Business Travel, part 1: The (major) investor opportunity

Business travel is big business.

The Global Business Travel Association estimates the industry represents spending of $1.4 trillion worldwide and predicts that number will rise to $1.7 trillion by 2022.

In its U.S. Corporate Travel Report 2018-2022, Phocuswright says managed travel represents a third of the total travel market in the United States and will reach $138 billion by 2022, with 86% of that spending taking place online.

“Corporate travel in the U.S. is solidly and steadily increasing, helped by rising business confidence and despite recurring geopolitical challenges like tightened immigration policies. The online segment continues to grow rapidly and dominate corporate bookings,” the report states.

And that online segment is broad and diverse – ranging from self-service booking tools to platforms from travel management companies and suppliers and incorporating newer technologies such as machine learning, chatbots and virtual assistants.

Digital disruption has been slower to develop in business travel than in leisure, but in the last few years the pace has quickened, driven in part by startups that have quickly gained traction.

For the first part of our monthlong series on business travel, we talk to investors in three of the most notable business travel startups – Lola.com, TravelPerk and TripActions - to understand why they are so bullish on this sector.

Fast and furious

The year 2015 was a significant year for innovation in business travel. All three startups – Lola, TravelPerk and TripActions – were founded that year (although Lola began with a leisure travel focus and pivoted in 2017). And all three have been very busy since.

Lola has raised nearly $82 million in funding, most recently a Series C round in March led by existing investors General Catalyst and Accel, with participation from previous investors CRV, Tenaya Capital and GV. In November 2018 the company inked a partnership with American Express Global Business Travel.

TravelPerk added $60 million to its Series C round in July, bringing its total capital to nearly $134 million, with participation from existing investors Kinnevik, Partners of DST Global, Target Global, Felix Capital, Sunstone and LocalGlobe. Also in July the company announced a new guaranteed refund program for cancellations.

And TripActions is now valued at a massive $4 billion, with its most recent funding round of $250 million in June led by Andreessen Horowitz with participation from Zeev Ventures, Lightspeed Venture Partners and Group 11. Total funding tops $480 million and yesterday the company announced the launch of TripActions Consulting, going after a piece of the market that’s been dominated by the legacy travel management companies.

Obvious opportunity

So what is fueling this rapid growth and investor confidence?

Investors we talk to agree it’s a convergence of factors, starting with the fact that the market is massive and has been underserved.

TravelPerk investor Antoine Nussenbaum, partner at Felix Capital, says as his firm started exploring a move into travel nearly three years ago, they were surprised to find the online disruption in the sector, particularly for small and medium-sized businesses, was lacking compared to consumer travel. And that indicated a great opportunity.

“It’s still a market where a lot of offline travel agents are making a lot of money and still capturing a lot of market share when you aggregate that,” Nussenbaum says.

“So from a market perspective and a macro perspective, it was quite unique to see such a massive market which hasn’t been captured yet by emerging new players that are digital first and very tech savvy and knowledgeable around travel.”

That’s similar to General Catalyst founder and managing director Joel Cutler’s view. Cutler has been investing in Lola.com since day one, in part based on his longstanding relationship with and respect for founder Paul English, who he had partnered with in 2004 for the launch of Kayak.

Cutler says he saw a need for software – and he calls English a “product genius” – to give small- and medium-sized businesses consumer quality tools to manage travel efficiently.

“The mid-market space is huge, and it's global and it's not extremely well served by large players,” Cutler says.

“There are a lot of very, very good regional TMCs that do an excellent job, but they're not global and they just don't have software chops. This is not just about selling airline tickets or hotel rooms. That's part of the equation for sure, and that's a traditional TMC, but this is the beginning to the middle to the end - what you can buy, how you can buy it, how you get paid for buying it, is it in compliance, how does it get reported, how do you do it in an efficient way, how you provide service. This is a software solution.”

Oren Zeev, who has invested about $70 million in TripActions through his firm Zeev Ventures, says while the legacy travel management companies - names such as GBT, CWT and BCD – have been providing technology-driven solutions at the enterprise level, they haven’t been doing it well.

“In general, companies selling to enterprise did not think of the experience of the end user. They assumed employees would use whatever the company tells them to use, so you don’t have to make an effort to make it user-friendly,” he says.

“They always saw the customer as the CFO, so they cater to CFO, but the experience of the traveler was never their focus.”

Traveler-centric solutions

In fact, say these investors, it is the traveler-centered approach of these startups that is actually helping them serve the needs of CFOs and travel managers because employees are more likely to use a booking system that they like.

“You can have all the control and visibility features in the world, but if 50% of the time people go around and go rogue than all this 50% is outside your control and visibility,” Zeev says.

“So just by virtue of having something that employees want to use instead of something being forced on them, you get better control and visibility.”

All three of these startups have developed products that combine user-friendly mobile solutions with round-the-clock human assistance.

Cutler says another critical element of that great user experience is great content – part of the impetus for Lola’s partnership with GBT.

“At the end of the day having really good deals and pricing and service makes a really big difference,” he says.

“So Lola is working to be sure it is an excellent TMC at the same time as building great software.”

This need to provide great supply and great service in a digitally-enabled solution, says Nussenbaum, is very difficult and creates a natural barrier to entry for this type of product.

“For the CFO you have you need to build a software accounting management tool in order to be more efficient on travel spend. The office manager needs a product that makes their life easier and helps them save time. And lastly it needs to be a consumer grade solution to handle very smoothly cancellations, being informed about anything,” he says. 

“It’s extremely hard.”

Road to success

From the outside looking in, however, these three startups have made it look, if not easy, then at least doable.

Thinking back four years to his seed round of funding in TripActions, Zeev calls it a “very contrarian investment.”

“You are going to a space that seems like it’s done. It’s not a new space. It’s dominated by strong incumbent players. How will you compete with companies that are a thousand times larger, and they have all the advantages that a big incumbent has,” he says.

“But it wasn't solved because the solutions were not good. And sometimes it's hard to realize to what extent the solutions are not good until you actually have a solution that is right.”

Looking ahead, all three investors use the words like “massive” and “gigantic” to describe the opportunity that lies ahead.

“Lola will grow at an extraordinary rate, but because of the service component I think it should be controlled so service excellence is there all the time,” Cutler says.

“And I’m quite a big fan of the other two companies – TravelPerk and TripActions. This is a gigantic global space and these people are taking a very modern and innovative approach to it. So there will be a few very big companies built here. This may be a few take most, but it is not winner takes all.”