Germany Makes Strides to Become ‘Europe’s Silicon Valley’ for Travel Startups

In a job advertisement posted this month, Comtravo, which provides travel management services to small and medium-sized businesses, sought a backend engineer position. The ad talked up working “in Berlin, the Silicon Valley of Europe!” and how the job offered a chance to work with a team that “has already successfully built up several global businesses” and a chance to gain “access to a great network of entrepreneurs in Berlin and some of the best travel and business-to-business investors in Europe.”

Five or 10 years ago, such claims by a travel startup would have been laughable. But today they’ve become plausible.

In the past, if you were looking for thriving travel startups, you didn’t look to Germany first. Trivago, the hotel search engine based, was one of the only young travel companies based in Germany to scale up and go global in the past decade.

Yet 2018 may go down in the books as the year when Germany symbolically took a long stride toward changing that reputation when several of its travel startups received record funding rounds.

A star example is HomeToGo, a search engine for vacation rentals, which this year raised an undisclosed multi-million euro funding round that brought its total raised since its founding three years ago to more than $150 million.

HomeToGo acquired the assets of its rival, the Silicon Valley-based Tripping.com this year. The move was the clearest sign yet of the tech ascendancy of Berlin, or what some Germans call Silicon Allee.

In early fall, GoEuro, an online travel agency that offers plane, bus, and rail tickets side-by-side, raised $150 million.

Changing Dynamics

In the past, German travel startups typically failed to get comparable funding to what companies in Silicon Valley and elsewhere would raise. But they are increasingly benefiting from an infusion of money flowing to Europe’s young businesses in general, which may help make them more competitive on a global stage.

A case in point: In May, Dreamlines, an online agency focused on selling cruises, raised $55 million in Series E funding. The Hamburg-based company has raised about $130 million since its launch in 2012.

Another example: In December Tourlane, an online travel agency for multi-day tours, raised a $24 million (€21.1 million) Series B investment round. Only months earlier, in March 2018, Tourlane raised $8.5 million in Series A financing.

Sequoia, a top-tier Silicon Valley venture firm, led Tourlane’s December round as a new investor. A decade ago, global top-tier firms tended to overlook Germany’s travel startups.

Similarly, Kinnevik, a publicly held technology investment firm based in Sweden, and Temasek, Singapore’s state-run investment company, led GoEuro’s $150 million (about €130 million) round this year.

Funding matters to help German startups stay competitive with foreign players. In early 2018, BookingKit — which makes software to help tour-and-activity operators to manage, sell, and market their services — raised an undisclosed multi-million Series B round of investment. BookingKit’s funding has helped the company to double its revenue in 2018 while reaching profitability in its first market of Germany.

Growth Factors

This year it became common for startup hubs in Berlin and Munich began to be spoken of in the same breath by investors as better-known European travel tech hubs, such as Amsterdam, Barcelona, and Paris. A couple of factors have driven that improved reputation.

An issue holding back Germany startups in the past was how talent was rewarded. The notion of employee ownership through stock option grants had not been common in Germany, which may have hobbled the ability of these companies to compete for top talent with the traditional family-run groups and large corporations of Germany.

Today German startups increasingly embrace this incentivizing of talent, though not yet to the same degree as many places elsewhere.

Startup hubs have been another key factor in powering Germany’s growth. Berlin and Munich now have enough startups of various types that founders can find the mentoring from veterans they need to make smart decisions and hire well, said Berlin-based deal consultancy GP Bullhound.

A thriving startup scene where founders can mentor each other and workers can hop between companies helps to improve the odds that businesses will scale globally.

Funding Needs Further Improvement

Not everything is rosy. Financing rounds in the tens of millions must become easier and more common if Germany is to produce more global players in online travel, critics said.

Fundraising could still be easier, too. German venture capital firms have relatively little firepower compared to their Silicon Valley brethren.

For instance, Battery Ventures, a top-tier U.S. venture firm, led a $75 million Series D funding round in Berlin-based tours-and-activities booking platform GetYourGuide in November 2017. GetYourGuide has now raised $175.5 million (about €200 million) since its founding in 2009, sums that were previously unheard of but that mostly came from outside of Germany.

German ancillary copyright law and data protection regulations hostile to innovation make it difficult for start-ups to obtain capital, said the founders of BookingKit.

For Germany’s travel startup scene, a lesson from the Netherlands may be relevant. In 2005, Amsterdam-based Booking.com had to sell to Priceline to get the cash it needed to grow. Gillian Tans, who runs the brand, speculated to Bloomberg recently, “Maybe if at that time there would have been more funding available, Booking would have made different choices.”

Other Factors Driving Growth

Collaborations between corporates and young firms need to become more common, similar to how Cologne-based online booking giant HRS (Hotel Reservation Service) helped seed Conichi, a startup providing the latest technologies to hotels for offering seamless check in and check out.

Government regulations require a lot more paperwork to maintain business operations in Germany than startups elsewhere often have to deal with.

German founders and investors still need to be bolder in their decision making, observers said. Entrepreneurship programs at universities and startup incubators like Lufthansa Innovation Hub may help encourage calculated risk-taking. Lufthansa built the hub outside of its corporate structure and the unit has begun to forge new businesses. A flight of European entrepreneurs from London after Brexit might also help.

Early signs show that all the changes in Germany’s startup scene are beginning to pay off with innovation. Germany is now the world’s leading center for the development of air taxis. Volocopter is one of several air taxi startups vying for attention.

In the end, becoming a global innovation leader in a segment will be the true test that Germany has moved beyond localized copycat versions of businesses first pioneered elsewhere. “Silicon Allee” still has more long nights to put in before it can claim its name as a global powerhouse.