What potential hire would want to risk offending them by turning down their preference, though? You're introducing pressure and sending a signal.

Frugality is better applied to ink cartridges than employee comforts, IMO.

Perhaps they should turn it around: offer the applicant the choice, without stating a preference. If he chooses the hotel, it counts against him, because startups need to be frugal. The applicant should realize that they're not just interviewing him, but perhaps a dozen others and the difference adds up.

On the other hand, when he's hired, he should expect to be made comfortable: don't skimp on chairs, displays, airconditioning, etc. Whether that's the case should become clear during the interview: it's also about "do I want to work here?"

If I had a strong enough preference for not using airbnb, I would. If my choice of accommodations is that big an issue, I probably don't want to work there anyway.

ie. skimp on commodities, not on talent

Skimping on commodities that affect the talent is skimping on the talent.

I guess that is why thousands of startups are running out of run-down brick warehouses covered in a swipe of fresh paint in some of the most seismically unstable areas of San Francisco; because people care that their companies are skimping on rent.

I was referring specifically to the skimping that reaches the level where it effects the talent.

Choosing functional real estate can certainly be fine. But what would you think of a startup that chose Oakland over SF to save even more money?

I'd love for the company to be frugal with everything that isn't related to my salary.

My salary? No, I don't want the feeling that they're going to knock me down to as low as I'll accept, I've worked hard to develop my skills and I deserve a paycheck. The OP's company could spend an extra 100 bucks per interview and have way higher odds of a good impression from the interviewee. It's like tipping really well when you order your first drink and getting good service for the rest of the night, first impressions matter.

  The OP's company could spend an extra 100 bucks per interview and have
  way higher odds of a good impression from the interviewee

If the startup you're interviewing at needs to make a good impression to be graced by your future employment, then your sense of entitlement is way to large.

I'd rather see them save 12*100 bucks, so they can buy me a decent chair when they hire me.

Meh, if they're already flying me out and putting me up, and skimp on the extra 100 bucks to put me in decent lodging, they're likely to cut corners other places as well.

The issue isn't even the 100 bucks, it's the fact that they're telegraphing that they don't know how important first impressions are, and they'll cheap out on me given the first opportunity.

As far as my sense of entitlement, well, what the market will bear and all that. It's not that I insist on 4-star lodging, it's that the company is sending a message by asking me to do AirBnB or couchsurfing or whatever. If this is a scrappy pre-funding startup with an awesome idea, ok, if I like the idea, I'll play ball. If it's a business that wants to hire me as an employee, that's different.

In a down market, there are some people who would accept a wet cardboard box for the night if they thought that showing frugality would get them the job.

You have to wonder how many of your interviewees were thinking along those lines when you made the offer.

It could also be that they want them to interact with locals, learn a bit more about the area they would be living if they got the job. Make sure they like the area, you don't really get that same impression staying in a city hotel.

Frugal: "We only pay for cheap hotels."

Cheap: "We won't pay you overtime for business trips."