The venture community has been fixated on travel and hospitality since the dot-com era and early-2000s, when mainstays like Kayak and Airbnb were still Silicon Valley darlings. As the multi-trillion-dollar global travel and hospitality market continues to grow, VCs are still foaming at the mouth for the opportunity to redefine the ways we move and stay around the world.
Despite the cyclical nature of the travel sector, deal flow in travel and hospitality has remained strong and largely stable over the last half-decade, according to data from Crunchbase and PitchBook. Over the same period, we’ve seen more than a handful of startups in the space reach unicorn status, including companies like Klook, Sonder, Flixbus, Vacasa, Wheels Up, TripActions and others.
High-profile funding rounds also appear to be popping up across travel and hospitality’s various sub-sectors, including bookings, activity marketplaces, short-term rental, tourism and hotel platforms. And companies are continuing to pull in funding rounds in the hundreds of millions to billion-dollar range, such as India hotel network company Oyo, which raised $1.5 billion in funding as recently as December.
While VC investment in the space has remained resilient, some investors are predicting it’s only a matter of time before the travel startup world hits a downturn. To get a temperature check on the state of the travel market, the outlook for fundraising and which sub-sectors might present the most attractive opportunities for startups today, we asked five leading VCs at firms spanning early to growth stages to share what’s exciting them most and where they see opportunity in travel, tourism and hospitality tech:
- Bonny Simi, JetBlue Technology Ventures
- Pete Flint, NFX
- Tige Savage, Revolution Ventures
- Brad Greiwe, Fifth Wall
- Prashant Fonseka, Tuesday Capital
Bonny Simi, JetBlue Technology Ventures
Which trends are you most excited in travel/hospitality/tourism tech from an investing perspective?
I’m really excited about electric vertical take-off and landing (eVTOL) vehicles and their ability to transform short-haul travel like daily commutes. Imagine flying above all that traffic. It’s a long and technically difficult process, but electric air taxis are here. We’ve invested in Joby Aviation and I’m bullish on the opportunity in this space.
We’re also interested in smart-use cases of industry data for meaningful analytics and predictive capabilities.
How much time are you spending on travel/hospitality/tourism tech right now? Is the market under-heated, overheated, or just right?
JetBlue Technology Ventures focuses 100% on technologies innovating for travel, hospitality, tourism, and transportation. Some areas of the market are just right, some areas are still evolving.
The emerging and important focus in the travel industry on environmental sustainability, for instance, is fortunately surfacing more startups with sustainability-focused solutions and ideas.
Are there startups that you wish you would see in the industry but don’t?
I’m still waiting and looking for a startup using blockchain technology to help with disintermediation between all the many and different travel providers and their systems. There’s a great opportunity to use blockchain for a new distribution process and ultimately offer lower prices for customers.
Any other thoughts you want to share with TechCrunch readers?
I think institutional investors had previously shied away from investing in travel technology because it’s a difficult and nuanced industry to navigate. But now there are established corporate venture capital groups in this space that can help with industry insights and strategic perspective — like ourselves at JetBlue Technology Ventures, Boeing Horizon X and Amadeus Ventures, for instance.
Travel and hospitality are perfect areas for traditional venture capital and corporate venture capital to co-invest together.
Pete Flint, NFX
I think travel tech targeting the mainstream consumer is really hard now because of the strong network effects of Booking and Expedia, who’ve been able to lock up distribution channels. For that reason, new companies in the space will need a clear way to differentiate.
One path comes from changing consumer expectations. Travelers are increasingly looking to spend not just on going somewhere extraordinary, but on doing something extraordinary and have an amazing experience. With consumers becoming more adventurous, we’ve seen companies like Stride, Peek, Outdoorsy and KimKim begin to provide experiential travel or fully developed itineraries, a trend I expect to continue.
Another area of opportunity is the B2B travel market, tech-enabled travel solutions tapping into the billions of dollars that are spent by businesses on travel like those provided by TravelJoy, The Hotels Network and FairFly. With the expected 2020 Airbnb IPO, alternative accommodations businesses in real-estate meets travel are also an exciting category: companies like Zeus, Lyric and others.
Longer-term, innovations in aircraft could transform the airline industry. Smaller, auto-piloted, VTOL or electric planes will have the potential to disrupt aviation. From these emerging technologies, exciting new types of passenger aircraft and online marketplaces will be built.
Tige Savage, Revolution Ventures
Consumer tastes have evolved, but national hotel companies have generally not kept up. Over the past couple decades, most hotel companies have migrated to an “asset-light” model: shifting their ownership of hotel properties to third parties and focusing on back-office reservations and brand/marketing/loyalty services, instead of focusing on happy customers. They are becoming more like online travel agencies (OTAs), determined to aggregate demand for rooms and less like purveyors of hospitality, motivated to deliver excellent experiences.
The penultimate example of this is Marriott’s acquisition of Starwood and the subsequent launch of the Bonvoy loyalty program. As these hospitality brands have outsourced ownership to third parties, they have prioritized the demands of the hotel owners ahead of the hotel guests. The result is predictable: short-term financial decisions that benefit property owners but come at the cost of improved consumer offerings.
Therefore, I predict that M&A will become increasingly important to major hotel brands as they will choose to partner with and/or acquire innovative hospitality startups that shift value back to the consumer. These types of transactions will have an outsized impact on customer satisfaction compared to incremental negotiations with individual property owners. Innovative hospitality startups built around the consumer — and their VC backers — are positioned to be winners as these external innovators are likely to be the agents of change that large hotel brands are unable to establish internally.
The next generation of successful hospitality startups will offer large, modern, tech-forward spaces without sacrificing traveler safety and security (see Airbnb). They will address the needs of real estate owners who are looking to diversify their portfolios in this new on-demand, sharing economy but who are also understandably wary of entering into new partnerships (see WeWork). And their teams will require an in-depth knowledge of regulations at the city and state level to ensure legal operation in this increasingly regulated environment.
This combination of industry and consumer trends is why we recently invested in Mint House, a tech-enabled hospitality company offering amenity-rich, apartment-style living spaces that are uniquely designed for business travelers and corporate travel departments. They offer what I refer to as “the best of a hotel without the worst of a hotel and the best of an Airbnb without the worst of an Airbnb.”
The company is deeply committed to meeting rapidly evolving customer preferences and is rolling out a number of new, conveniently delivered, luxury style services this year. Mint House offers an elevated standard in business travel and, based on average user ratings, is already outperforming hotel industry incumbents with greater than 50 years of operating history.
In the industry overall, more power and increased relevance will shift to the OTAs as they start offering the lifestyle-oriented hospitality inventory that consumers truly want — not just homogenized hotel “beds in a cube.” The OTAs will ultimately launch compelling loyalty programs, partnering closely with the best independent properties, and competing with the national brands for brand primacy. This trend will allow new offerings (like Mint House and others) to scale quickly.
But at the same time, OTAs risk becoming new centralized behemoths that could ultimately prioritize high commission rates ahead of the guest experience which would lead them back to repeating the same mistake that we see today among many national hotel brands.
Brad Greiwe, Fifth Wall
We are very focused on hospitality and are lucky to count hotel owners and operators, like Marriott International and Host Hotels, as our LPs. There are a few nuances and structural shifts in hospitality that are important to understand.
Firstly, in many instances, hotels are owned and operated by separate organizations, which can make technology adoption more difficult. For example, global brands like Marriott, Hyatt, and Hilton operate the hotels, but the actual hotel real estate could be owned by another organization like Host Hotels & Resorts. In this joint owner-operator scenario, each side shares a percentage of the revenue and must collectively approve major technology purchasing decisions.
Secondly, the industry is becoming increasingly institutionalized. The top five hotel groups (e.g., Hilton, Marriott, IHG, Wyndham, Accor) have 25% market share, but account for ~60% of the global development pipeline. What we are seeing today parallels what is happening in retail in some ways — bad, undifferentiated, unbranded hospitality offerings are losing to experiential, global brands.
Thirdly, the delineation of a hotel is blurring, which has large implications for how hotel assets are valued or underwritten. With the rise of Airbnb and professional home managers, hotels can pop out of anywhere – an apartment building, office towers, or a single-family home community.
From an investing perspective, there are a few areas in hospitality we are watching closely:
First is the continued rise in demand for hotel alternatives. Whether that is outdoor focused experiences (e.g., Getaway, Hipcamp), professional apart-hotel managers (e.g., Lyric, Sonder, Domio) or boutique hotel operators revamping small hotels (e.g., Life House), travelers have more options than ever for branded, experiential alternatives to traditional hotels.
As is happening in co-working with Industrious and Convene, we will see many of these operators transition to more asset-light, capital-efficient management models (e.g., partnering with landlords) vs. the riskier, leveraged master lease model. We still believe though there is significant room for growth of brands and concepts in this market.
Second is the use of robotics & automation to reduce hotel operating costs. Departmental expenses (e.g., costs required to service rooms, F&B and other core revenue) account for 40-50% of hotel revenue. Robotics and automation have the potential to drastically reduce key cost centers by more than 50%.
Dishcraft has developed a computer vision and robotics-enabled system to automate dish cleaning in professional kitchens. Stockwell can replace the stodgy hotel room mini-bar — which is often manually monitored — with a fully autonomous smart store. Cobalt Robotics can increase safety and replace repetitive tasks typically carried out by manned patrols.
Where we would like to see more opportunity is in cloud-native hotel management software. These companies would either target new or small hotels without a legacy hotel property management system (PMS) in place or “bolt-on” to legacy systems (e.g., Oracle OPERA, Sabre, Amadeus) at large, existing hotels with an initial insertion point (e.g., channel management, guest operations, hotel operations, distribution, revenue management).
Eventually, these players would aim to displace legacy incumbent software entirely and become the de-facto platform for all hotel operations. SiteMinder is a great example of this. We’re actively looking into a few companies here and are excited about the prospects of introducing them to our hospitality-focused LPs.
Prashant Fonseka, Tuesday Capital
[I’m interested] in everything related to managing short-term rentals and companies repurposing long-term rentals for short-term rentals while creating consistent brand experiences; this includes companies developing supporting technologies like IoT for rental management.
I would love to see someone execute really well on streamlining tech ops for STRs (short-term rentals); there are many mediocre providers in the market and there’s no “go-to” for either individual owners/managers or companies operating rentals.
We’re not an investor, but shout out to Pacific Overlander which is just plain cool and probably the most interesting in the category (with Jucy, #vanlife campers and rentals, etc.).
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