Roger Lee is a venture capital investor and a partner at Battery Ventures, a US fund.
Battery has invested in several travel start-ups that have had profitable exits, such as ITA Software, a technology firm that Google acquired, and Sabre Holdings, which is one of the three largest global distribution systems and which had its IPO this spring.
Lee is currently the person who oversees what many consider to be Battery's hottest investment: HotelTonight.
That mobile-first start-up was incubated in DealBase, a travel deals search engine company run by Sam Shank. General partner Brian O'Malley helped to spin HotelTonight out of DealBase shortly after launch. The fund also led the start-up's early financing.
Battery's current travel portfolio includes Duetto Research (which in July had a $21 million financing), Gogobot (which says it has doubled its visitors in the past year), IHS GmbH (which has made acquisitions in the past year), and Go Euro -- a multi-modal platform that is attracting a lot of investor buzz.
But not everything has come up roses. Battery is no longer involved in two of its former investments: Milestro, a seed-stage company developing a hotel and auto rental booking engine, and Travelguru, an Indian online travel agency.
Lee is not the only Battery partner to cover the travel sector. Itzik Parnafes handles GoEuro, while Dave Tabors works with Duetto.
Yet Lee was able to speak to Tnooz about Battery's overall thesis about the travel sector.
How hands are you with HotelTonight and Gogobot?
We’re very hands on. We’re the seed investors in both. We’ve been on each of their boards since day one. Today I personally work on HotelTonight and Gogobot, along with companies that aren't in travel.
Depending on what the challenge of the day is, we’ll do different things.
It could be anything from helping a company find a talented engineer or a CFO to helping a company close a sale. We might provide feedback on a product or be creative when it comes to syndicating.
As a company grows from one or two founders to dozens of employees, you end up working of different problems at each stage. We can help a company’s founders decide if they’re going after the right problem set.
So HotelTonight and Gogobot keep you very busy?
No, these companies have made my life easy because both of them have very accomplished CEOs. It’s much easier being a board member when you have a solid CEO, which is true in both of these situations.
Before I went in to investing, I spent 12 years of my life as an entrepreneur. I built a couple of companies. So I’ve been through these stages. And there’s a delicate balance between being overly assertive and almost disrupting things versus being reactive and being helpful as situations arise.
Depending on the nature of the company and the leadership team, you have to assume different roles. In both of these cases, I’ve been blessed with smart CEOs who know how to use their boards in effective ways. There are periods of times when it is very active, as a function of what’s going on in these companies.
I’m not scripted in the sense I don’t have a playbook that every company I’m involved with has to go through, A, B, and C.
Instead, at a typical board meeting there’s green, yellow, red. The CEOs tell us what’s going well, what’s concerning them, and what’s keeping them up at night. And my job as a board member is to focus on the red items, what can I do to help the CEO sleep a little bit better?
Typically I try to grab one or two of those issues and try to move the ball in a substantial way between the board meetings.
It could be a hiring issue, a product issue, a customer issue, a financing issue.
In these two cases, the types of issues that have been keeping the CEOs up at night tend to be the kinds of issues that CEOs want to have, good problems that are associated with success.
What’s a happy threshold for exits?
Our goal for our early-stage venture capital practice, which both of these companies operate in, is to really move the needle in a substantial way for our funds, so at least a 10x return on our investment. And the chance to really build a billion-dollar plus company.
To justify the risk, the only way to really do that is to have a legitimate shot of pulling that off. In both of these cases we think that’s absolutely true.
HotelTonight has a good chance of replicating the success of the world’s largest online travel agencies (OTAs). We believe it has a solid chance of building the world’s largest mobile-first OTA.
In the case of Gogobot the ratings and reviews space is enormous. TripAdvisor is worth $14 billion. The chance to re-invent the travel experience via the lenses of mobile and social could lead to a multi-billion dollar company.
That’s really the definition of success. A significant multiple of our investment and the chance to build a billion-dollar-plus business.
Gogobot's CEO Travis Katz recently told Tnooz that the company is experiencing solid growth. Is Katz raising for a round right now?
No, he’s not. That’s not to say he wouldn’t necessarily, you know, take an investment if it made sense. But he’s not actively in a fundraising mode because the company doesn’t need it right now.
Where does travel rank in terms of "innovation" against other tech verticals?
I would argue that most verticals that we invest in are going through a lot of innovation and disruption right now. Travel is certainly near the top in innovation as a response to the disruption.
It would be hard to point to another e-commerce vertical that has created so many billion-dollar-plus companies in the past two decades.
What’s Battery’s thesis about travel, from 20,000 feet?
When we think about verticals, travel is certainly one of, if not the number one, we are most interested in and have invested the most in. Travel is one of largest categories in e-commerce, from transactional and advertising perspectives.
We’re always looking for big markets, first and foremost. Secondly, huge trends are reinventing travel from the ground up, and we've been actively investing against these trends in many verticals.
But if you had to categorize some of the themes you're excited about, what are a few of the macro areas you'd focus on?
One is around mobile. Phones and tablets are a big macro trend.
HotelTonight is a great example here. It is re-thinking the travel transactional experience from a mobile perspective, how to get a high quality hotel room in under half-a-minute, with a frictionless, end-user-experience on a smartphone.
It adds great value to the hotels because it adds inventory they would otherwise not have, creating demand.
The other half of mobility is that the actual content of the experience itself can help a user explore things to do when he or she arrives at a destination. If you just land in, say, Beijing, companies like Gogobot can help you quickly find relevant suggestions, filtered by ratings and reviews and presented in a way to be consumed via phone or tablet.
Another trend is around Big Data. The things going on at the software level, which consumers don't see, will arguably be just as transformative for hotels, airlines, and other travel operators over the next ten years as what's happening with consumer-facing brands.
How do you use Big Data to allow travel operators, hotel chains, and anyone in the food chain to run their business more effectively, provide better customer service, and adjust their rates more efficiently?
So one of our investments against that theme is Duetto, which provides a platform for the hotel industry to operate their businesses more efficiently.
By using Big Data and predictive analytics provided by Duetto, hotels can now deliver much precisely customized service to consumers. They can better understand guest preferences and, importantly, what prices they can charge for that customized service. It helps hotels captures incremental revenue.
Duetto also helps hotels differentiate on pricing based on availability, timing, and other factors to price each room on an efficient basis. The software helps hotels capture the most profit per room, not just fill the most rooms, as well as provide differentiating customer service to build repeat business and loyalty.
Another theme for us is the importance of social in travel. The funny thing is that I’m highly biased toward visiting the hotel, restaurant, attraction, or destination that my friends have liked.
Gogobot does a good job of filtering travel recommendations by a traveler’s social graph, which can be supplemented by data on people who have similar travel patterns to the patterns of myself and my friends.
Are there areas that are over-invested in travel right now?
Not one that jumps off the sheet at me. I think the whole experience is getting re-invented.
Now you shouldn’t interpret that to say that there won't be failure among all of the travel start-ups out there. There will be, for sure.
But I think that’s just part of the entrepreneurial Darwin-isitic process. I wouldn’t say travel is over-invested as a vertical or has pockets that are over-invested.
At the same time, I think a few really big successful companies will emerge in the next decade and the only way you have that happen is you have a lot of shots on goal, a lot of entrepreneurs trying to reinvent these workflows and processes, and a lot of investors trying to make a profit.
So there will be failure. But there will be successes, and those successes will more than dwarf the losses.
What is the fluidity of capital kicking about? For example, is it tougher to raise Series B than, say, two years ago?
I don’t think so. Access to capital is really a function of the company. If you’re a good company, you won’t have a problem raising a Series B. If you’re a mediocre or bad company, you probably will have a challenge raising a Series B.
What are things or mistakes learned from previous travel investments -- or from your time as an entrepreneur -- that you bear in mind when you work with start-ups?
It’s very company-specific, time-specific.
Here’s a simplistic example, and I’ll cite HotelTonight as a model of a company that has avoided this issue and has been successful as a result.
A lot of companies try to do too much. More companies fail by trying to tackle too many things.
I think Sam [Shank] does a great job of keeping HotelTonight focused on an important problem: how to help consumers book a hotel on their phone in an elegant way. By bringing simplicity and beauty to an otherwise complicated problem, he's created an interesting company.
He was disciplined and didn't fall prey to temptations to expand onto other platforms or into other modes of travel.
A lot of entrepreneurs have a hard time doing one thing really well, especially in the early days when you have limited resources.
Battery was an important investor in Groupon, the flash sales site. Do you think Groupon has been unsuccessful in travel, in light of its split from its Expedia partnership?
I disagree. I believe Groupon has been quite successful in travel. The travel category is a large contributor to its overall revenue. I can't comment on its Expedia relationship.
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Now that you've mastered Battery Ventures' thesis about travel, check out Tnooz's coverage of signature investments by the fund.
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