I've worked at two startups.

There's nothing wrong with being cheap. That's why I included the phrase "beyond practicality."

How much are you spending to fly out the applicant? How many man hours will be spent on the interview process? If you're willing to risk these investments to save $50, I consider that impractical.

That argument presupposes that you are taking a risk. However, that is the point under discussion: is it a risk? You could also consider it in a positive way: people that are put off by something as irrelevant as where they stay, that worry about comfort, are less likely to be a suitable candidate. There'll be more uncomfortable circumstances to deal with.

Of course, this is from my point of view: I presuppose that 'where you stay' is irrelevant, because I consider it irrelevant. If I have to sleep on a couch in the founder's living room, so be it. Perhaps you are right that one should best err on the safe side of caution by providing a hotel. Nobody's ever been fired for providing a hotel room :P