Where This Fidelity Venture Fund Is Placing Travel Tech Bets

F-Prime Capital is a venture firm affiliated with Fidelity Investments, the U.S. financial services giant. It makes non-strategic investments in technology and health care.

F-Prime holds stakes in four travel tech startups:

• Canary Technologies, which this week announced a $15 million Series A round led by F-Prime. The startup provides hotels with technological tools to help with operational tasks and guest management.
• AvantStay, a short-term rental property operator that also helps match investors with real estate opportunities. In December, AvantStay raised $160 million in funding. This month it raised $500 million for a subsidiary to hold its property assets.
• OTA Insight, a business intelligence service for hotels. In November, it secured $80 million in funding.
• ConnexPay, which offers a fully integrated merchant processing and virtual-card-issuing solution. This startup is building a payment distribution platform that digitizes the flow of funds for the travel industry and other sectors. In December, it closed a $20 million investment led by the card-issuing service Marqeta.

To learn more, I spoke with Gaurav Tuli, a partner at F-Prime (and a Skift Pro subscriber).

“We believe travel tech has been going through a renaissance,” Tuli said. “It’s a super- super-interesting place for a venture fund.“

• “One of the biggest reasons is that venture capital historically invested in consumer-facing businesses,” Tuli said. “But as the OTAs [online travel agencies] have gotten so strong, the consumer space is a harder game to play because you’re competing against marketing dollars that are almost infinite.”
• So in comparison, business-to-business startups in travel have more opportunities for early-stage investors.
• “We look at hundreds of travel tech deals a year now,” Tuli said. “Hotel tech is a big part of that.”

What was one of the major reasons F-Prime invested in Canary Technologies?

• “They were able to sell to thousands of hotels in only 18 months, which is unheard of in this space for new entrants,” Tuli said. “As venture investors, we need to see companies scale really quickly by the standards of this asset class.”
• “Scale matters because if you’ve sold hotels products the hotels absolutely love, you’ve earned this unique position where you can build and sell more products to them,” Tuli said.
• “Building a competitive moat in technology is very hard because the barriers to entry in creating software have come down dramatically,” Tuli said.
• “For OTA Insight, the best competitive moat is that they have tens of thousands of hotels using their products,” Tuli said. “That’s a highly defensible position if they continue to earn the trust of their customers as they scale.”

Few hotel tech businesses have gotten a good command of two things — the “ground game” and the “air game,’ in the language of Tuli and his colleagues.

• The ground game is selling to individual hotels at scale.
• The air game is getting hotel brands to sign master sales agreements and then promote or push the software to the properties under their flag.
• Most hotel tech vendors only figure out small pieces of the ground game.
• Only a rare few can do the ground game at scale while also doing the air game well.
• “Many questions come up when building a go-to-market sales motion,” Tuli said. “When do you hire business development representatives? When do you hire account executives? When do you need a VP [vice president] of sales? How much time should the CEO spend on selling to brands? How much should they spend on selling from the bottom up to independents?”
• All of these questions require thoughtful, strategic answers. Many enterprise companies outside of travel have developed best practices in addressing questions similar to these ones. But it’s been rare, historically, for hotel vendors to master the best practices.

A vendor has to make a great product first. But that’s just table stakes. A great product won’t necessarily sell itself.

• The subset of companies that have developed great products have learned how to sell software — a different skill. Many excellent developers have stumbled at selling and distributing their products.
• “You have to speak in the hoteliers’ language, you have to understand what’s in the buyers’ minds, and then you have to connect the dots for the buyers so that they see your solution as being relevant to their most pressing problems,” Tulis said.
• “The questions a hotelier might care about might be, ‘How does this product make my guest experience better?’ or ‘How does this tool make my hotel business run more cost-effectively?'” Tuli said. “It’s probably not something like “How can I move to the cloud?'”
• “Canary has been doing all the things that hotels need their vendor to do to feel like the vendor is a partner and not someone who is just collecting checks off of them,” Tuli said. “When we did reference checks on Canary, I spoke to a couple of the brands who essentially said, ‘We would buy anything they make.'”

By now you may be asking what it is that Canary Technologies — F-Prime’s latest investment, actually does. Well, the startup performs a few tricks.

• Its first product replaced fax-and-paper third-party authorization forms with a digital authorization tool.
• Its later products can identify many guests automatically without the need for a staff member to check credit cards, forms of identification, or registration forms.
• The startup also offers upselling and messaging tools.

When I interviewed Kayak CEO Steve Hafner last month at Skift’s Megatrends launch (podcast, here), he said he was impressed by what tech vendor Toast had done for restaurants.

• “If you look at what Toast is doing on the restaurant side, they’re trying to build a restaurant operating system,” Hafner said. “Someone’s going to do that on the hotel side, too.”
• “There’s an opportunity for the platform tech companies to move into this space and make everything standard, particularly for independent hotels who can’t afford to do it themselves,” Hafner said.

Tuli thought Hafner’s metaphor was apt.

• “I can’t lie and say we didn’t think about Toast when we invested in Canary,” Tuli said. “And there’s a lot of opportunities ahead not just for Canary but for several interesting companies that are in the hotel tech space.”
• “Toast did a wonderful job of getting their first product, a point-of-sale system, into many, many, many restaurants fast,” Tuli said. “Then they said, ‘Hey, there’s more we can do to help your restaurant operation run more efficiently, like our inventory management software or our scheduling software or our payroll software.’ The sequence of development is just so admirable.”
• “Restaurants faced a similar predicament before startups like Toast and TouchBistro and others came in — which was that the legacy technology was just absolutely absurd,” Tuli said.
• “I have a ton of respect for Oracle and Micros and Infor and Agilysys and so on because they got us to this point,” Tuli said. “But the market has changed so much. You really can’t underestimate how much dissatisfaction hotels have now with the legacy offerings overall.”

What’s one travel tech startup that F-Prime regrets having not invested in?

• “Mews is one I wish we had invested in,” Tuli said. “They’ve figured out how to break out.”

Another promising opportunity for hotel tech startups is in creating business intelligence tools.

• “The opportunity is to help hotels run their top line way better than they ever have thanks to a greater level of sophistication about what’s happening,” Tuli said. “The opportunity is to deliver the right information to the right constituents, especially at smaller hotel companies.”
• “The legacy tools from brands like TravelClick weren’t built to take into account a lot of the data we have today,” Tuli said. “They also lack intuitive, consumer-grade interfaces, which makes them hard to train new employees on.”

Tuli’s obviously a smart, influential investor. But he’s not clairvoyant because no one is. So here are a few caveats.

• The hotel tech space is crowded with new entrants and experienced vendors. Betting on the next breakout enterprise software player is always tricky.
• Lurking in the backdrop are well-capitalized tech platforms with deep links to the global hotel brands, such as Amadeus, which has signed Marriott International and InterContinental Hotels Group to its emerging operational software platform. Similarly, Oracle Hospitality has used the shift from on-premise to cloud-based systems as a chance to rethink everything top to bottom and has won praise from brands like Wyndham.
• Surprise entrants into hotel tech from outside the travel sector, such as Stripe or Salesforce, can’t be ruled out either.

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