NB:Hot on the heels of Alex Bainbridge's opinion piece yesterday "Dear travel industry, we desperately need more mentors for budding entrepreneurs. Thanks!", we feature this related analysis on sources of startup capital.
This is a viewpoint from David Ambrose, who serves as senior director, mobile and social at Travelzoo and who previously founded Scoop St. (He blogs on startup topics at data.insights.ideas.)
A boom in travel startups
Over the last six months, I’ve begun to notice emerging patterns in online travel and one that’s ideal for founders looking to attract capital.
If you speak to anyone in the travel and hospitality vertical, especially those from the early dot-com days, there are whispers of a renaissance in the marketplace.
Building a travel company is cool again, even with the known hardships that acquiring customers is expensive, incumbents have firm footholds in legacy categories, there are high switching costs for customers, etc.
Earlier this year, we’ve seen unbelievable advances in how younger companies are growing and attracting capital in the online travel space:
Room 77’s Series C funding via the corporate venture arms of Expedia and Concur with seasoned travel executives joining the team (Drew Patterson, ex-Kayak and ex-Jetsetter)Priceline.com’s announcement of its investment arm (which is looking for "companies in the mobile, social and analytics areas, along with travel companies that are complementary, not competitive" or a dedicated accelerator run out of Indiana.TripAdvisor's shopping spree, snapping up startups like Wanderfly and Jetsetter.Concur's spending spree on companies like ConTgo, and its $150-million fund to focus on business travel startups.
The appetite to create and fund early stage travel companies is even visible on AngelList, with the category attracting more than 46,000 followers - one of the largest on the entire network.
Why travel is hot
The growth in ways to research and purchase travel in the last 15 years has been unprecedented.
That's good news for consumers, but it also is good news for solutions builders (the entrepreneurs in the room) because it means their addressable B2B and B2C market is stunningly fantastic at triple digit billions (US alone).
The market includes online travel agents (OTAs), metasearch engines, mobile-first booking tools, day-of-travel planning apps, social travel research tools, and deal sites.
Not as soul-crushing as usual
For those of you reading with an entrepreneurial edge, you understand that one of most difficult (at times, soul-crushing) events in your journey of building a business is looking to attract startup capital.
The process for doing so can become all encompassing, and more worrisome, detracting from growing the company.
As a first-time entrepreneur, I remember spending two months of 2008 on Sand Hill Road pitching investors with just A3 paper full of sketches, projections and nothing more than a core idea.
Needless to say, no money came from that trip and I lost time I wished I could have recouped.
Looking back, I realized I did not have a good process to identify the right investors by objective criteria (their location, their investment focus or their investment sizes) or subjective standards (previous lives as founders, similar backgrounds to myself or what they tweet about).
I learned a lot by founding Scoop St, a local commerce company that was acquired in 2011.
Database of leading travel investors
It’s why anyone looking to build (or building) an online business in the travel or hospitality market should bookmark the lists below, as I’ll be updating the following regularly.
Earlier this year, I did research collecting four categories of investors who focus almost exclusively in this market or at least, have a previous interest in it (either by founding a company, advising or investing in earlier travel businesses).
My Google Docs list, viewable as a webpage at Travel + Hospitality Venture Capital, is organized by name of investor (angel, fund or accelerator), associated notes (i.e. previous role, what company the individual founded or investments), location and how to get in touch.
I've also created a Twitter list of investors in travel and hospitality that you can follow. (Am I missing anyone? Shoot me an e-mail or a tweet.)
Insights into venture capital in digital travel
If you dig a bit deeper into these lists, some unique patterns begin to emerge as you look to raise capital.
- Deep Industry Angel Network: For instance, Sam Shank, Brad Gerstner, Gregg Brockway, Hugh Crean, and Erik Blachford are notable angels with a track record of operating big, meaningful travel businesses in a prior (or current) life.
- Limited Institutional Funds, But Giants of General Catalyst and Thayer Ventures: While the online travel market is very large, only one dedicated fund focuses exclusively on the vertical (Thayer Ventures) compared to one partner, Joel Cutler, at General Catalyst Partners picking up notable deals.
- More Investing from the Balance Sheet: Corporate development and M&A groups at companies like Travel Channel are funneling investment into younger companies (i.e. Oyster) for added value, while Priceline.com and Concur look to operate dedicated investment funds.
- Few, Travel Category Launchpads: Incubators and accelerators look to be few and far between, with one in Colombia (Torrenegra Labs) and another in the middle of the United States (RunUpLabs -- see Tnooz's story on this one).
My intent with this post is to help you, the entrepreneur, paint a better and bigger picture of what the travel venture space looks like throughout the United States and beyond.
Look to identify the types and stages of companies each investor bets on, research their backgrounds and ultimately, see if someone in your network knows one another for a solid introduction or rely on calculated hustle.
NB: This is a guest article from David Ambrose, who oversees mobile and social at Travelzoo and who previously founded Scoop St.. He blogs on startup topics at data.insights.ideas.