Travel startups have enjoyed a seemingly abundant amount of funding in recent years with huge rounds pumped into sectors including tours and activities, hotel technology and ground transportation.
Then, the investment activity became all but a trickle as the COVID-19 pandemic was declared and borders closed.
Those startups that had announced rounds before the virus felt fortunate in that they had more runway than most, while others cut costs, furloughed staff and went into hibernation mode.
But what of those that were in the midst of what is often a lengthy fundraising process?
Fortunately for some, the negotiations didn’t stop, but the process changed and terms and conditions were scrutinized harder.
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Fly Now Pay Later announced its £35 million Series A round in mid-May.
The London-based company, which provides flexible payment technology, started the process in late 2019.
Jasper Dykes, Fly Now Pay Later founder and CEO, says that while many merchants have signed up to use the technology that would not have had it not been for the virus, transactions have been down 90%.
He says that he knows there is pent-up demand, with many customers applying to use the service, and that transactions will come, but the process has been frustrating, especially when others in alternative payments such as Klarna are seeing record transactions.
From a funding perspective, the company kicked off the process in the fourth quarter of 2019 before Christmas.
Fly Now Pay Later was ready to “hit the button” in January, but the virus hit, and things slowed down.
Dykes says the transaction had to be completely renegotiated among himself, the financial director, the head of capital markets and some board members all working on it from home via Zoom, Skype and other applications.
“Investors are there to generate a return for their shareholders. It’s an undeniable fact that we were raising money in the midst of the biggest travel industry crisis the industry has ever seen. That slightly adjusts the risk of the transaction or perceived risk, and as a result any deal would need to be done on a risk-adjusted basis, and that’s the element that took a bit more negotiation.”
Surviving a crisis
Dykes describes the period as challenging as the startup was not only rushing to put its “COVID-19 resilience plan” together but also trying to to close the funding round.
“The only way to overcome that sadly is more hours behind the desk dealing with all the moving parts.”
Philipp Mintchin, co-founder and CEO of mobility solutions platform Splyt, also talks of the additional stress of raising funds during the crisis.
As borders were closing, he and his co-founder were in Japan with SoftBank closing Splyt’s Series B round of $19.5 million, which took longer to complete because of the virus.
“There were a lot more complexities involved with procedures and companies having to work remotely. We were fortunate that SoftBank and American Express Ventures have a longer view on things and on Splyt.”
Mintchin also says that forecasting was different with “crisis mode measures” needing to be shared along with the cost-cutting actions Splyt had taken.
He adds that startups can be known to produce the “most wonderful forecasts,” so it was important to produce numbers that were realistic for Splyt, show what needed to be done to achieve them and a plan for making up lost revenue.
Growth experience
Like Fly Now Pay Later, the commercial terms were reviewed. Mintchin says: “Closing earlier would have been better for any startup because you would have been able to show greater revenue than before COVID-19.”
Dykes similarly says he has learned the importance of executing a funding round quickly.
“Had we have been able to executive the round pre-COVID, our shareholders would have benefitted from significantly better commercial terms. Sometimes it’s better off not squeezing the lawyers into the ground in terms of fees and incentivizing everyone to move quickly and get the transaction done.”
A further learning from the experience for Dykes has been a change in mentality towards applying resources to automation.
“We were growing very quickly - 400% year-on-year growth rates. That kind of growth breeds this mentality that you need to throw money and resource - i.e., people - at a problem. Sometimes what is needed to resolve a problem is an automated and really nicely engineered solution.”
Fly Now Pay Later is already progressing on a Series B round through which it hopes to raise £25 million and close in the first quarter of 2021.
For his part, Mintchin says he has gotten better at communicating.
He says COVID-19 has had an impact on mental health not necessarily from the perspective of people working from home but from anxiety about the future.
“I’m well-known for being cautious, but the approach I took was to be more open and transparent to let people know at which stages of the Series B process we were. It helped us bond more closely as a team because it wasn’t about big announcements or big numbers anymore, it was about survival, and surviving as a team and making sure we could stay true to our long-term vision.”