The golden age of travel startup funding

In some ways, the past few years have been a golden age for fundraising for travel startups, even if they haven’t been as high-profile as Uber and Airbnb.

PhoCusWright studied 743 digital travel startups that received funding or were in the process of launching a product between 2005 and 2013. PhoCusWright found that these companies raised a total of $4.8 billion through angel investments, venture capital, and strategic acquisitions (excluding acquisitions by public companies and IPOs).

Funding for travel startups has accelerated over the past few years.

Of the $4.8 billion in financing, 68%, or $3.3 billion, was obtained between 2011 and 2013.

Douglas Quinby, vice president of research at PhoCusWright, said the $3.3 billion includes the total financing of many companies such as Trivago, Airbnb, Lyft, Uber, Qunar, eHi Car Rental, and Kuaidi Dache, but does not include the huge financing received by Airbnb and Uber in 2014.

Based on the characteristics of different travel startups, venture capitalists will decide whether to invest. The so-called golden age of travel startup financing also refers to the Series A financing in 2012. Many travel startups must prove that they have obtained continuous income and formed a sufficient scale in order to obtain larger investments beyond seed or angel investments. Therefore, many companies are hindered in the financing process.

Regardless of the amount of Series A financing, it is a huge amount of money for travel startups, but it is not necessarily related to the success of the company.

PhoCusWright found that of the 743 travel startups it tracked founded between 2005 and 2013, less than 10 percent, or about 70, had been acquired.

If this number seems high, it is misleading because some of these companies were acquired as asset sales or have generated a small return on investment for former investors.

“ Many acquisitions are not as large as the company’s founders (and investors) hoped, and instead become the worrying sale of assets or development teams, ” Quinby wrote.

Analyzing these soft landings is difficult because large public companies such as Google, TripAdvisor, Priceline Group and Expedia generally do not disclose details of acquisitions if they are small.

Company closure

Surprisingly, only 20 percent of the 743 travel startups PhoCusWright found, or 148, officially shut down.

However, Quinby said he suspected that many of the surviving companies were in a “ maintenance ” state, meaning inactive, so the overall failure rate would be higher if stagnant startups were taken into account.

Financing Amount

So how much is the specific investment amount of investors?

The chart below shows the 243 hospitality startups that received the most funding over the nine-year period, totaling $1.2 billion. The most funding per company was received by ground transportation startups (over $8 million on average), followed by airline startups, followed by hotel startups, private accommodation startups, trip planning/inspiration startups, and tours and activities startups.

Ground transportation startups that received an average of more than $8 million in funding include ride-sharing companies, e-hailing companies, and traditional fleets. PhoCusWright excluded Uber and eHi Car Rental because including these two highly funded companies would have skewed the average data significantly.

Quinby noted that the number of “ inspiration ” startups is second only to hotel accommodation companies, with nearly 200, including travel social, trip planning, exploration and travel guides.

Yet these companies have received little funding, just slightly more than the average for tours and activities companies, which average just over $1 million.

“ While many entrepreneurs see opportunity in travel inspiration and trip planning companies, investors are reluctant to invest, ” Quinby wrote.

Regional differences

PhoCusWright found that between 2011 and 2013, 30% of travel startups were born in emerging markets, led by China.

This figure exceeds the increase over the past decade.

In fact, the number of travel startups in Asia Pacific grew 285% between 2011 and 2013 compared to 2008-2010, while North America and Europe grew 21% and 6%, respectively.

2014 was a year of high-value startup acquisitions, exemplified by Priceline Group’s acquisition of OpenTable (for $2.6 billion, a 46% premium to its closing price) and TripAdvisor’s acquisition of Viator (for $200 million, significantly exceeding expectations).

But neither of these two companies can be called startups. OpenTable was founded in 1998 and Viator was founded in 1995, nearly 20 years ago.

Many travel startups are looking to raise funding, even as they seek acquisition opportunities.

via: traveldaily