The State of Early-Stage Travel Startups: Where Investments Went in 2015

Travel startups attracted billions of dollars in funding last year, and the travel booking sector attracted some of the most investment — more than $650 million.

Skift has tracked travel startup funding over the last year and found that startups involved with helping travelers book hotels, alternative accommodations, and air travel garnered the most funding of any travel sector and the most individual investments.

By Skift’s count, there were at least 50 separate investments made in travel booking startups in 2015 with India’s Tuija and Oyo Rooms receiving some of the largest single investments at $300 million and $100 million, respectively. Ground transportation startups were next, receiving a collective $444 million, and these included peer-to-peer on-demand ride and car-pooling apps.

We didn’t include the huge funding rounds for existing companies like Uber, Lyft, GrabTaxi, and Didi Kuaidi in that total as we wanted to illustrate what’s happening with smaller mobile on-demand ride companies just breaking into the sector. We’ve also left out Airbnb, which raised $1.5 billion in 2015. Needless to say, what these existing companies raised in 2015 was significant, and you can read more about the activity in this story.

B2B-related startups attracted the third highest funding level at about $192 million. We’re basing our analysis only on funding rounds that were disclosed and that were at least $1 million or more for a single round. While not every funding round for every travel startup is included in our data, these numbers are still representative of what took place in 2015.

In this story, you’ll read our funding tallies and analysis, my picks for five travel startups to watch, and a Q&A with three investors.

The Five Travel Sectors That Attracted the Most Funding in 2015

*Doesn’t include funding from larger companies such as Uber, Lyft, GrabTaxi, or Didi Kuaidi.

Source: Skift, Crunchbase, AngelList

It’s worth emphasizing that startups within these sectors aren’t guaranteed success simply because investors threw large sums of money at vacation rental or hotel metasearch and tours and activities companies, for example. The vast majority of travel startups fail.

As the chart highlights, the tours and activities sector hasn’t withered away despite huge challenges such as fragmentation and lack of consumer adoption that still befuddles it. GetYourGuide attracted a $50 million investment in November, for example, and Skift estimates that tours and activities startups received nearly twice as much funding as trip planning and inspiration companies in 2015.

Reflecting on the challenges, Rod Cuthbert, founder of Viator and now CEO of Rome2Rio, told Skift, “There are tens of thousands of small operators, and they don’t think collectively at all. The owners of hotels and other businesses in the travel industry are often principally business people, but tour operators are often close to their offering.”

Holidu, a vacation rental metasearch site which launched in 2014 but implemented its current site design and marketing last year, exemplifies the torrent of investment activity happening in vacation rental booking. It received a little more than $6 million since launch with former Booking.com CEO Kees Koolen leading Holidu’s most recent Series A funding of $5.3 million.

Holidu’s founder, Johannes Siebers, was also an investment analyst at Siemens Venture Capital in Munich, Germany and was previously an analyst at Sirius Venture Partners. The site searches  more than three million vacation rentals in 35,000 cities and 201 countries from hundreds of travel sites.

“Startups need to focus on making things right first for the customer with user experience rather than going after dollar valuation and revenue when they launch,” said Siebers. “Metasearch for flights and hotels won’t look the same in five years as it does today because of mobile.”

“Startups that help travelers book travel on mobile have the biggest opportunity. Travel is a big market but it’s also a very crowded market. With trip inspiration, I think this is a very tough one to approach but there are lots of user pain and problems to be solved there. But I think it’s hard to point to one clear winner so far.”

Five Early-Stage Startups to Watch

Every day Skift tracks new startup launches listed on Angellist and we see the onslaught of trip-planning and accommodations booking companies, many of which will likely fizzle out within a year or so when the money runs out.

Hundreds of travel startups launched in 2015 and we combed through our Angejlist coverage to highlight five that launched within the past year. I believe these companies have a shot at helping to define the future of travel; I considered the backgrounds of founders, investors involved, and overall themes that the startups fit into that have already shown momentum.

>>ChatSim ($2.6 million total funding to date) sells travelers SIM cards for smartphones that they can use to chat with family and friends through messaging apps free of charge and with no data limits. Not only is messaging more pervasive than ever — this is a solution that travelers have yearned for since the dawn of smartphones. Calling and using data internationally, where Wi-Fi isn’t always readily available, can still be a nightmare and costly.

>>Grab ($1 million total funding to date) offers travelers VIP access to airport stores, restaurants and lounges. It uses beacons to offer relevant deals and content based on personal preferences and how travelers move through an airport. There are still so many missed monetizing opportunities at airports, which basically have captive audiences with money to spend. With some guidance, that money can be spent more readily and wisely. Grab has also inked a deal with American Airlines to offer its content through the carrier’s app.

>>Tinflur helps destination marketing organizations source social media influencers who best identify with their target markets. Given that practically every destination has worked with an influencer, though not always successfully, there’s room for a middleman here. Brands need a team that’s removed from their destination that can look at the bigger picture and analyze what’s worked in similar markets and truly find the best personalities.

>>HotelFeedback is a Greek company that sends feedback surveys to guests while they’re in the hotel and connected to Wi-Fi. This allows for more immediate and fresher feedback that hotels want but there are also several other implications for how hotels could use this technology to communicate with guests.

>>Pillow ($2.65 million-plus total funding to date) helps short-term and vacation rental property owners and hosts manage their properties. Pillow offers revenue management, housekeeping, and 24/7 guest support services. With some hosts managing multiple properties or actively renting out their spaces while working full-time, people realize they can’t do this hospitality thing alone. There’s no real guidebook yet for how it’s done and no uniformity. Airbnb is trying with local meetups but is mostly vague in its definition of how a host should be hospitable. A company like Pillow can help bring that all together and help hosts understand how to treat guests the right way.

What Investors Say

Skift recently spoke to three travel startup investors for their thoughts on the state of travel startups during the past year and their outlook for 2016.

Brendan Wallace, co-founder of Grey Wolf, has invested in vacation rental companies Vacatia, Pillow, and Tripping.com. Mike Coletta, managing director of Travel Startups Incubator, advises investors and has helped bring in companies to the incubator including Proxce, Africa Bookings, and Biz Airlines. And Erik Blachford, formerly CEO of Expedia,  Butterfield & Robinson and executive chairman of Couchsurfing and current partner at Technology Crossover Ventures, has invested in companies, including Travelport, Room77, HotelTonight, and Hipmunk, and is on the board at SiteMinder. Following are their thoughts, edited together for clarity.

Skift: Which sector of the travel startup ecosystem do you think witnessed the most success in 2015? Which sector will we keep hearing more about this year?

Brendan Wallace: There’s been continued very high levels of innovation and progress in the travel and hospitality technology ecosystem, it’s really thrilling to see.  I think Airbnb has proven the potential for reimagining the very concept of hospitality itself and you’re now seeing high levels of innovation in companies that support the Airbnb/HomeAway/vacation rental market.

Interestingly, we’re now seeing a lot of new emergent technologies supporting the traditional hotel industry. First-generation technologies are gradually being replaced with more modern, cloud and mobile-enabled data-driven solutions at [many hotels].

Erik Blachford: Expect more and more penetration of on-demand services that are location-aware and incredibly time-sensitive. That expectation is built into the basic worldview of American consumers. The disconnect that U.S. travelers run into is in the closed environment of the hotel where the experience isn’t as connected as it should be. The catch-up opportunity there is pretty giant.

Personal connectivity use cases are lacking and the relationship of that with hotels make travelers feel as if they’re in a bubble during their stay. Some hotels seem very aggressive with this, though, and some appear to be hanging back waiting for a solution they can adopt.

Skift: Where do you see untapped potential and opportunity for entrepreneurs in travel?

Wallace: I think some of the more interesting opportunities out there are in the emergent technologies supporting the shared economy/Airbnb ecosystem that are attempting to converge the gap between the hotel room and a shorter-term rental, both with respect to guest experience as well as property management. Many of the legacy enterprise architecture solutions that support the hotel industry are being reimagined for the shared economy sector.

Blachford: One example that comes to mind of a company doing the right thing is Context Travel. They run two- to three-hour walking tours and I think there’s a great smaller-scale opportunity of increasing awareness among travelers that there are these small tours available for them to book.

Also, helping property owners with revenue management and managing their properties will be big. The hotel ecosystem will eventually be replicated in the non-hotel lodging space and we can already see that happening in some cases. Tours and activities is kind of the sexy category right now, but I don’t think you’ll see the same investment activity because it hasn’t seen that kind of tectonic shift yet.

Skift: Which travel startup sector do you project will attract the most investment in 2016? Where do you expect to see some failures happen?

Mike Coletta: [Many travel entrepreneurs] don’t understand the industry well enough and seem unaware of some failed startups in their own spaces. It happens to me three times a week when someone comes to me and says ‘check out this cool new [trip-planning app].’ It doesn’t really matter what I say because they’ve already invested so much time and effort into it that they practically don’t even hear me when I tell them why it’s probably not going to work.

I think artificial intelligence will attract a lot of investment. Also, I read that Expedia and the Priceline Group now control 93% of the U.S. online travel agency market. How is a startup supposed to secure a booking without doing something incredibly different?

People enjoy trip-planning even though it’s painful because you did the work and you reap the reward. If it’s too easy it would be hard to trust that you will actually enjoy the experience. I don’t see anybody being able to do this better than Google.

There are so many ways to approach trip-planning startups that people think they can come up with a better, more creative solution whether that’s design, user experience, etc. There’s really no high technical hurdle to [trip planning] startups.

I’m also not convinced that aggregating services is what people want. I feel like I’m going to get the best experience on the Uber and OpenTable apps but it’s really hard to get that right and integrate those services into one app where you can do everything. I don’t think a startup could do something like that successfully.  I think it would be a TripAdvisor or a company on that level that’s more capable.

If you want to be an app on a smartphone you have to be something specialized and do that really well. Very often the better route for startups is B2B that provides something that Expedia can use, for example.

Wallace: Airbnb has a real supply-side problem. Like Uber, they need to be constantly enfranchising new room inventory. I think they’ll be eager to encourage all solutions, their own and third party, that make it easier and more frictionless for homeowners to bring their homes online through Airbnb. Grey Wolf plans on making two to three Series A investments within this ecosystem of companies supporting the supply side of the short-term rental and vacation rental market in 2016.

Blachford: People are trying to solve really small problems that may not have to be solved and I’d put the whole travel category in that bucket.

I’ve seen an awful lot of pitches in the past 12 months and I’ve made few investments because many companies seem less ambitious than a few years ago. I think it’s a function of people not embracing the idea that big change can still happen in this industry.

I can’t tell you how many times I’ve asked entrepreneurs ‘what’s your ultimate goal?’ and they tell me ‘to get acquired by Expedia.’ Entrepreneurs look at the pace of consolidation in [online travel agencies] and think it’s an easy exit. But to think that you’ll start a company in 2016 and [get acquired] by 2018 by [The Priceline Group] for $10 million is crazy.