Market Validation

There has been a lot of interest from real estate investment companies in recent years, resulting in large hotel-hostel hybrids.  They have done a lot of marketing to promote what they’re doing.  Their intention is to change the public perception of what a hostel is and to seduce traditional hotel guests into their beds.  

A search for articles on any of the following keywords will probably give you some ammunition for the investors:

• Boutique hostels
• Luxury hostels
• Poshtels
• Flashpackers
• Generator hostels
• Freehand hostels

Here is an older discussion about hotels converting some of their business to the hostel model because the dorms were selling better than the private rooms.  Unfortunately, the original URL for the article that is quoted has been removed by the publisher.
Las Vegas hotels converting to hostels

If your tourism stats include information about the FIT market, this could help as well.  FIT is an abbreviation for Foreign (or Frequent) Independent Traveler.  This is the market most likely to want a dorm bed because they won’t get charged for a double occupancy room when they are traveling by themselves.  If there is a strong FIT market, then it's easier to convince the investors that there is business potential in shared dorm accommodation.  If you are opening the only hostel in the city, then you are providing a unique service for that entire market. 

Also, you can play up the fact that hostels don’t just sell beds.  Hostels offer accommodation and community – that’s a key selling point.  There are all kinds of organizations that arrange Meet Up events and an industry of co-working spaces sprouting up because people want human interaction, even when they travel for business.  Here is an example of a hostel that caters to entrepreneurs:
India’s New Startup Ecosystem Gets a New Coworking Hostel to Work from the Hills of Manali
 
It will help if your investor has ever stayed in a hostel, or has a spouse, child, neighbor, or friend who has stayed in one.  You could suggest that they ask that person abotut their experience in order to relate to the business model.  You might ask them, “Do you have kids? Have they ever traveled abroad?”