May 2019, London
Europe's biggest event for commercial and digital travel execs
Why travel start-ups should go for investor money – now!
Travel is a vast industry and as the online sector looks set to become a $817 billion industry, the timing seems right for fundraising. Sally White reports
‘Travel start-ups should raise (money) now while the market is hot! The conditions may not remain favourable for long!’ That is the message put out the authoritative tech news platform TechCrunch. The reasons look solid enough – economists are forecasting economic downturn in 2020 and later this year investment money is expected to be siphoned up in IPOs or fundraising by Uber, Lyft, Airbnb and other Silicon Valley giants.
That was a few weeks ago, but the deadline seems to be stretching with help of the US president – purely inadvertently, however. As US investment website InvestorPlace has pointed out, the partial shutdown of the US federal government (due to Trump’s quest to force the building of his Wall) meant that only a skeleton staff was left manning the Securities and Exchange Commission. When that happens there can be no IPOs. So, investment managers wanting to earn some profits could be tempted to place money elsewhere, including the long list of start-ups and growth companies looking for venture and private equity help.
Few investors need persuading of the sector’s merits: travel is a vast industry, worth some £7 trillion and the online sector is expected to growth to $817 billion by 2020
Few investors need persuading of the sector’s merits (join us in London in May to hear more!). Indeed, travel is a vast industry, and the fastest growing globally, worth some £7 trillion and the online sector is expected to growth to $817 billion by 2020. Driving the funding of the industry’s growth are a number of factors, which range from the interest of the funds to the appetite of the major companies for growth and innovation enhancing acquisitions. On offer are chances to invest in just about every sector of travel, especially the tech companies whose platforms and technology make it all possible, and in every corner of the world.
As TechCrunch pointed out: “In the last few months alone, aspiring Concur-competitor TripActions and travel activities platform Klook [which EyeforTravel interviewed in 2018] entered the ‘unicorn’ club with large venture rounds that valued both of the businesses at more than $1 billion. Meanwhile, luggage maker Away raised $50 million at a $400 million valuation, TourRadar nabbed $50 million and Travelperk brought in $44 million. Plus, smaller startups in the space like Rocketrip, Freebirds, Ifonly, KKDay, Duffel and RedDoorz all closed modest funding rounds.” The message is, if the technology is right, money is no problem.
And still they come!
Travelport, the UK travel commerce platform, expects to close a $4.4 billion deal in the next few months to be taken over by Siris Capital Group and Evergreen Coast Capital Corp (private equity affiliate of Elliott Management Corporation of the US). Japan’s conglomerate Softbank is closing in on German online travel guide and booking website, GetYourGuide. Californian private equity group Accel-KKR has just backed a merger between Travel Tripper and Pegasus, two leading hospitality technology providers. Private Philadelphia equity firm LLR has announced a majority investment in Florida’s Intelity, which helps hotels communicate digitally with guests and staff.
On the global stage
Online travel globally is having success with investors, not just in the now familiar markets of Asia, but in Africa too. Global alternative asset manager the Carlyle Group announced in December that it had agreed to invest $40 million in Wakanow.com. This is one of the continent’s largest online travel agencies and focused on West and East Africa with principal operations in Nigeria.
Back in the US, travel e-commerce platform Switchfly, which seems never to have had a problem raising money, has done it again with a funding round from Golub Capital and L Capital. Given its offer of e-commerce and loyalty tools to help travel companies sell brand-specific products and services, with established strength in the airline industry, that is hardly a surprise.
Online travel globally is having success with investors, not just in the now familiar markets of Asia, but in Africa too
Tech assessment platform TechCrunch says that Switchfly “uniquely combines a highly scalable and secure architecture with deep product and content inventory”. As pressure increases on margins, this revenue boosting technology could not be more timely.
Its redemption software powers the complex loyalty functions of British Airways, American Airlines, LATAM and Avianca. Product sales are an increasingly important source of revenue for airlines, and this company has been offering tools to gain them since 2003. So it has an extended track record, which is extremely attractive to investors.
Building a portfolio
The San Francisco-based company’s own product range is a good example of how to build a portfolio that will lure investors. For airlines these extend from loyalty to packaging to airline booking engine, post-booking and airline management with solutions to meet needs throughout the entire booking journey. And it has adapted its technology for other industries, both in and out of travel. It has a hotel offer, which comprises everything from loyalty to packaging and post-booking, winning business from Intercontinental Hotels, Marriott and Starwood. Its accumulated experience has enabled it to further extend into financial services, especially those familiar with travellers, such as American Express and MasterCard.
Its latest funding round (for an undisclosed sum) will be spent on developing ‘more sophisticated revenue-generating products’ incorporating ‘new technologies like machine learning and artificial intelligence’. Needless to say, that will enable Switchfly ‘access to more intelligent customer data, which can be applied to create personalised travel experiences, deeper connections, and greater travel brand loyalty’.
In the last five years the travel industry has raised more than $1 billion in venture capital funding
While details have yet to be announced, it also expects to try to extend its international reach. Switchfly’s global inventory already encompasses 25 languages and 50 currencies.
So, despite its pessimism on short-term funding prospects, TechCrunch notes that travel has a formidable funding history. In the last five years it has raised more than $1 billion in venture capital funding. That includes short-term rental startups, travel and tourism apps, marketplaces for ‘experiences’ and other travel or hospitality tech platforms. So, perhaps there is not so much to worry about!
Do you want to hear more about the fast-moving online travel industry? Join us in London for the Digital Strategy Summit (May 21-22) to hear more