Skift Take

As Piper Jaffray analyst Michael Olson points out, it isn't alway the first-mover that leads to a successful exit for a travel startup. Often it is later arrivals with a team that can really execute and has better networks or more ample funding.

Editor’s Note: In our Skift Startup Stories series, we document travel startup issues, solutions, and lessons from a variety of angles, hoping to shed light on what separates the winners from the losers. You can read all of the stories in the series here.


You’d figure that investment bank Piper Jaffray would spend most of its time focused on companies with multi-billion dollar valuations but Michael Olson, a managing director and senior research analyst at the firm, actually sat in on about 50 calls or meetings with private companies, including numerous travel startups, over the last year or so.

That was a contributing factor in a handful of travel startups, including, Pathway GDS, Tripping, and Sidecar, participating on panels at a recent Piper Jaffray conference in New York City.

Olson believes it is very valuable to the investment bank to get a handle on the travel startup scene because these newbie companies can offer insights and data that public companies might be loathe to share. And when you establish relationships with startup founders and co-founders you can gain insights about the aspirations of the larger public companies if they happen to plunk down some money and acquire the startups.

“In a lot of cases, these acquisitions are done based not on what the private company is doing today but what they are dreaming they’ll be doing in the next few years and what’s in their pipeline,” Olson says. “It gives us a sense for what that is and that can give us a better flavor for what the public companies are thinking, and the direction in which they take that.”

During its research of travel startups and the sharing economy, Piper Jaffray reached out to, a search engine for lodging in all its variations, and AllTheRooms co-founder and CEO Joseph DiTomaso, a former investment banker himself, says he is impressed about Piper Jaffray’s willingness to “go down market” in its research.

“We you are an investment banker you are interested in covering companies that have the potential to do something in the short-term,” DiTomaso says, referring to mergers, acquisitions and leveraged buyouts, for example. “You don’t usually see the coverage of startups but it totally makes sense.”

Skift spoke with Olson about the travel startup scene through an investment bank lens, and he offered several insights on how to tell potential winners from losers, including what to look for as far as “intangibles;” how being the first mover isn’t the end-all and be-all, and how there seems to be a trend where startups these days are focusing on experiences and getting further away from the transaction.

An edited version of the interview follows:

Skift: I thought it’d be interesting to look at travel start-ups from the investment banking perspective. So in your research how do you factor in private companies, even travel start-ups, when the focus of your work is obviously public companies?

Olson: Yeah. It’s a good question. I think our view is to have a full spectrum of what’s going on in this space, and what’s going on with private companies, as well. So there’s reason for us to believe that for our research on the public companies that we technically “cover” is that we will have a much better view of those companies if we have a much better idea of what is going on in the whole ecosystem.

For us we are only able to get certain information from the public companies that we cover for obvious reasons. They’re only able to share certain metrics and things of that nature and at certain times. Whereas when we talk to private companies, they aren’t held to the same restrictions and can give us a sense for what may be going on in any given space at any given time. Typically, the only restriction that they would have would be not being willing to share their thoughts or expectations for competitive reasons only. Otherwise, there’s really no issue with information-sharing amongst that group. That’s one reason.

The other thing goes back to better understanding the ecosystem from a competitive standpoint for the existing public online travel companies. We need to have a good sense who may be competitive in this space. Probably the most obvious example in this space would be Airbnb, a private company that is certainly increasingly competitive with HomeAway. And there are other public online travel companies that have exposure to the vacation rental space or alternative accommodations in general. We feel like we have an incomplete view if we don’t also spend a lot of time learning what the private companies are up to.

Skift: In the ordinary course of your work are you going out and you’re talking to the private companies, as well?

Olson: That’s correct. Yeah. Last year alone, I believe we did calls or meetings with more than 50 private companies.

Skift: That’s all in the online travel space?

Olson: No. A lot of them were in the online travel space but I covered some other stuff, as well. For example, we put out a report that is somewhat tied to the online travel space  regarding the sharing economy. A lot of those companies were in that space, as well. I also cover, on the other side of the universe, video games. The majority of them were either in travel or the sharing economy segment.

The other thing that obviously happens over time is that some of the people that we’re talking to may end up as part of a bigger entity, either by a transition in their careers to working at a different entity or being acquired by one of the companies that we’re covering. Nothing’s better than to have one of those companies be acquired by one of our existing public coverage companies. We have, from day one, an edge on what that company does and maybe, to some extent, what their revenue stream looked like and market profile and things like that.

Skift: Part of it is about building relationships so you have those contacts and those relationships which, as you say, can help give you an edge?

Olson: Exactly or building a knowledge base. If you look at all the relatively small private companies that were acquired in the online travel space over the last one to two years, you’d probably know that number better than I would. It’s a large number of relatively small companies. Some of those were companies we had spoken with and had started to build a relationship with.

I’m not suggesting that they’re going to be able to continue to talk to us in the same way that they could or at all after they’ve been acquired. At least, at the time they are acquired, we have a better sense for what they do, what their story is, what the potential growth or revenue run rate is. More so, than maybe, what some of the other analysts covering these stocks would have.

Skift: Some of these companies, if they get acquired, might not even be huge game- changer. Maybe, it was an acqui-hire or they were acquired for the technology and you’ll never hear of the brand again, right?

Olson: That’s true, but it at least gives you a sense for the direction that the public company acquirer is going. In a lot of cases, these acquisitions are done based not on what the private company is doing today but what they are dreaming they’ll be doing in the next few years and what’s in their pipeline. It gives us a sense for what that is and that can give us a better flavor for what the public companies are thinking, and the direction in which they take that.

Skift: That’s really interesting. When you said that you probably interviewed 50 private companies, was that in the last year? Do have a team of people that are doing this? It’s not just you, right?

Olson: Well, it would be. I am on every one of those calls or meetings. The guy who works with me primarily on the travel space is Sam Kemp. He scours the Web to make sure that we are consistently finding the right companies to talk to, working to set up calls with the right people, set up meetings with the right people and things like that.

Skift: Right. There’s always such a glut of travel startups. Where do you begin? Are you getting leads from the public companies or from venture capital firms? How do you start to separate the wheat from the chaff?

Olson: It’s tough. To be perfectly honest, a lot of the companies that we talk to are either not going to amount to much in the way of being major growth companies in the future, but a lot of them will. It’s a mixed bag. We certainly have cases where some of the companies we talk to are out-of-business 12 months later. Some of them we’re talking to are becoming massive companies that are contenders in the space or those that are being acquired by the bigger entities. It’s a mixed bag.

To answer your question, what we do typically is talk to a lot of VCs. We get their take on what their best portfolio companies are. Which of those companies are likely to spread their wings a little bit. And start talking with analysts that, like me, might put them in a whitepaper or invite them to a conference.

We also spend a lot of time looking at which companies are getting new rounds of funding and get engaged that way on where investors, private investors, are feeling the best opportunities are. It’s definitely not coming from the existing public companies. That’s not a source.

Typically when we put out a white paper we have companies that come out of the woodwork and want to talk more about what they’re doing. That’s a good source for these conversations as well.

Skift: In some cases, you’re definitely open to talking to them? From the outside, I would say there’s probably all these hopeless companies that are probably beating down your door, looking to get a little attention.

Olson: Yeah. I think our approach has more of a shotgun approach. I think that you never know which businesses are going to hit certain pivot points and what the model’s going to change or look like. I think it makes more sense to cast a wide net.

Skift: Right. When you say it’s hard to tell which companies will reach a pivot point, I would bet anything that after you get off the phone with those 50 companies, there are certain cues that you can take to see that, well, this company’s going nowhere. Or maybe another company’s onto something. There must be some morals to the story that you think about after these conversations.

Olson: I think the biggest thing on that front would be that we might talk to a company and in the last six months, talked to three companies that had essentially the identical conversation. We’re on the fourth version of the vertical that company is in. We get a lot of those where we get off the phone and say to ourselves, “This is version four of the same exact thing. It’s probably going to be less likely.”

On the other hand, one of those four is probably going to work. We’re happy to have talked to them to make sure we’re involved with whichever of the four is going to maybe the leader or be the survivor in that vertical.

There are other things that, I would say, are more intangible as far as those that you can tell have created a good network of existing potential contacts and routes to go as far as growth. You can get a sense for which companies are farther down the road versus nowhere as far as their trajectory. Typically, you can get a sense for which ones are going to see new rounds of funding in the next few months.

Skift: I would bet that company that you spoke to that was version four of the same thing is probably telling you that they have no competition. That they’re doing something totally unique.

Olson: Exactly. I think, in some cases, there are slight nuances between companies that maybe when you’re so far in the weeds as a company, you think to yourself, “We’re very different than ‘X’ company that’s doing something that’s almost identical but slightly different.” You’re so far in the weeds you can’t necessarily even decipher that. Maybe from the outside when we’ve talked to 50 companies in a year, we can see that or have a sense that really they’re not that different.

Skift: I notice that at your recent conference, you had several vacation rental start-ups on panels. There was one or two sharing economy car rental start-ups. With the dominance of HomeAway and then you have Airbnb. is there still plenty of room for new companies to emerge in those spaces?

Olson: Yes. I think one thing that we’ve noticed is that it’s not always been the case that it’s the first mover that’s won in these markets. It’s been, in many cases, a situation where somebody came up with a good idea and didn’t necessarily execute on it the way that that they could have or should have. Somebody else sees the idea and has a little bit better ability to capitalize on it, whether being more well-resourced or having more experience or better contacts.

I would say that because in some cases there are massive incumbent players that probably aren’t going to be unseated. If you’re in the third or fourth inning of one player getting a leadership position, there’s still probably room for others to come in and potentially still own that market.

Skift: That was really true in the case of Kayak back in the day. They certainly weren’t a first mover. There was a whole crop of very small travel metasearch companies that just faded away.

Olson: Exactly. That’s right.

Skift: Anything else particularly interesting that you’re seeing among the recent crop of travel start-ups? Anything that stands out or is very different or notable?

Olson: I guess it seems like a lot of the companies are increasingly less focused on the booking and/or transactional component of travel, and more about the experience, review and feedback loop of travel. In other words, the transactional side between the major metasearch and major OTA (online travel agency) players is played out. It’s more about figuring out how to create a community in some ways around some of the content on travel that’s being increasingly put out there, similar to what TripAdvisor has created, but maybe in other specific verticals. Also, just improving the experience around travel and finding ways to make it more seamless.

Olson: Do you think that trend holds promise? A lot of times, you hear about how so many companies fail because they were too far removed from the transaction.

Skift: Yeah. I think that’s a tough call. I think it’s hard for me to say at this point. I think that you need to be involved with something that is monetizable beyond something like display advertising or something like that. You need to be involved with something where there is potentially a transaction or booking that will ultimately result from the content or whatever is being produced.

That may mean that you’re not exactly the entity that takes on the booking or the transaction itself but that probably means that you need to, in some way, either be close to the transaction or be a provider of lead generation to that transaction.

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Photo credit: Piper Jaffray got a briefing from lodging search engine as part of the investment bank's research on travel startups. Pictured, employees working at an office in Latin America.

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