Sometimes raising investment is hard, and sometimes it's harder. But that's no reason not to move forward — a product that's strong and needed will still sell.
Travel Tech Briefing
Editor’s Note: Exclusive reporting on technology’s impact on the travel industry, delivered every Thursday. The briefing will guide executives as they decide if their companies should “build, buy, or partner” to stay ahead.
Opinions vary widely about the state of investment in the travel tech startup world during this uncertain economic time, but one thing is for sure: it’s changing.
Below are some of the main takeaways from startup mentors, investors, and founders about what is happening and how they’re dealing with it.
Startup valuations got out of control for a bit, some would say. Now, the proverbial punch bowl has been taken away, and people are sobering up as valuations are returning to normal.
That’s not necessarily a bad thing, but it’s time for startup founders to accept the truth, said Cara Whitehill, an industry advisor and investor and the founder of Unlock Advisors.
“What that means is that you’ve got a class of founders who have never experienced anything other than that. They’ve never really had to worry about the fundraising and financing aspect of their business, and now they’re having to do that,” Whitehill said.
The advice she is giving to early stage startups:
- “Don’t focus so much on valuations right now; you’ll spin yourself in circles. The VCs are getting a little pickier, and they’re doing a lot more due diligence. Optimize for getting the round closed so that you can get the money in the bank and start getting to work.”
- “Don’t give away the farm, but you’re not in a position to be as picky as you were even maybe six to nine months ago. So just recognize that, accept it, and instead of raising the next series, maybe raise a bridge round from your existing investors or look at alternative ways that don’t require external investment.”
Travel Tech Investing
Typically, it can be tougher to raise money for travel tech startups than those in other sectors. While it probably will not return to as difficult as it was pre-pandemic, it may be a bit harder than it has been.
There is still money out there, however, and investors are still looking to invest, said Gaurav Tuli, partner of Fidelity-affiliated F-Prime Capital.
“It has largely been the best funding environment I’ve seen for [business-to-business] travel tech in a very long time,” Tuli said.
Most of it has been a result of fundamental issues that surfaced during the pandemic, he said.
“I think it’s a great time for [business-to-business] travel tech in general,” Tuli said. “It is finally getting the light shined on it as a category that it never really had before. It was kind of lurking in the dark alleys.”
Many companies were showing strong signs of success in 2021, and they haven’t really seen a slowdown in performance yet in 2022. Some of that is stemming from pent-up travel demand. Eventually that will go away, and Tuli does believe that will have an inevitable impact on the industry. But investment won’t go away, at least not for F-Prime.
“For us, this is about what is fundamentally shifted, and how can we look forward five years from now or 10 years from now at what the industry looks like,” Tuli said. “I think we still stay in a really strong environment because people are looking at this market differently.”
Venture capital aside, some companies will see this time as an opportunity to invest via mergers and acquisitions, said to Richard Valtr, CEO of Mews.
His company, which provides a property management system for hotels, has completed five deals and has a couple more in the works, he said. His company also has a venture capital arm.
“It’s a very highly fragmented industry, maybe not from a good perspective. There’s a lot of legacy companies that I think if it was more of an active industry, then you would have seen some of these companies basically die off a little bit earlier,” Valtr said.
“You’re probably more likely to see a lot of consolidation because of the downturn, and because of the general weakness of some of these companies because of the pandemic.”
There are travel tech startups announcing funding each week. Interactions can sometimes be a bit more sticky right now, but that just means startup executives need to plan more.
Canary Technologies, a hotel tech startup, recently raised $30 million from Insight Partners, F-Prime Capital, Y-Combinator, Thayer Ventures, and others. Bryan Michalis, head of growth marketing for Canary, shared some comments about the experience via email:
- “We were fortunate to not be in a position where we needed to raise, and were preempted by investors that were tracking us.”
- “Compared to previous years, we’ve seen investors think and care more about efficiency in addition to just growth. I think this is great for companies and business leaders as a whole as it helps refocus on the fundamentals of building a strong business.”
PurpleCloud Technologies is working on closing a funding round early next year, said Adria Levtchenko, CEO of the startup.
PurpleCloud streamlines hotel back-of-house operations like front desk and housekeeping, and includes a feature through which workers can earn points in exchange for rewards like time off. It’s an early startup with 19 clients representing more than 100 hotels. Levtchenko is working on closing deals with two big-name clients, which would lead to the startup operating in thousands of hotels, she said.
While industry-agnostic investors may shy away from travel tech, she said conversations have been going a bit easier, particularly because everyone can see how badly the sparse workforce is affecting the industry.
“I think that the industry agnostic firms understand the hotel industry is on archaic systems — and it’s impacting me personally as a guest, and I want to see that change,” Levtchenko said. “Our industry needs to address those inefficiencies because that’s what’s killing this industry.”
Still, it’s not easy, she added.
“It just takes more time to find good investors.”
Should I Start a Company?
All that said, here’s a final thought from Tuli of F-Prime:
“It is a great time to be starting travel tech companies, and we are seeing really great entrepreneurs go into the category. I think that many companies, whether they are able to raise capital or not, are going to go on to do amazing things that are getting started now.”
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