and analysts. The Sonder deal allowed the company to add 9,000 units to its portfolio, the company said when it announced the deal.
This gave Sonder much-needed money. As part of the deal, Marriott will pay Saunder $15 million in “key money.”
Some in the hotel industry said they were surprised by the deal. Atlas Hospitality Group's Ray said it makes “absolutely no sense.”
“Whoever did the due diligence, whoever signed this agreement, if they were still working at Marriott, I would be surprised,” he said, likening Sonder to a WeWork-style implosion waiting to happen.
Robert Rauch, a hotel consultant and Marriott franchisee, said the company's confidence in its own brand may have clouded its judgment. He called Marriott a “great company” that is “better vertically integrated than any other company I've seen” but said its deal with Sonder represents a “big risk.”
A Marriott spokesman declined to comment.
Many people familiar with Sonder's said the Marriott deal has buoyed the company.
“The agreement with Marriott a year ago actually saved us from bankruptcy,” said Ford, the sales executive.
Still, Saunder was in a precarious position.
“Management has concluded that there are significant doubts that have not been resolved about the Company’s ability to continue as a going concern for at least one year,” it wrote in a November 2024 filing. A year after filing the application, Sonder ceased operations.
A sign announcing the closure of the Sonder facility in New York City. Steve Russolillo/Business Insider
The Last Days of Sonder
By November, Sonder was drowning in debt, with almost no cash and no options, according to legal documents.
Sonder was in talks about emergency financing and a potential buyer to take over its assets in the event of bankruptcy, but the bidder abruptly pulled out on Nov. 2, the documents said.
Three days later, Marriott agreed to provide Saunder with about $1.5 million in financing to cover one week of U.S. payroll, the hotel chain said in Saunder's bankruptcy filing, calling it a short-term move to help accommodate thousands of guests.
“The ink was barely dry” when Sonder submitted a $50 million offer to Marriott on Nov. 6 to cover the costs of liquidating Sonder, according to bankruptcy filings. The hotel giant said it rejected that plan, as well as two other revised proposals of $28 million and $14 million.
Marriott accused Saunder attempts to “use the safety of guests as a bargaining chip” to get money out of it.
Saunder threatened that “if Marriott does not finance its closure, it will shut down hotel systems and leave thousands of guests locked in their rooms during their stay,” Marriott alleges in bankruptcy filings.
On November 7, Marriott terminated its 20-year licensing agreement after Sonder told Marriott it faced “imminent liquidation in free fall.” Marriott said in court papers that this allowed it to take over guest support and begin rebooking travelers.
The move caused embarrassment for guests, forcing many to leave their apartments without any warning.
Marriott said Sonder notified customers that it would no longer honor their reservations and advised them to contact Marriott, regardless of whether they had booked stays outside of Marriott's platforms. Sonder, which said it had more than 1,400 employees at the end of 2024, All staff were also fired on the same day without dismissal.
On November 10, Sonder announced plans for Chapter 7 bankruptcy.
In a press statement, Sonder blamed financial difficulties, technical problems with integration with Marriott's reservation systems and a sharp drop in bookings through the Marriott Bonvoy program. Marriott, in turn, said the collapse was due to Saunder's mismanagement.
“Sonder collected tens of millions of dollars in down payments on reservations it now admits it will never meet, spent weeks on a failed restructuring without any contingency plan, and failed to reserve sufficient liquidity to support an orderly closure,” Marriott said in its bankruptcy filing.
The company, Marriott said, used advance payments and guest deposits to fund its own operating expenses.
Among the consequences, Marriott tried to distance itself I'm from Sonder.
“It's important to understand, and I think it's important for the public to understand, that there was a licensing agreement between Marriott and Sonder and, quite frankly, nothing more,” Marriott's lawyer told a Delaware bankruptcy judge this week.
Sonder managed and managed thousands of short-term rental apartments and boutique hotels around the world, not Marriott, the lawyer stressed.
For Marriott, the deal's completion was a black eye as the news and social media were awash with stories of travelers being left with no choice and receiving conflicting advice.
For Saunder, it was the end of the road.
