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Last week we launched our report Venture Investment Trends in the Travel Industry: Lessons & Strategies for Travel Startups, which looks at what type of travel startups attract venture capital funding, where smart money is going, and the common mistakes that startups make as they seek funding and strive to build their new businesses.
Below is an extract. Get the full report here to get ahead of this trend.
There are all sorts of entities funding travel startups these days, including prominent angels, accelerators such as Y Combinator and Start-Up Chile, public company funds such as Concur’s $150 million Perfect Trip Fund, private equity firms such as TPG, hedge funds looking to diversify, and venture capital companies investing in all stages of the travel startup lifecycle — or eventual death spiral.
Venture capital firms active in travel include Thayer Ventures, Accel Partners, General Catalyst Partners, Battery Ventures, PROfounders Capital, Benchmark Capital, Sequoia Capital, Google Ventures, Sutter Hill Ventures, Altimeter Capital, Menlo Ventures, PAR Capital Management, and dozens more.
The most prominent venture capital firms, seeking to maximize returns for their limited partners, are focused on producing substantial exits from members of their travel-startup portfolios ranging from a minimum of $500 million to several billion dollars. For example, recent exits of this scope would include the acquisitions of Concur Technologies (SAP, $8.3 billion) Micros Systems (Oracle, $4.6 billion), OpenTable (Priceline Group, $2.6 billion), TravelClick (Thoma Bravo, $930 million) in 2014; the acquisitions of Kayak (Priceline Group, $2.1 billion) and Trivago (Expedia, $632 million for a majority stake) in 2013, and ITA Software (Google, $700 million) in 2011.
It’s an interesting game of speculation to muse how much higher the acquisition prices of ITA Software and Kayak might have been if they had occurred a few years later than they did. But that’s merely the way things go with any merger or acquisition.
It is interesting to note that most of the M&A activity in travel so far in 2014 revolves around older companies, with several founded in the 1970s, 1980s and 1980s, and five of the top 10 largest acquisitions of the year involved public companies or those controlled by private equity firms.
TripAdvisor is among the most acquisitive companies in travel, having acquired 29 brands since 2006. In 2014, TripAdvisor acquired four companies, including Viator for $200 million, as well as European restaurant reservations site Lafourchette, VacationHomeRentals and Tripbod for another $152 million in cash.
That comes on top of six acquisitions — TinyPost, Jetsetter, CruiseWise, Niumba, GateGuru, and Oyster.com — the cash portion of which was a mere $31 million when the transactions occurred in 2013. That cash portion, though, which was disclosed by TripAdvisor in financial filings, doesn’t necessarily reflect the total cost of the acquisitions, which could have also included stock and future considerations based on performance.
Vacation rental leader HomeAway is another avid acquirer, and it has tacked on approximately 22 businesses since its founding in 2005. In 2013, HomeAway acquired Travelmob of Singapore, Bookabach in New Zealand, and, by far the most expensive of the trio, the Stayz Group of Australia, for $198 million. HomeAway also acquired Glad to Have You, a property management app, for $16.8 million in 2014, according to a financial filing.
Despite TripAdvisor’s and HomeAway’s well-earned reputations as active startup buyers, none of their acquisitions over the last two years rises to the level that venture capital firms make their livings on.