Travel startups should reconsider their obsession with raising money but also smarten up their act when pitching to investors.
This was the stern message from a panel of financial backers at the WebInTravel Bootcamp in Singapore this week, as the eagerness by entrepreneurs to enter the travel industry appears to continue unabated.
The volume of new businesses that are attempting to make a mark has yet to slow down in recent years despite the chronic failure rate in the sector as a whole.
This is particularly acute with the consumer-facing world web businesses, where many travel startups struggle to achieve any significant level of traction to make any meaningful revenue to grow and survive.
Part of this ongoing problem is that those considering a me-too version of an existing model (flight/hotel metasearch or online travel agency), or trip planning, face considerable pressure from established players that are able to easily outspend them on marketing.
Still, this isn't to say that there is no money kicking about in investment circles - far from it, in fact.
Many venture capital organisations or angel investors appear to be happy to throw in a seed fund for travel startups, often raising it to a Series A if there is some initial progress.
But there is a "slowing down" in enthusiasm by VCs to extend their support to travel startups at the Series B and C level, the panel of execs from Recruit Holdings (Aya Yamato), Howzat Partners (Hugo Burge), Monk's Hill Ventures (Kuo-Yi Lim) and Capital Group (Sugiharto Widjaja) argue.
In particular, Burge of Howzat Partners says that "raising money is not cool" and the process of it can be "a burden".
He says:
"Growing out of cash flow should be tried and you should be smart about your business.
"Don't let easy money divert you from your core business."
The panel also agree that the quality of pitches from travel startups often leaves a lot to be desired.
There is often a "lack of preparation" and, remarkably, many new businesses struggle to describe their idea in one sentence, leading to mild exasperation with investors.
Furthermore, as Burge adds, the wider startup world's fixation on creating businesses that could achieve $1 billion valuations is not healthy.
He argues that startups are "seriously deluded to try and build unicorn businesses".
Yamato says the all-things-to-all-people approach should also be scaled back, advising startups to not overcomplicate their model and "start with one thing" and do it well.
Although "capital is always available for good businesses", countless travel startups fail to get the basics right when liaising with financial backers.
All new businesses should approach any backer with the answers to four questions in hand:
- What is the problem you are going to solve?
- How are you going to do it?
- How quickly are you going to get there?
- What is the total addressable market?
The fact that investors are still having to remind entrepreneurs of this basic structure speaks volumes as to the naivety of many of the companies they regularly come across.