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Investors poured $1.4 billion of equity fundraising across 57 travel startups during the first three months of the year, according to Skift’s reporting. The deals came despite the world coming to terms with the coronavirus pandemic during the period.

Oyo Hotels & Homes raised the largest sum in the quarter, with $807 million in Series F funding from RA Hospitality and a unit of SoftBank Vision Fund.

The fundraising total excludes startups such as Lilium, which is building an air taxi service and making vertical take-off and landing aircraft, as companies like that are better known as aviation or mobility businesses.

The first quarter results also reflected deals that had already been in the works before the coronavirus pandemic went global. The second-largest round of the period was an $82 million Series C raised by Cloudbeds, a maker of enterprise software for hotel and hostel management. The round represented settlements after more than a year of negotiations, CEO Adam Harris said.

The second quarter of the year may see fewer fundings. Many venture investors will slow their investing pace, focusing instead on helping their portfolio companies conserve cash. Uncertainty is one factor. A second wave outbreak could starve the cash reserves of existing portfolio companies.

Practicality is another factor. Travel restrictions, such as the 14-day isolations many countries require for foreign visitors, can hamper any in-person interactions for due diligence.

An example is the story of Itilite, a business travel management startup based in Bengaluru, that in April closed a $13 million Series B investment round. Like all such deals, the round required a lot of regulatory work to formalize, yet the Indian government had sent home its civil service employees, some of whom struggled with remote work.

“We had to be very, very, very persistent,” said CEO Mayank Kukreja. “But once we got on their radar they were ultimately really supportive.”

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TravelFlan, which helps companies sell travel services to consumers in Asia, said it was close to wrapping up a $5 million extension to the $7 million Series A funding round it had closed in December. But the extension is being held up due to venture partners being unable to meet with the founders.

In the U.S., venture capitalists are sitting on a pile of $120 billion in capital that’s not yet invested, but most of that will be spent to support startups through this year’s economic crisis, said a report published Monday by the National Venture Capital Association.

The value of future travel startup transactions may be lower compared to last year. A recent rise in the size of funding rounds had been related to businesses requiring either a lot of investment in customer service, digital ad purchasing, or up-front capital for so-called master leases to run hospitality services in apartment buildings.

Founders running cost-intensive business models have been seeking to slash costs. In late March, for example, TripActions, a corporate travel startup with a valuation of around $4 billion, faced high expenses for customer services and marketing. It laid off hundreds of employees as business travel plummeted.

Meanwhile, Traveloka, an online travel agency in Indonesia valued at around $4.5 billion and partly backed by Expedia Group, laid off “hundreds” of its 1,000-person staff during the past six weeks.

Sonder, an alternative accommodations provider valued at about $1 billion, laid off 282 and furloughed 135 in moves that affected about a third of its workers. A smaller rival, Lyric, plans to let go much of its workforce in a staggered phase over the next several months.

The downturn for startups with higher-cost business models may be brief. A massive monetary and fiscal stimulus and a loosening of travel restrictions may enable these types of business models to raise significant rounds at a later time.

Yet some of the critical providers of venture capital, family offices, and corporate investment funds, may not want to pour more money into travel as a sector until the industry’s forecast becomes more plain. In the meantime, funding may come more in phases, with tranches of investment handed over only after a company hits targets.

Headlines about mammoth funding rounds in the past year distorted an important fact: Most travel startups don’t need immense sums of capital. The way most travel startups scale is by hiring developers. That process is constrained by inefficiencies and a hiring battle over a limited supply of talent, rather than money per se.

But venture investors do need a sense of confidence they’ll be able to get a return on their investments. Selling startups to publicly held companies used to be a straightforward exit.

Many travel suppliers and online conglomerates had counted on buying startups as a shortcut way of doing research-and-development work. But in the next couple of years, they may be too focused on managing their businesses to delve into acquisitions of startups. That dynamic would mean a shrinking pipeline of ventures could end up in the hands of giants.

For example, Airbnb had been one of the most acquisitive large travel companies in recent years. But in the past month, it had to borrow $2 billion at an effective interest of about 10 percent.

So investors will focus more than usual on companies that are profitable and growing now, rather ones promising profits and growth to come. That dynamic may disadvantage early-stage companies that are still finding their way.

Valuations on this year’s venture investments may be less favorable, too. That factor could be problematic for hiring at startups that use equity stakes as incentives. If other technology-focused sectors of the economy appear more reliable and lucrative in the next year, the travel sector may struggle to hire the best talent.

Founders wanting to minimize the dilution of their and worker ownership in the company might seek venture debt instead of venture equity as an alternative, assuming the company is already generating consistent cash flows.

Yet whether it’s debt or equity involved, some venture capital investors may worry that the opportunities for billion-dollar successes in travel are drying up.

Traditionally, the travel startup investments that have delivered the biggest payouts have been for consumer-facing companies, such as Airbnb, Kayak, and Skyscanner. But a few global giants have seized daunting positions in most categories for the online selling of travel. Competing in online ad auctions against the travel giants can make it expensive to get customers unless one takes a cost-effective niche strategy like players such as Hitlist and TravelPerk appear to.

Only a handful of consumer-facing categories, like sightseeing experiences, camping, diving, tour operator packages, and financial products like next-generation travel insurance, have yet to be heavily invested in by the conglomerates.

What’s left for travel startups to tackle? Tougher problems. Many recent startups focus on products and services in segments of travel with higher operational and go-to-market complexity than, say, setting up a price-comparison search engine or a short-term rental listing service. Many of these business-to-business travel startups may face a harsher sales process if the travel suppliers who are their core customers are in weak financial positions in the next two years.

All that said, venture investors face not only a risk of losing money by betting on travel but also a risk of missing opportunity by not investing now when the cost of equity stakes has dropped. Airbnb was founded in the midst of the last recession, as is often noted.

Photo Credit: Traveloka's head office in Jakarta. Source: Traveloka. Traveloka