Skift Take

Redeam doesn't recommend places to visit, call itself "a Facebook for travel", or indulge in other startup pitch clichés. It strives instead to build a solution to a pain point companies will pay to fix — namely, automating paper voucher redemptions for attractions. How refreshingly uncool.

Redeam, a travel startup based in Boulder, Colorado, strives to solve one of the travel industry’s least sexy problem.

The company tells tourist sites, museums, and other attraction operators that it can help automate and digitize many of their manual processes currently done with paper and Excel spreadsheets.

Nevertheless, Redeam said Monday it closed a $7.7 million Series A funding round.

The funding amount isn’t as notable as some of the angel investors contributing to it.

Angel investors include Barney Harford, chief operating officer of Uber, United Airlines board member, and former CEO of Orbitz; Rob Torres, managing director, travel, at Google; and John Love, former chief technology officer at Concur.

On the venture side, Thayer Ventures is participating. This is the first announced investment for its Thayer Ventures III, a fund with more than $100 million that is focused on travel technology investments that we reported on a year ago.

Some of Thayer’s early investments have included revenue management software provider Duetto, which in February raised an $80 million Series D; marketing analytics company Adara; and vacation rental management company Sonder.

JetBlue Technology Ventures has also participated in the round, having previously invested in roughly a dozen travel-related companies, such as insurance arbitrage company Flyr, ground transport search business Mozio, and the service for booking hotel rooms by the hour, Recharge.

Vertical Venture Partners led the round, in its first foray into travel. The relatively young firm is based in Menlo Park, California, and primarily seeks early-stage investments in business-to-business technology companies.

Big Picture

Redeam’s funding is almost a rounding error in the billions that venture capital pours into the travel sector annually.

But as a bellwether, the company’s funding suggests three trends.

First: Don’t scoff at “rewiring projects.” A key finding of Skift Research’s Venture Investment Trends and Startup Opportunities in Travel 2018 report was that investors have a surging interest in companies that promise to drag laggard parts of the travel industry away from outdated methodologies and into the open, cloud-based era of nimbler systems.

Erik Blachford, venture partner at TCV and former CEO of Expedia, said that he was “bullish on the rewiring of the back end of the [travel] business.” He saw “a lot of that technology is still being replaced from systems that were often installed a long, long time ago.”

“It works fine now,” he said, “but it’s not going to work fine going forward. There’s a huge wave [of innovation] there that’s just not going to slow down.”

A second theme is that investors are favoring startups that focus on the business customer. While that has been a trend since 2012, it continues to gather steam.

In the 2017 Skift + Amadeus State of Travel Startups Survey, we found that 38 percent of startups deploy pure business-to-business models and that a further third offer some business products or services.

Startup leaders also told us that these two models generally have an easier time raising capital than consumer plays.

The third investment thesis suggested by the Redeam funding might be called “the tech titan curse.”

Investors have grown leery of investing in consumer-facing startups that one of the giant technology companies, such as Google, Facebook, or Priceline, might too easily replicate in-house instead of buy via an acquisition.

Pragmatic Product

A year into its life, Redeam serves more than 200 clients, enabling attractions to accept paper vouchers and mobile tickets from any reseller, such as an online travel agency like GetYourGuide or Groupon.

As examples, the company’s technology touches all tickets sold by CitySightseeing/Gray Line New York, Ripley’s Believe It or Not, and the Metropolitan Museum of Art.

Until now, if a consumer bought a ticket to visit an attraction from an online travel agency, the site will typically email the traveler a bar-coded voucher.

Once the consumer arrived at the attraction, they would have to wait in a line to exchange it for a paper ticket — and then they would likely have to stand in another line to finally enter.

Then the attraction would have to reconcile the paper records against its electronic ones to invoice the agency.

Redeam aims to simplify this process for operators by offering tools to let them scan and validate any voucher from any reseller and instantly issue a ticket. It also claims to streamlines back-office accounting.

Questions Linger

On the downside, the company doesn’t yet have a partnership with TripAdvisor or its Viator brand. As Skift Research noted in its report “The State of Tours and Activities 2018,” Viator is the leader in attraction ticket sales online.

Co-founder and CEO Kevin McLaughlin said, “We have deals with GetYourGuide and Groupon, and others, but we don’t have deals with every reseller yet.”

“Yet we don’t have a ‘chicken-and-the-egg’ problem,” he said. “The reason we have signed up so many activity operators is that we can solve their paper processing problem for tickets no matter where the customer makes a booking, without needing an agreement with every reseller out there.”

McLaughlin claimed, “We can get data into our system in many different ways.”

Another question: Is there enough money to be made here to justify the funding level?

The company has done some market research and believes that the effective total cost of dealing with suppliers is somewhere about $5 per voucher, on average, when considering typical labor costs and hours involved.

If true, that is a significant cost in a low-margin business — and Redeam might be able to charge a small fee to solve the problem if it can keep its technology and marketing costs under control.

On the other hand, is Redeam truly “a 10x startup”? In other words, is it a startup that can deliver returns in an eventual sale or an initial public offering that will be ten times the $7.7 million investors have just ponied up?

Maybe you have to be an operations junkie to see how the math adds up. It’s not obvious to every outsider. The company says it has targeted a “multi-billion-dollar problem” but skepticism may be in order.

McLaughlin conceded that what his team does isn’t sexy. “But it’s like plumbing,” he laughed. “Everyone wants the plumbing to work, and it’s worth paying for solutions.”

Unfortunately, like plumbing, there may not be much of a barrier-to-entry for copycats to try to create a similar solution and compete.

Redeam is not a ticketing, reservation, or point-of-sale system, but there are such systems in the market, such as Peak and Tiqets. Those kinds of companies could, in theory, try to add its functionality as a service for their existing client bases.

Palisis, a sector leader in transactions, clients, and distribution relationships in North America and some other geographies, and DataTrax, another significant long-time technology provider to the sector, already service a small number of large operators and provide supportive professional services. They, too, provide potential competition and headwinds.

Sometimes, though, it’s not the innovator in an industry who benefits. Facebook and Amazon gained from the spadework earlier companies did in identifying what works and doesn’t and then building more successful businesses in their place.

For now, Redeam certainly has the advantage of being the first company to have an appealing marketing message to suppliers eager to fix a painful problem. The startup, which has 15 full-time employees, plans to use the funding to double its staff by the end of the year.

As career bets go, this seems like a good one to make. Not every company has to become the next PayPal to deliver value. And this is definitely not the next PayPal.

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Tags: funding, jetblue technology ventures, thayer ventures, tours and activities

Photo credit: In this 2016 photo, visitors at The Metropolitan Museum of Art in New York observe some of the collection. All of the museum's tickets are processed via Redeam software. The startup that has received more than $7 million in funding. The Metropolitan Museum of Art in New York

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