A new venture fund for travel technology startups has €100 million to invest over the next few years.
Roch Ventures, has been set up by Bobby Demri, an entrepreneur who sold his company to the Boston Consulting Group in 2017, and Ludger Kuebel-Sorger, senior partner emeritus at BCG.
In an interview with PhocusWire, Demri discusses why Europe needs a specialist travel tech fund, the focus on digital nomads, sustainability and corporate travel and the high growth potential for travel and tourism.
Why are you setting up the fund now?
There are a couple of reasons. First of all, I’m an entrepreneur and I have a very big passion for hospitality, travel and tourism. When I sold my last company in 2017 to the Boston Consulting Group, they asked me to stay, and I spent roughly five years leading its software fund. I have been focusing a lot on travel and tourism, for airlines, hotels and cruises, and so I have been able, beyond my passion, to create more expertise in this industry.
So why now and why travel? The first reason is a business reason which is that we have a lot of people with my track record that are launching generalist funds covering every type of industry. I wanted to create a specialized fund because it delivers higher return, because they leverage their expertise to maximize the success of the company they are investing in. And when I wanted to do something specialized the only thing in which I have real expertise and a very big network is travel and tourism.
Beyond that, COVID changed the industry. I think, and it’s what I’m telling my investors, the travel and tourism industry has faced several revolutions and now this is a new revolution. On a very basic level, we started with the GDSs, then it was booking.com, then Airbnb and now it’s a new revolution so it’s the best moment to create a vehicle that supports entrepreneurs in travel and tourism technology. It’s quite rare, because we’re focusing on Europe. In the U.S you have those kind of vehicles, in Europe you don't have a specialist and Roch is willing to become the European leader in the tech VC industry for travel.
You mention the GDSs, booking.com and Airbnb. Can you put into words what do you think this latest revolution is?
We are focusing on three main trends.
Number one is digital nomads. Digital nomads is something spectacular in terms of new travelers. One thing people need to keep in mind is that before COVID, roughly there were 65 million digital nomads maximum. In 2035 we will have one billion digital nomads. The question is how do you address this market? They are expecting something very different to other travelers. One thing that has really excited me is the fact that countries such as Spain, France, Germany and Portugal are creating digital nomad visas. I think you now have more than 60 countries in the world that have created digital nomad visas so it shows there is great understanding from governments that those travelers are very important.
The second trend is sustainable travel. Everyone is talking about sustainable travel as the future. It’s not the future, it’s now, it was even yesterday. Even if you take my generation of 30- to 40-year-olds and even younger, they are not willing to have a big carbon footprint. They are really looking for a more sustainable experience, and what is very impressive in all the research we did, is that people are willing to pay more for that. So, there is a real awareness that the way we are consuming travel now is not sustainable and even not acceptable anymore. We need to find companies, technology companies able to create great experiences in a very sustainable way. I’m not proposing people should walk to New York, but we’re trying to find outstanding, but sustainable experiences.
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The third trend is corporate travel. I can’t share the exact number but I can tell you, as a former BCGer, our travel budget was in the millions. Some big companies spend $200 million a year on travel. What are we doing now when people say to employers that they’re not signing up if the company doesn’t offer remote work. So, in our board we have the former executive vice president of Air France so we have knowledge on the profit of an airline company from the corporate traveler - 75% of the profit of airlines it comes from business class and most of business class is corporate travelers. Those people are cutting like hell the travel budget, so we need to find a new way to address corporate travel.
Are you talking about the experience?
It’s even beyond the experience. Now I think, for example, that when people are doing big business events they are thinking twice about planes. I have a strong conviction that in the next year we will see the rise of rail. You already have nice companies trying to create a good experience in this area. There is a company in France called Midnight Trains and that could be a great answer to corporate travel plus sustainable travel.
How much per investment - will it be 10 investments?
It will be roughly 15 and there are a couple of reasons that differentiate Roch Ventures from other funds. We have very strong expertise with a unique board which will involve itself very deeply in the companies we are going to invest in. So, why 15? Because we don’t have a team of 20 people able to back those 20 companies. With 15 we think the board can make a very big difference as we are really hands on, we are operational people. One of the big criticisms I have of most VCs is that they are looking at numbers. I’m an entrepreneur, and as an entrepreneur I know what it means to create a company and what rollercoaster means. It’s extremely hard to get money from Roch Ventures but when you get money, we’re with you forever, whatever happens.
Within those three areas of focus, are we talking B2B and B2C?
We want to focus more on B2B. It’s a bit frustrating, because I love B2C but it’s extremely hard. It’s very hard to get customers and customer acquisition could be very expensive. But, the more business reason is that Roch Ventures is a BCG team. The two founders are from BCG and we have quite a lot of experience in B2B and we want to leverage that experience in the B2B industry.
The second thing is that as we have access to almost all the travel players, we understand their needs and challenges, so we could be helpful to them by bringing them companies that answer those challenges. We are talking to companies that are really addressing B2B issues. For example, Duve, is an Israeli travel tech company company in the early check-in business. We are not an investor but it would have been exactly the type of company we would have been happy to back because it’s answering a real need for hotels.
There is one other company we really like called Joyned which is doing something very smart. It plugs a widget into the reservation system of any hotel and you can book socially. It means you just share the link with all your friends and in real-time you are all seeing the same thing instead of having one doing the booking. Everyone sees in real-time the exact same thing, same room etc., and it’s a great new way to do reservations. We also have a bunch of companies in the airline industry where want to help airlines sell more ancillaries, which is very important for them in terms of profit.
The investment community in the U.S. is telling startups to cut costs now. What’s your view on the market?
I’m deeply convinced that travel and tourism is the next highest growth industry for the next 10 years for many reasons. I think that if an investor is looking for an industry that will outperform, it will be travel and tourism for many reasons. The main reason is that people understand that there is nothing better in the world. It’s the only thing you spend on that makes you richer.
The industry needs to change, it was slow in its transformation. Now you will never find a big player who is not looking for more technology product to digitize their processes, they are looking for that. What's amazing with the industry now is that it is really willing to change so it is asking for it, so you can co-create with companies. So, when the industry is pushing towards disruption, that’s the best moment.
You’re not concerned by the threat of recession?
Not at all. Not in travel and tourism, not in travel technology. I really think it’s the next fastest growing industry.
What are your thoughts on the hype around SPACs?
Most of the recent travel technology companies that went public via SPAC unfortunately have a terrible stock market price. It’s a great pity because most of them are companies that I’m a big fan of. I honestly think that SPACs are a nice instrument, but people are using a fast way to make something big and it’s not the best way.
Why do you think it has gone so wrong?
I think maturity is something that is extremely important. To take a company public via SPAC after three or four years, I don’t think you have enough history, enough background, enough track record, even enough experience to make it. As an entrepreneur I do understand very well the move, they want to become public fast.
So should they have stepped back and asked if it was the best vehicle?
Absolutely. But, there might be another reason, they might have been struggling to raise money. It gives me another good argument to justify why we are launching Roch Ventures. There is a big lack of investment in the travel technology industry, there’s not enough. Investors have been afraid of travel for multiple reasons and all arguments are good but we have a strong belief that it will be the fastest growing industry so we are here to invest and make an impact in the travel tech sector.
Describe your ideal investment…
Series A. Three to four years in existence with strong revenue, not big but serious. Defensible technology, not something that someone can come along tomorrow and duplicate in five days. A strong team with one failure. It might sound weird but I do respect the entrepreneur that has failed. Failure teaches much more than success. Female founder. Sustainable. Big plan to become international, we’re not willing to back small companies, we’re looking to find leaders and a company where there is enough diversity, which is very important.
If an investor is looking for an industry that will outperform, it will be travel and tourism. The main reason is that people understand that there is nothing better. It’s the only thing you spend on that makes you richer.
And, I would like my founders to share the cake with the team. And, the main thing - European. I don’t understand that Europe is the most visited continent, 10% GDP comes from travel, 10% employment in travel, but it doesn’t have the leaders travel. It’s time for Europe to take the lead.
So, the companies have received Series A and you will go for Series B/C?
We will follow, we will always keep a reserve to follow, because we don’t want to leave when the company becomes big but we are starting at Series A and we will follow up as much as we can if we find it could become a unicorn.
Why Israel for a fifth of the fund?
It’s a small country but most of the best technology comes from Israel. One thing that might not be known is the strength in travel technology companies. In a certain way Waze is a travel company. One thing I love with Israel is they have a strong resistance to pressure, strong in innovation, agility and they are a very strong people. What is most interesting is that it’s a country where you cannot scale so when an entrepreneur creates a company, they are looking for the world and what we can bring is the market.
Where do you see innovation in travel and tourism right now?
Selfbook is a great innovation. There is a nice company in the U.K. called AltoVita. If I go beyond names, let’s talk about the technology and what they’re tackling. Sustainability is the main one. I would say it’s even mandatory now. It will be very hard to find investors backing companies doing oil and gas.
Artificial intelligence, everything related to AI is extremely important because tackling is price filtration, when people are going to reserve or cancel.
There is one other interesting trend, it’s a hard one because it’s a hard market but it’s insurtech. COVID increased people’s awareness in subscribing to cancellation insurance, which was not the case before. If you look at the numbers and the research, most people are taking an insurance to cover their trip in case something happens so it’s an interesting market. A lot of people are trying to replicate what Lemonade did in the U.S. The product was amazing, so I’m pretty sure there is space for travel insurtech. There is one in Israel which is quite good called Faye. One big business could be insurtech for digital nomads.
One last point to highlight is everything related to blockchain. Today, one of the worse experiences you could have is going to the airport, so anything that could facilitate the experience before jumping on the plane, and blockchain could do it, could be something interesting.
What does a startup need to do to attract attention, from Roch or more generally?
They should focus on the product, it’s all about the product. If you have the best product you will find clients. You need to understand your clients. Unfortunately people start without asking clients enough questions. I know how hard it is to start and you need to start with something but if you can co-create your product with your community, you will build something big.
When will you announce the first investment?
We could be announcing something in the first quarter of 2023. The first one will be an important one. It will be an important signal to the market. We have a giant deal pipeline which is a great problem to have. We are selecting the which one, the valuation of companies was totally crazy so now we’re going back to more normal valuations. We might refuse a great deal if we consider the valuation is crazy.