Many founders and investors know that selling a company to Booking Holdings, the largest of the digital travel conglomerates, can be a great outcome — the next best outcome to listing as a public company. Hugo Burge helped foster that outcome for Momondo Group, and is now using some of the lessons he’s learned and profits he’s made to help a new generation of companies.
In March 2000, Burge invested in UK-headquartered online travel deals company Cheapflights, when it was a three-person operation. He helped to grow the business to the point that it acquired travel-price comparison site Momondo in 2011. Burge used bank debt, serviced out of cash flow, to create an organization with more than 350 employees.
In 2014, the renamed Momondo Group attracted about $105 million (£80 million), in investment from private equity firm Great Hill Partners.
The funds gave an exit to earlier Cheapflights equity investors, who had put in an undisclosed amount when buying the company from journalist John Hatt in March 2000. The buyout valued the Momondo Group at $210 million (£132 million). The company then grew almost exclusively out of cash flow.
In 2017, Booking Holdings bought travel search company Momondo Group for $550 million. Booking Holdings CEO Glenn Fogel said, “Momondo and Cheapflights are premium brands that have garnered a loyal customer base throughout key markets in Europe.”
The value of the sale was nearly five times 2016 revenue, according to Skift Research. Last week, Burge described the valuation as “being on reasonable terms and multiples for a business showing early promising trends since the Momondo acquisition.”
In July 2017, Burge stepped aside as CEO after Momondo’s brands rolled into Booking Holdings’ price-comparison brand Kayak.
Bullish on Metasearch
Since the Momondo sale, travel metasearch has had some hiccups, with TripAdvisor scaling back its instant booking effort, and Trivago’s growth going into reverse. Some have said that metasearch is in “big trouble.”
Burge disagreed in an interview last week. “Some metasearch brands are thriving and doing well,” he said. “Others have fallen into seemingly rather obvious pitfalls — not putting the user first or becoming absurdly reliant on too few partners, which are recipes for disaster.”
“Metasearch is not a given path to success,” he said. “It has to be done exceptionally well in order to compete.” He said the task becomes daunting in the context of changing power relations among the various players and with emergent new platforms like voice search. But he said he remains bullish on metasearch.
As for his former brand, Momondo, it was modestly profitable in 2018, according to financial filings in September.
Doing More Investing
Today, Howzat has 62 active investments. Of those, 28 are travel- or transport-related.
Howzat is one of the most active venture funds taking early-stage stakes in travel tech today. At various points since 2010, it has competed with Caixa Capital Risc, Global Founders, Gobi Partners, JetBlue Technology Ventures, and Thayer Ventures. There are others on the scene, such as accelerators and incubators, but they generally commit very small stakes.
Howzat’s most successful investment has been in Trivago, which had a $1 billion valuation when the firm exited and Expedia took a majority investment in 2012.
“Howzat backed Trivago at a crucial time [seven years ago] when capital was scarce,” said Malte Siewert, a Trivago co-founder.
Soskin and Howzat partner Sascha Hausmann lead the fund’s daily operation. They said their sweet spot for an investment sum is around $285,000 (or €250,000), but rises to $1.9 million (€1.5 million) occasionally.
We checked in on Burge, Soskin, and Hausmann to find out their views on travel startup investing today.
A Changed Landscape for Startups
Online travel startups have some more advantages now than in 2000 when Burge was getting started with Cheapflights, he said, including being able to learn from what others have done, having greater access to capital, and improved technological infrastructure.
But Burge said he also now sees a competitive landscape that is “highly concentrated, smarter, and more brutal.”
In response, Howzat has shifted its focus from looking at mainstream opportunities to niche sectors in travel that have yet to see much digitalization. Examples from its portfolio include companies like ByHours for hourly hotel bookings, and Otelz, an online travel agency focused on Turkish travelers.
“On the technology side, we no longer look at mainstream booking or transaction technology but focus on niche sectors or specialists in add-on/ancillary products like Seatfrog, which offers airline upgrade bidding, or Lodgify, which offers vacation rental software for private owners,” Soskin said.
The State of Travel Venture Capital
Truly great returns are hard to come by in any type of investing activity. While early-stage fundings in the form of Series A rounds are much larger than in the past, some major investors tend to bet on models that are copied from businesses that have previously succeeded.
“Does the travel industry feel awash with amazing innovation from early startups that can challenge the status quo?” asked Burge. “Maybe not. Much investing plays it safe by chasing derivative models or market dominance for an exit. I would not say that venture capital is doing a bad job of fostering early-stage travel start-ups. There has been enough money to fund interesting and bold start-ups, which have gone on to make a huge impact on the industry.”
Yet Burge argues that venture capitalists, including himself, need to be bolder and support potentially game-changing models. Otherwise, most new entrants will risk being second-best to the existing dominant players.
“Let’s assume we are not doing a good enough job, especially in Europe, where we could do with some more global leaders,” he said.
“Anyone in early-stage investing will have scorch marks all over their hands,” Burge said. “But we should have more dialogue about what it takes to create real magic: patience, painful prioritization for the user, long-term value creation, starting on a small narrow focus.”
Investors need to take a longer-term view, Burge argued.
“The trap of the 3-5 year exit horizon is to fund average outcomes, average products, and average results,” said Burge.
On the other hand, one can’t be too bold. Hausmann said. “We see great companies with even greater ideas but, when considering them, we have to realize that the market is just not ready for them yet.”
But sometimes financial realities trump great ideas.
“Looking at it from a financial side, we then have to assess how likely it will be for the startup-up to receive enough follow-on funding in the next 12 to 24 months,” Hausmann said. “When the answer to that is ‘likely difficult’ we have to reassess our interest, no matter how great the idea.”
Howzat often tells founders to be cautious about raising venture capital.
“The hyperbole and glamour around raising money are all wrong,” Burge said. “Raising money should often be the last resort because the discipline of growing out of cash flow often builds the best companies.”
He cited Booking.com, TripAdvisor, and his own Momondo Group as companies that raised little money early on.
But prudence should be a principle, not a rule. “I feel like I have been too cautious in the past, missing opportunities that required bolder thinking,” Burge said.
Large addressable markets on the cusp of digitization are particularly appealing to Howzat, Soskin said, citing Barcelona-based ByHours, which has disclosed about $9 million in funding to date.
“ByHours has excellent co-founders who really understood the vertical of micro-stays, or hotel stays that are less than a 24-hour block,” Soskin said of the niche play. “They are growing very fast, with a careful eye on costs and ROI [return on investment], and we have participated in larger follow-ons as a consequence of this success.”
Howzat doesn’t seem to be one of these venture capital funds that push startups in their seventh year to solicit additional funding because they need to return cash to investors, to collect an income, or pay for the investors’ private jet.
“We do indeed have a plane but it has a propeller and is owned by Sascha, who is a keen and experienced pilot,” joked Soskin. “Hugo and David are more often to be found on EasyJet or Norwegian.”
New Fund, Renewed Mansion
The Momondo sale also led to the creation of a new fund, Marchmont Ventures, that it says “supports a wide range of activities with the ultimate purpose of building sustainable creativity.”
Burge and Alan Martin, formerly chief financial officer at Momondo Group, run the fund.
To date it has invested in Motorway.co.uk, a price comparison site for selling cars; Checkmybus, a long-distance bus metasearch platform, and Doppleganger, a vegan fast food company.
While Howzat is focused on digital investments, typically early stage, Marchmont Ventures is casting a wider net with an aim of supporting an eclectic range of activities whose ultimate purpose is building “sustainable creativity,” such as supporting the re-launch of an art fair in southern Scotland.
Burge dreams of transforming Marchmont House — a Palladian mansion in Greenlaw, Scotland — into a home for creators.
In 1988, Burge’s father Oliver, as a director of Marchmont Farms Ltd., bought part of the Marchmont estate, and then they bought the house together in 2007. Since 2011, Hugo Burge has jointly led a restoration of the house and has encouraged, in the past year, the the hosting of arts and crafts practitioners and other creators, to foster sustainable in the arts.
Burge sounds happy, post-Momondo. “I think people who talk about work-life balance in early-stage businesses are kidding themselves,” he said. “The only balance is that work is your life, so you had better enjoy it and do it right…”
He knows from experience.
“My life during my 17-year journey was very imbalanced and ruthlessly focused, especially during key periods,” Burge said.
That was then.
“So it feels great to have dog now,” said Burge, 46, who now lives in Scotland. “And also to be living in a part of the world which would have been impossible when I was part of a team on a mission.”
As an investor, Burge hopes to lead by example. “We all need to remind ourselves why we do this: to make travel better, which involves leaping into the unknown, solving real pain points, and looking at longer horizons.”