Sonder had years of red flags before Marriott made a deal — and travelers got left in the lurch

The warning signs were there.

Long before guests found themselves abruptly kicked out of their “Sonder by Marriott” stays this month, Sonder, the Airbnb rival, was battling sloppy accounting, a litany of lawsuits, and a stock price so low it was nearly delisted from the Nasdaq.

Bankruptcy filings and SEC records show just how stark the signs were — and raise questions about why Marriott, the world’s biggest hotel chain, got into bed with the one-time unicorn.

The San Francisco startup, founded in 2014, leased apartments and hotel rooms in bulk, redesigned them with a minimalist aesthetic, and rented them to travelers. It’s the brainchild of Canadian Francis Davidson, who is the ideal of a 2010s founder: VC-backed, college dropout, Forbes 30 Under 30. He offered a “revolutionary” promise: Goodbye, poorly decorated Airbnbs with quirky hosts. Hello, streamlined rentals managed with modern technology.

In August 2024, he unveiled his pièce de résistance: a deal between Sonder and blue-chip Marriott, which was heralded as a way to bring that vision into the future.

“Making this deal happen — along with the multi-party, complex capital raise I orchestrated — was the hardest thing I’ve ever done,” former CEO Davidson wrote in June.

At the time, analysts lauded the deal, noting that it would add 9,000 rooms to Marriott’s portfolio — a key figure for the hotel giant’s valuation. Sonder said after the deal closed it would reduce costs by as much as $50 million.

Looking back, the Marriott deal was maybe less of a legitimization and more of a Hail Mary. Since going public at a $2 billion valuation in 2021, Sonder had faced layoffs, lawsuits, and a slew of executive departures, including Davidson.

“Marriott, no lie, they saved the company last year with their agreement,” Logan Ford, who worked in sales at Sonder before being laid off last week, told Business Insider.

The $76 billion hotel giant didn’t come to Sonder’s rescue again. In court filings for Sonder’s bankruptcy case, Marriott said that after it helped cover about $1.5 million in payroll, Sonder pressed the company for as much as $50 million to pay for shutdown operations. Marriott declined, and shortly afterward, signs appeared on the doors of Sonder properties telling guests to vacate.

Thousands of customers were suddenly left with no place to sleep.

Now, some in the industry are questioning how Marriott missed the warning signs. “I don’t know how anyone with any iota of business sense could have thought that this was a good idea,” said Alan Reay, president of Atlas Hospitality Group, a California brokerage firm that tracks hotel ownership and financing trends.

“The Marriott partnership is what essentially kept the company afloat for the next year,” Ford said — and when it ended, there was nothing left.

A unicorn that survived the pandemic

At the height of COVID-19, Sonder laid off a third of its staff and had been sued for allegedly bailing on leases, a claim that Sonder denied and for which litigation is ongoing.

In 2021, the company, which gained unicorn status two years earlier, announced it was going public via a SPAC at a $2.2 billion valuation. SPACs — or special purpose acquisition companies — offered what many startups saw as a quicker, less scrutinized path to going public than a traditional IPO.

Sonder had survived while competitors like Lyric folded, and was now on its way to becoming an “iconic 21st-century brand,” then-CEO Davidson told Business Insider at the time.

“This kind of financial discipline, with a really rapid response to the pandemic, has meant that we’ve been able to outperform a lot of the competition and be in a relatively strong position,” Davidson said.

Its public market debut was lackluster. On its first day of trading, Sonder’s stock dipped 8%.

Its downward spiral continued. Shares traded under $1 for much of the following year, leading the Nasdaq to threaten a delisting.

There was another round of layoffs — this time 17% — in 2024, and Sonder was hit with lawsuits accusing it of not paying rent or properly managing its buildings.

One New Orleans hotel that Sonder managed, the 100-year-old Jung Hotel, alleged that the startup had tarnished its reputation. There wasn’t enough security, which led the hotel to become a “magnet for violent crime” and a “warzone,” the landlord said in the lawsuit. The hotel was also not properly cleaned, with toenails in the bed sheets and blood on the linens, the complaint said.

Sonder disputed the claims, and the lawsuit was settled, as was a 2022 lawsuit Sonder filed against the Jung Hotel’s owner at the time.

“SCAM- NOT AN OPERATING HOTEL,” one online review read, according to the Jung Hotel’s 2023 complaint. “Just another short term rental place poorly taken over by Sonder. You’ve been warned.”

A hotel in San Francisco sued, saying Sonder wasn’t paying its rent and owed more than $1.2 million as agreed upon in a lease termination agreement. Sonder denied the claims, and the lawsuit was settled.

The company’s accounting also had problems. In 2024, Sonder revealed in an SEC filing that its financial records since its debut as a publicly traded company could not be trusted after being reviewed by an auditor.

The stock fell 38%, and Sonder said in filings that it was asking lenders not to call in loans or otherwise punish the company for the errors.

Despite that, Marriott took a chance. Six months after its announcement of two years of unreliable financial reporting, Sonder announced its deal with Marriott. All of Sonder’s properties would now fall under the “Sonder by Marriott Bonvoy” branding.

“When we did the deal back in August 2024, everyone around the table was aligned that plugging into Marriott’s distribution should increase revenues for Sonder,” Davidson told Business Insider this week. “The fact that in the end there was seemingly a decline comes as a great surprise, I think, for all parties involved.”

Sonder declined to comment on the record.

Sonder’s rooms allowed Marriott to boost its “net unit growth,” or the number of rooms it can rent, a key metric followed closely by investors and Wall Street analysts. The Sonder deal allowed it to add 9,000 units to its portfolio, it said when it announced the deal.

For Sonder, it provided desperately needed cash. Marriott would pay Sonder $15 million in “key money” as part of the deal.

Some in the hotel industry said they were surprised at the deal. Reay of Atlas Hospitality Group said it “absolutely made no sense.”

“Whoever did the due diligence, whoever did the underwriting on this, if they’re still at Marriott, I’d be surprised,” he said, comparing 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 perhaps clouded its judgment. He called Marriott “a great company” that is “vertically integrated better than any company I’ve seen,” but said its deal with Sonder was “a bad risk.”

A Marriott spokesperson declined to comment.

Multiple people with familiar with Sonder’s said the Marriott deal sustained the company.

“The Marriott agreement a year ago is actually what kept us from bankruptcy,” Ford, the sales employee, said.

Even still, Sonder was in a precarious position.

“Management has concluded that there is substantial doubt, which is not alleviated, about the Company’s ability to continue as a going concern for at least one year,” it wrote in a November 2024 filing. One year after the filing, Sonder was out of business.

Final days of Sonder

By this November, Sonder was drowning in debt, nearly out of cash, and out of options, according to legal filings.

Sonder had been negotiating for emergency financing and a potential buyer to take over its assets in bankruptcy, but the bidder abruptly pulled out on November 2, the filings said.

Three days later, Marriott agreed to provide Sonder with about $1.5 million in funding to cover one week of US payroll, the hotel chain said in filings in Sonder’s bankruptcy case, calling it a short-term move to help keep thousands of guests housed.

The “ink was barely dry” when Sonder, on November 6, sent Marriott a $50 million proposal for Marriott to cover the costs of winding down Sonder, according to bankruptcy filings. The hotel giant said it rejected that plan, along with two other revised proposals for $28 million and $14 million.

Marriott accused Sonder of trying to “leverage guest safety as a bargaining chip” in order to get money out of it.

Sonder threatened that “unless Marriott financed its wind-down, it would shut down hotel systems and leave thousands of guests locked out of their rooms mid-stay,” Marriott alleged in bankruptcy papers.

On November 7, Marriott terminated its 20-year license agreement after Sonder told Marriott it faced an “imminent free-fall liquidation.” Marriott said in court filings that this allowed it to take over guest support and begin rebooking travelers.

The move left guests scrambling, forcing many to leave their stays with little 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 Marriott’s platforms. Sonder, which reported having over 1,400 employees at the end of 2024, also laid off all staff the same day without severance.

On November 10, Sonder announced its Chapter 7 bankruptcy plans.

In its press statement, Sonder blamed financial strain, technical problems integrating with Marriott’s booking systems, and a sharp drop in bookings from Marriott’s Bonvoy program. Marriott, in turn, said the collapse stemmed from Sonder’s own mismanagement.

“Sonder collected tens of millions of dollars in advance payments for reservations it now admits it will never honor, spent weeks on a failed restructuring without any contingency plan, and failed to reserve sufficient liquidity to support an orderly wind-down,” Marriott said in a bankruptcy filing.

The company, Marriott claimed, used guests’ advance payments and deposits to bankroll its own operating expenses.

Amid the fallout, Marriott tried to distance itself from Sonder.

“It’s important to understand, and I think it’s important for the public to understand, that there was a license agreement, and, quite frankly, nothing more between Marriott and Sonder,” an attorney for Marriott told a Delaware bankruptcy judge this week.

Sonder managed and operated its thousands of apartment-style and boutique hotel short-term rental units around the globe — not Marriott, the lawyer emphasized.

For Marriott, the end of the deal was a black eye as news stories and social media were flooded with stories of travellers left without options and being given conflicting advice.

For Sonder, it was the end of the line.