The global travel industry is experiencing unprecedented
growth. The World Travel and Tourism Council estimates travel contributed more
than $8.3 trillion to the global economy in 2017 and predicts that number will
grow to $12.5 trillion by 2028.
That upward trajectory is fueling an active startup
Around the globe, entrepreneurs are working on disruptive
solutions to fix inefficiencies and address pain points, with work spanning
from small-scale individual developers in remote corners of the globe to
well-funded initiatives in tech epicenters.
According to Phocuswright's State of Travel Startups data,
about 2,000 active travel and mobility tech startups have been founded globally
since 2008, and venture capitalists invested $31 billion in them in 2017, up
from $19 billion in 2016. And the allocations in early 2018 - $4 billion in the
first six months across 160 deals - put this year on pace to set a new record.
And while those infusions of cash have driven notable growth
and innovation, the dominance of venture funding in the balance sheets of
travel startups can also bring incredible pressure to get to an exit – a
merger, acquisition or initial public offering.
Of the nearly 2,000 B2B and B2C startups founded in the last
10 years, 12% have been acquired. That leaves many potentially still seeking a
For the final piece in our month-long series on startups, we
gathered learnings from three companies that have been purchased in recent
Skyscanner. Routehappy. FareHarbor. These three companies operate in very different segments of
travel, and they each took different paths from startup to acquisition.
Metasearch engine Skyscanner, the oldest of the three,
launched in 2003 in Scotland and made a handful of acquisitions of its own
before it was purchased by Ctrip in November 2016
for approximately $1.7 billion.
RouteHappy, a provider of rich content for airline shopping,
launched in 2011 in New York, raised about $8 million in four funding rounds,
and then ATPCO purchased it in February 2018.
And FareHarbor, founded in Hawaii in 2013, had only taken in
about $100,000 in funding before it caught the attention of Booking Holdings,
which bought the tours and activities distribution platform in April 2018.
And yet when asked about the process of going from being a
startup to being acquired, the tips offered by executives from these three
companies sound remarkably similar.
Startups are often lean operations, small teams with long
to-do lists. If acquisition is an ambition, Routehappy chief commercial officer
Jonathan Savitch says it’s important to have clear goals and to avoid
distractions that don’t advance that outcome.
“We were ambitious but concrete,” he says.
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“We wanted to de-commoditize flight shopping, and that’s
been our guiding mission from day one. Everything we did was trying to figure out
that narrow but deep problem.”
FareHarbor founder and CEO Lawrence Hester says as a startup’s
business grows, founders should also focus on meaningful metrics rather than
the so-called “vanity” metrics that may not hold value for an acquirer.
“Make sure the KPIs [key performance indicators] your
business is focused on, on a day-to-day basis, are actually driving your
business forward and something that an acquirer might find attractive,” Hester
“Sometimes that’s just top line, bottom line and EBITDA.”
Network and partner
Relationship-building is critical for startups for many
reasons. For one, it can fuel business. As large as the travel industry is, it
is also in some ways small – those on the inside know one another and can make
introductions that generate new clients for a startup.
In the years before Routehappy’s acquisition, it had signed
partnerships with Expedia, Skyscanner, United Airlines and Air Canada. Savitch
says those types of engagements provide validation and momentum that can make a
startup more appealing to an acquirer.
Skyscanner chief legal officer Carolyn Jameson says it was
her company’s past relationship with the senior team at Ctrip that facilitated
“It really helped it to go along so smoothly and ultimately
helped it reach a conclusion, because often with these things, they don’t,” she
Networking can happen in a variety of ways. Often
introductions are made by investors or board members. Or it can happen more
spontaneously at industry events – which is how Hester says he first met the
leaders from Booking.
“A large part of it is somewhat random. For our own Booking introduction,
it was a random person at actually the Phocuswright Conference that introduced
me to the Booking team,” he says.
“And I think the [acquisition] process would have been a lot
different had I never met the team in person before, it would have been a lot
more awkward. So making sure you are out and about meeting people is a large
part of it. I had gotten that advice from people in the past and maybe I didn’t
believe it till I went through it myself.”
On first glance, Ctrip and Skyscanner may look like strange
bedfellows - China's largest online travel agency and an Edinburgh-based
metasearch engine – miles apart geographically and culturally.
But Jameson says the pairing arose out of mutual benefit.
"We spent hours going through emails and Dropbox files and random downloaded files on our computers trying to put together the entire diligence room."
Lawrence Hester - FareHarbor
Ctrip was far, far bigger, and it was operating in quite
a different market geographically and from a consumer and product perspective,
“But they were only operating in China and had hopes of
expanding internationally. Skyscanner had been very successful in working
across a large number of markets, so we’ve been able to really help them get a
bit of head start in doing things in other markets.”
Mutual benefit goes hand in hand with mutual respect.
“If you are bigger company and you buy a smaller company and
then you just impose yourself on them, you can lose what that company you
bought was all about and the things you found attractive in the first place,”
Jameson says. “Ctrip has been really good about not doing that.
The foundation for that type of positive relationship starts
from the beginning of the acquisition process. Jameson, Savitch and Hester all
spoke of “fit” and considering whether the people and values of the potential
buyer align with those of your startup.
“When you are going through the process of the sale you are
probably not thinking about fit nearly as much as you should,” Hester says.
“At that point you are so focused on what’s the next model I
need to put together, what’s the next document I need to deliver. You’re
focused on diligence, and you are not focused on what’s going to happen on day
one, post the sale of my business. But if you don’t spend enough time thinking
about fit, you’ll probably get burned post acquisition.”
The top tip for startups is something that needs to begin on
day one – even before the business gets traction, before funding rounds begin
and before the idea of an acquisition goes from a dream to a possibility.
Our three interview subjects use slightly different words –
Jameson describes it as keeping your company “clean,” Savitch advises, “shore
up the fundamentals,” and Hester says simply, “get organized.”
"At the point of having those discussion around acquisitions, I have never, ever seen a situation where somebody doesn’t find it a bit overwhelming or a bit scary."
Carolyn Jameson - Skyscanner
But the message is the same: Startup founders should be
pristine record-keepers, with formalized processes and contracts from the very
“Make sure you have copies of all your contracts, that you
have clear documented policies for everything related to intellectual property
to employment policies to security provisions,” Savitch says.
“Ultimately anyone acquiring you will go through all of that
with a fine-tooth comb, and it’s much easier to have that stuff at the ready,
baked, validated, able to be packaged and shared with acquirers and bankers and
In the early days, startups often employ people on a
contract basis and Jameson says during the acquisition problem they often face
a problem that is all too common – and avoidable.
“People use contractors to do work and don’t realize they
don’t necessarily own that intellectual property, and then it comes to the
point of sale and I’ve seen situations where people start demanding money and
things like that,” she says.
“So just really staying on top of those things, which aren’t
the most exciting things when you are trying to build a business, but they
Coming soon - State Of Startups 2018 report
Hester’s experience is particularly telling. As a startup
that was not backed by venture capital, FareHarbor had not gone through a full
round of due diligence when talks began with Booking. So the process was much
more lengthy and stressful than it should have been.
“We spent hours going through emails and Dropbox files and
random downloaded files on our computers trying to put together the entire
diligence room,” he says.
“I think it’s one of those things that, as you are starting
your business, you aren’t thinking what is that exit and what do I need to do
to be ready to potentially sell my business. But you should get yourself
organized on day one.”
Jameson has a unique perspective, having been involved in
both Skyscanner’s acquisitions of startups such as Distinction, Youbibi and
Twizoo while also being on the other side of the table for the acquisition by
“The thing I’ve learned from doing these is you have to
remember there are people behind it at the end of the day,” Jameson says.
“We always talk about companies as companies, but ultimately
a group of people have built them from scratch. At the point of having those
discussion around acquisitions, I have never, ever seen a situation where
somebody doesn’t find it a bit overwhelming or a bit scary.
"Emotion comes into
it somewhere. What I’ve learned is you need to be understanding about that if
you are the larger company acquiring, and not to underestimate how much a small
company can bring. If you get some strong key players, they can make a huge
difference in your own company very quickly.”