Travel Startup Money Is Flowing But the Road to an Exit Is More Distant

Is this an opportune time to be a travel startup? On the one hand, exits for startups that make the cut and even initial pubic offerings are a protracted endeavor, longer than in previous eras.

But big companies that have made a habit out of swallowing smaller ones have plenty of cash to throw at ideas and teams that have the potential to spur disruption in the travel industry, according to a group of venture capitalists.

Many big travel companies are opening their minds and doors to new technologies.

Bonny Simi, president of JetBlue Technology Ventures, speaking during Skift Global Forum in New York City September 26, pointed to artificial intelligence and virtual reality as two areas that are attracting investment.

They are partnering with startups whether it's by launching an incubator or through another investment vehicle, said Simi. "Startups are growing very quickly and I think it’s because of the success of Airbnb quite frankly," she said.

"Finding the right ones to jump on, you have to get smart on the technologies," Simi said. "But the startup exits are taking a lot longer. The average exits are taking 10 years and IPOs are much longer."

But what kind of technology is most interesting to investors?

Cross-platform businesses that are essentially a one-stop shop platform for travelers, for one, are very attractive, said Simi. "If you can keep your customers on one platform it keeps eyeballs there," she said.

The aviation sector also has potential. "Will the airline industry be disrupted? Simi asked. "People will still go to JFK but we're already seeing smaller airfields with smaller aircraft become more popular. We see the potential for the very ultra short-haul market to be disrupted."

There aren't many companies jumping on the blockchain bandwagon, and investors are still cautious, said Simi. "Blockchain is very early," she said. "It's too early to invest in but it's definitely something to watch. Five years from now blockchain could definitely be something disrupting the travel industry."

China is Still Tough For Startups

Simi said there's a lot of startup investment in China, the world's largest outbound travel market. "But it’s too risky to invest in companies that are based in China," she said. "It's more attractive to look at startups who are catering to the outbound Chinese market coming to the U.S."

Simi said many U.S. travel startups are demonstrating cultural competency about the Chinese and Indian markets. "It’s harder in China of course, but Southeast Asia, that’s a region that’s going to grow," she said.

U.S.-based booking sites' increasingly heavy foray into China, such as Priceline's investment in Ctrip, is a good temperature check on the state of the Chinese market. Ctrip's Skyscanner acquisition last December is also beginning to pay-off and helping Ctrip expand internationally.

"The Chinese outbound travel market is a great part of the Ctrip and Priceline long thesis, said Mark Mahaney, managing director and analyst at RBC Capital Markets Research Division, who appeared with Simi and investors at Skift Global Forum. "Online travel agencies have a huge opportunity there and the most attractive market right now is China."

Still, the domestic Chinese market for foreign Internet companies is really tough, said Natasha Kuhlkin, managing director and portfolio manager at Dennison Associates. "It kind of feels like it’s game over for many of the U.S. companies," she said. "China is just a very difficult regulatory environment to operate in."