It's theoretically a great time to be investing in and creating hospitality tech startups with more hotels wanting to drive direct bookings and online travel agencies interested in getting their piece of the pie. But several factors, such as uncertainty with stock markets around the world, are making investors more cautious about if, and how much, they invest in these companies.
Hotel and alternative accommodations booking and tech startups raised about $550 million during the first two quarters of 2016, mostly for consumer-facing platforms, and while this amount might seem like a huge chunk of change some investors say this represents a slow down in funding.
Each week Skift tracks travel startup funding rounds of at least $1 million or more and only included those rounds in this story. Thirty-three companies are part of our analysis, which we draw from Crunchbase funding announcements and direct outreach from brands. See charts below for a breakdown of funding by company.
Of those companies, 19 have consumer-facing products and the remaining 14 offer B2B services and software for hotels, alternative accommodations and vacation rentals. Thirteen of the companies raised seed rounds, 12 raised Series A rounds, three raised Series B rounds and the rest were Series C and D. About $100 million of this funding went to startups specifically focused on the vacation rental market.
Skift began tracking travel startup funding during the second quarter of 2015. While we don’t have an apples-to-apples comparison for how the first two quarters of 2015 compare to 2016, last year we found hospitality technology such as software solutions for hotels and booking sites for guests was one of the most well-funded sectors for full-year 2015.
But some investors are saying that likely won’t be the case this year as hospitality startup funding, at least for larger Series A rounds and on, experiences a downward trend.
Slowdown in Funding
Many investors aren’t readily pumping money into hospitality startup companies as they perhaps did in recent years, said Katherine Barr, an investor and founding partner at San Francisco-based Wildcat Venture Partners.
Earlier this year HotelTonight, for example, revealed it’s facing challenges and said the funding climate has changed due to factors such as stock market uncertainties and the upcoming U.S. presidential election.
“Many investors are waiting a bit longer to see more traction in companies before they invest, to both reduce risk and also because they have the luxury of doing so for the most part given the very large number of companies that have received seed funding,” said Barr.
“Financing for all Series A and B companies has slowed down. A smaller number of investments are currently being made for larger amounts.”
Series A rounds, however, had one of the strongest showings so far this year.
Barr is an investor in Key Concierge, which closed a $3.75 million Series A round this week. The company offers virtual concierge services through a mobile app for guests staying in vacation rentals and alternative accommodations.
Several hotel chains like Marriott International are also offering mobile concierge services to some guests or considering implementing them, “both business and leisure travelers are looking for a seamless and efficient experience, and will want a blend of both utility and entertainment from their concierge service. The type of utility and entertainment will vary a bit for each type of traveler,” said Barr.
“For example, many leisure travelers want groceries delivered to them during and after their trip and have funny requests such as jumpy houses, whereas business travelers will trend more towards restaurant, show or car service kind of bookings.”
The Direct Bookings Push Connection
Investors have been watching the direct bookings push being made by nearly every major hotel chain this year. That strategy is creating some exciting opportunities in this sector, said David Yuan, a general partner and investor at Technology Crossover Ventures. Yuan is a board director and investor in hotel software company SiteMinder.
According to Skift’s analysis, five B2B companies received a collective $40 million in funding so far in 2016. These include startups such as Revinate and LodgeIQ which in part help hotels increase direct bookings.
He’s watched hotel brands pushing direct bookings, Google and TripAdvisor enter the fray and online travel agencies trying to defend their positions, “hospitality tech is very much right in the center of that, helping the hotels themselves deal with a very complex set of demands and challenges.”
“The issue is that the hotel is often not able or willing to pay a lot of money for this new tech. So the question for startups is how do I scale up a sales force to sell these solutions to hotels? More and more investors are trying to understand how this makes sense in the long-term.”
Yuan also feels funding is on a downturn, “There’s been a lot of pressure on venture capital in general. The world has been upside down for two or three years now and I think that the private companies have traded at premium multiples for public valuations.”
“Post-February when you saw public tech stocks go down, that also impacted the the hospitality space. The bar is certainly higher than it was a year or year and a half ago, but certainly there’s still plenty of opportunity to raise money.”
Are More Hotels Adopting These New Technologies?
Though it’s not difficult to find hotels still using archaic software and revenue management systems, more properties are shifting towards using twenty-first century technology to improve the guest experience and their bottom lines.
“You’re seeing a lot of ambitious and innovative hoteliers leveraging the power of technology to grow their businesses, the folks that adopt technology the quickest are the hoteliers that will thrive in the next generation,” said Yuan.
Yuan also sees a lot of potential in chat-based interfaces and artificial intelligence for hotels, “the thing that really excites me about my work with SiteMinder is that the demand channels for hotels have gotten more and more complex. It’s a dramatically shifting landscape.”
“The other thing that I find really interesting with direct bookings is that you have the mobile and desktop component of that. With artificial intelligence on both there’s such a wealth of information to sort through the noise I think it can be very impactful.”
Online travel agencies, however, haven’t stood by without putting any skin in the hospitality tech game. Expedia, for example, made a $9.5 million investment in Alice in January. Alice is a software-as-a-service platform for hotel guest and staff communications and Expedia, Booking.com and TripAdvisor have a history in investing in the business side of the hotel industry.
Below are two charts that breakdown which companies received funding during the first half of 2016 and whether they are consumer-facing or B2B. We separated vacation rental startups from hotel-focused startups, but the total for both groups is about $550 million.
Hospitality Booking and Tech Startup Funding, January-June, 2016
|Company||Funding Round||Headquarters||For Consumers or B2B|
|Ibibo Group||$250 million, private equity round||Gurgaon, India||Consumers|
|Oyo Rooms||$100 million, venture round||Gurgaon, India||Consumers|
|Dayuse||$16.3 million, Series A||Paris, France||Consumers|
|Stayzilla||$13.5 million, Series C||Chennai, India||Consumers|
|Revinate||$12.9 million, Series C||San Francisco, California||B2B|
|Alice||$9.5 million, Series A||New York City, New York||B2B|
|StayNTouch||$9.5 million, Series A||Bethesda, Maryland||B2B|
|Fabhotels||$8 million, Series A||Gurgaon, India||Consumers|
|LodgeIQ||$5 million, seed||New York City, New York||B2B|
|Relux||$4.5 million, Series A||Tokyo, Japan||Consumers|
|SuitePad||$3.2 million, seed||Berlin, Germany||Consumers|
|Hotelsoft||$3 million, seed||Fremont, California||B2B|
|Recharge||$2.3 million, seed||San Francisco, California||Consumers|
|Travelcircus||$2.1 million, seed||Berlin, Germany||Consumers|
|Room On Call||$2 million, seed||Gurgaon, India||Consumers|
|Porter & Sail||$1.23 million, seed||New York City, New York||Consumers|
|Bidroom||$1.1 million, seed||London, United Kingdom||Consumers|
|SavvyMob||$1 million, seed||Bangalore, India||Consumers|
Vacation Rental Booking and Tech Startup Funding, January-June, 2016
|Company||Funding Round||Headquarters||For Property Managers or For Consumers|
|Vacasa||$35 million, Series A||Portland, Oregon||Both|
|HomeToGo||$20 million, Series B||Berlin, Germany||Consumers|
|LeisureLink||$17 million, Series D||Pasadena, California||Property Managers|
|TurnKey||$10 million, Series B||Austin, Texas||Both|
|Evolve Vacation Rental Network||$5.5 million, Series B||Denver, Colorado||Property Managers|
|Holidu||$5.4 million, Series A||Munich, Germany||Consumers|
|HundredRooms||$4.6 million, Series A||Mallorca, Spain||Consumers|
|HomeRez||$4.5 million, seed||London, England||Both|
|Key Concierge||$3.7 million, Series A||Austin, Texas||Both|
|NextPax||$2.7 million, Series A||The Netherlands||Property Managers|
|Bnbsitter||$2.5 million, Series A||Paris, France||Property Managers|
|Le Collectionist||$2.2 million, seed||France||Consumers|
|Snaptrip||$2.2 milion, Series A||London, England||Consumers|
|Lodgify||$1.5 million, seed||Barcelona, Spain||Property Managers|
|Edge Retreats||$1 million, seed||London, England||Consumers|
Source: Skift and Crunchbase
Photo credit: Employees at the Four Seasons Hotel Toronto help guests check-in. Pictured at right is the Four Seasons mobile app on an iPad. Dan Peltier / Skift