SilverRail Technologies, a business-to-business platform for train ticketing, has raised $40 million in a new venture capital round meant to fast-track its growth.
The Series C round is being led by Mithril Capital Management. Four existing SilverRail investors are also chipping in: Canaan Partners, Sutter Hill Ventures, and Brook Venture Partners.
SilverRail's funding now totals $73 million. The startup would not reveal what valuation the fresh round placed on the company.
Since its 2009 launch, it has raised $29 million in seed and series A and B funding. It has also pulled in $3 million as part of a tuck-in acquisition.
The latest $40 million investment is a monster round when compared with the industrywide median for Series C, according to a report by Pitchbook, a research firm.
Having the extra cash will allow SilverRail to expand its technology infrastructure and business development.
SilverRail says it dominates the North American market. If you're a US seller of Amtrak tickets, you're highly likely to be using it, for instance.
In the past year, SilverRail has added connections in Spain, Italy, and Sweden, bringing its total to nine countries in North America and Europe, including the United Kingdom and Germany.
The company forecasts it will take five years to connect every major rail carrier in the world.
Slow burner
SilverRail is a B2B startup whose marketplace enables sellers, such as travel agencies and online travel companies, to connect with suppliers.
It's like a Rosetta Stone for rail. It interprets the languages used by railway IT systems, such as German rail and Spanish rail, and translates them into a single data feed, or application programming interface (API).
Its single platform replaces the spaghetti of channels that ticket sellers today use to connect to suppliers.
It also standardizes the programming language, enabling systems to talk with each other.
Case in point: Today different railway systems outside of Britain have differing codes for London St. Pancras Station. SilverRail gives the station a universal, unique one.
CEO interview
Co-founder and CEO Aaron Gowell spoke with Tnooz by phone from the company's office in Boston.
He talked about the investment, the company's plans, his critiques of some competitors, and why skeptics of the rail industry ought to re-think their assumptions.
What are the terms of the deal?
This is single best term sheet I've ever seen. Pure investment, 100% pari passu with the earlier rounds.
It's very unusual in late-stage investment that investors have enough confidence in the business that they don't add lots of protections for themselves.
Plus we get great mentorship. Ajay Royan, managing director of Mithril, will join our board of directors.
What's your revised ownership structure?
Sutter Hill, Cananan, and Mithril all have about roughly the same ownership. No single investor owns more than 20% of the company.
SilverRail launched in 2009. Since then, the rail industry has been slow to adapt new technology. Are you in a race against time? How long are the time horizons' of your investors?
Mithril is okay with investments where the time horizons may be long. It expects we'll be doing this for the next 7 to 10 years.
Our first lead investor, Sutter Hill is primarily owned by its partners and doesn't have the typical short-term pressure from pension funds.
It thinks long-term. It even owns one company it invested in decades ago.
What was the funding round like in this frothy market?
We had several top-tier venture firms that were neck-and-neck until the finish line.
We had a fair amount of interest from players who are arguably bigger and more active in the travel space than Mithril.
What I liked about Mithril’s approach is that it seeks out big overlooked spaces. How it describes its investment thesis fits well with how our team thinks of our vision.
It looks for big market-changing, technology businesses that are able to solve for problems in calcified, entrenched industries that people just haven't been paying attention to. That's an exact description of the rail market.
Some skeptics roll their eyes at the idea of state-owned railway companies embracing new technology. Even large travel management companies (TMCs) seem to be slow. How do you respond to the doubters?
I understand the "rolling of the eyes". The European market is an old-school entrenched market. No one else has cracked the code on it. So I understand skepticism.
Having said that -- I can't disclose some of the underlying detail of this -- but:
Our investors have looked at the contracts that are in place but that we haven't publicized. They see that each facet of the industry is absolutely adapting SilverRail's platform as the de facto, "Intel inside" solution.
The markets that are moving the fastest are the corporate online booking tools. Almost every single one of them is working with us already.
The online travel agencies and metasearch companies are in various stages of development with us.
The hardest to move over are the large mega corporate TMCs. But we're gaining traction, because our platform is more cost-effective for them.
One of the world's largest agencies is transferring their transactions over to us now. We haven't announced that yet.
Here's some context: Large agencies power their ticketing via in-market, one-off solutions. They all want a single solution so that their US customers, for example, can book rail in any country. No major agency can do that today.
What about the supplier side, the railways -- many of which are state-owned? Without their content, your platform isn't of use. But they have a reputation as being stodgy bureaucrats.
The notion that the railways can't move is wrong.
All of these suppliers have outsourced their tech to somebody. You can look and see the number of state-owned entities that have request-for-proposals out on the market.
We’ve signed two memoranda of understanding deals in Europe to power supplier-side search. That will continue to grow.
Many of these railways have high-speed rail. They want as much demand coming in to that, to fill all those seats with high-margin passengers. Especially on routes when they're competing with airlines.
The toughness of the market is what also makes it attractive. Once we are successful, it will be very hard to dislodge us.
How might the railway companies use your system?
All of these railways are using big system integrators -- Capgemini, and other consultancies -- to build their back-end systems. None of them have built their own.
In the UK, there's ATOC, a body that represents the 23 train operating companies. Many of its members are using bespoke systems from Capgemini.
In the US, IBM has done a lot of Amtrak's work.
Sabre sold the French railway SNCF a modified copy of its reservation system code, called Reserail. In other countries, Navitaire's systems are common.
None of these tools built by the system integrators are great for rail.
As a rail tech specialist, we understand the product and supplier needs better, and we cost less because we are not charging by the hour to build one-off, custom platforms.
Another factor: These bespoke systems can't handle modern volumes of queries.
Try this: Do a train search for any European country and you see a limited slice. You don’t get full day results, as you would for airfares. That’s because an antiquated technology lies underneath the modern-looking user interfaces.
So, again: Our main selling points to railways are the robustness of our search and transaction capabilities relative to their existing systems, and the opportunity we offer for suppliers to better yield-manage their inventories.
But these state-backed organizations are internally sluggish. Why do they have any incentive to jump?
Cost-savings. Think about a railway's business model. They've got one tech platform for selling tickets at the window counter. They've got another system for their call center.
Another system for their electronic kiosks. Another system for their brand.com booking engine.
Often they've used different vendors to support each of these channels. So if a sale happens through a channel like the web, they can't see it in the call center, because it's a patchwork of systems.
A supplier may not know a sale has happened on a kiosk until the end of the day when the tech partner running the kiosk gives a report.
SilverRail's single API can power all of their touch points -- the kiosks, the call center, the mobile apps -- in real-time. The different user interfaces would sit on top of our platform.
Does SilverRail do bespoke solutions?
No. There's only one code base. We don't do anything custom.
Will SilverRail have a consumer play?
We don't do consumer retail ourselves.
How are agencies using you?
Some companies are only using us for search functionality, like retail site The TrainLine in the UK.
CLARIFICATION: "Search functionality" refers to the IPTIS/Jeppesen journey planner that SilverRail acquired last November, and not the tech that SilverRail has been building for a few years.
Others are using it purely for the transaction capabilities, like Spanish agency KDS does.
Why don't the major online travel agencies and metasearch sites display rail?
The primary reason is technology. The railway supplier systems cannot handle the query loads that would come in from say, supporting Expedia or Skyscanner.
They put real tight look-to-book ratios on queries, which the OTAs and metasearch sites have largely balked at. SilverRail's system can essentially create a buffer between the supplier and us. That's, in part, why suppliers are considering adopting our platform directly.
CORRECTION 12:40ET: Metasearch site Hipmunk says its Amtrak results are as real-time as those on the railway's own site. An earlier version said otherwise. Sorry.
If you're dealing with all these different countries and companies with different business considerations around the world, how can you create a universal model to please them all?
Our view is there is a perfect solution for how rail should get sold. If you look across every supplier, the reality is that they are all founded on the fungible data sets.
They're all describing exactly a train at arrives at a station that has a price on it that it sells a ticket for a seat. That’s true regardless of the rail line, the nationality, the agency. But they do it in different languages, so to speak.
SilverRail's B2B goal of making rail as easy to book as airfare. Are the global distribution systems (GDSs) -- Amadeus, Sabre, and Travelport -- potential competitors?
We see the GDSs as potential partners, not rivals. Rail is not a core mission or focus for the GDSs. They've done an okay job, but it would be faster and more cost-effective for them to use our help.
The key thing I focus on is "where is their rail being sold/used?" None of the major OTAs are using the GDS for rail.
That could change when they partner with us. They have been slow to adopt us. But they're coming around.
What's your geographic breakdown today?
We don't disclose exactly, but call it roughly half of our revenue is coming from North America, and half from Europe.
How important is the European market to SilverRail's success?
It's a third of the world's rail transactions are sitting there, roughly. We need to crack it.
Think of ITA Software by Google. Great company, great technology.
They got traction by getting adopted by Orbitz. Then they got adopted by dozens of airlines.
They had already been outsourcing their brand.com website booking engines. They asked themselves,
"Why not switch to ITA, which is superior?"
A similar dynamic could work for us.
We also want to extend our search and transaction tech platform -- only in our case, it's for rail, not air -- to power supplier sales channels and websites directly.
Now that you have this funding, will you be hiring?
Yes. As of today, we have about 70 employees worldwide. We'll add approximately 15 to 20 positions, spread across functions.
The primary business development, supplier relationship, and account management teams are out of our London office. That group will get a hefty injection of capital and support.
We'll also beef up our engineering teams in Boston and Brisbane.
I also anticipate that we'll need to open offices in Japan and China, to get boots on the ground.
Do you have any competitor in Asia?
Not that we know of.
SilverRail is not the only company interested in door-to-door journey planning technology. What makes your tech stand out?
Our view is that D2D journey planning is powerful/valuable as a LOCAL solution. People want it in their region more than they want to have it for planning their trip from their house to their holiday in Majorca.
Integrating the ability to transact rail and other products, such as on-demand private transport from Uber and similar companies, within a local D2D planning tool will be very valuable.
Might SilverRail invest in other companies?
We’re starting to think about retail and mobile. In particular I’d love to see someone build a pan-European rail plus hotel packager, which I think is a much-overlooked opportunity. No one is doing it effectively.
I could envision helping financially support a niche startup trying to figure this out. We wouldn’t do it ourselves.
Last November, SilverRail bought part of Jeppesen from Boeing. Any color on that?
We acquired the multi-modal Journey Planner system and the Integrated Public Transport Information System (IPTIS) technology.
That multi-modal door-to-door journey planner is starting to be adopted by local transit authorities.
Today our tech powers the TransPerth D2D mobile journey planner, including its app, and the planners of five other companies.
Has SilverRail ruled out either being acquired or IPO-ing?
Like all venture backed businesses, I expect that our investors would like to see a great return at the right point in time.
I could see us being a strategic fit with a number of companies who'd like to own the category-killer in rail.
And I think the business does have a profile that would make for a good public company. Long term contracts, high margin, predictable revenue streams, high barriers to competitive entry, etc.
You were the first associate at General Catalyst Partners, and you were previously a consultant at Bain. Did that experience inform your fundraising?
It helped the conversation to understand the language and thinking of venture capitalists.
And having been at Bain, which does lots of thinking about how market dynamics move -- there's a lot of training from there that helped me grasp the rail market.
In my fundraising meetings, I'd say,
"Let me put my Bain hat back on. The reason I like the rail market is that it's a massive $300 billion market that is going through a huge amount of transformation -- slow transformation, because entrenched players.
But what you like to see as an investor is a lot of flux -- and this a market that's deregulating and privatizing.
You see competition now -- Germans will run a line on the Paris to London route. The Italo train is competed against Trenitalia on a route in Northern Italy."
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ANALYSIS:
Some closing thoughts:
1) Gowell compares SilverRail Technologies to ITA Software. That's intriguing, given how ITA Software ended up being acquired by Google.
Considering how today's tech giants have huge reserves of cash seeking revenue growth generation, it's easy to speculate that the endgame for SilverRail may be an acquisition.
2) The size of its round is a credit to SilverRail's business model. But it's also partly a sign of how frothy the markets are.
It makes one think of the Silicon Valley-types who had bumper stickers on their cars back in 2001 that read: “Please, Lord, give me just one more bubble." It seems that your prayers have been answered.
3) Tnooz recently did took an in-depth look at Silverrail's path to funding a travel startup. In the Q&A, he shares some of the basics of funding, tips of the trade and what he has learnt along the way.
Last summer, Tnooz did an profile of SilverRail’s strategy for European rail ticketing
Tnooz has had extensive coverage of activity in the European rail market, including of some of SilverRail's presumed frenemies.