Travel solutions provider RateGain recently announced the acquisition of
travel intelligence and intent company Adara for $16.1 million.
Adara generated $100
million in revenue in 2020, followed by $21.2 million in 2021 and $27.4 million
in 2022. The acquisition structure was an asset purchase
agreement: $14.6 million cash at closing and a deferred second payment of $1.5
million due December 31, 2023.
Great deal for RateGain. Not so great for Adara founders, employees and
investors, which included big-name venture capital travel tech investors who
invested around $67 million total over the company lifecycle.
In the travel industry we talk a lot about how much money a company raises. It’s
plastered across the travel media world and social media.
What we don’t talk
about so much is what travel companies sell at. Most travel sales are
“unknown,” so this announcement helped shed light on a deal.
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I’ve been a
travel founder, CEO of an online travel agency, an investor in 20 travel
startups and a seller of multiple travel businesses.
Why not bank $1 million, $5 million, $25 million, $50 million when you have the
chance? My guess is that Adara founders had opportunities to sell during the
earlier stages of the lifecycle.
Why sell when you are on top?
have the opportunity to make hopefully hundreds of thousands to millions.
This could set you up for life or fund your next venture.
know you’re going to build more than one company and you only have so many
successfully built something that has value that another company or
financial firm will buy.
have an opportunity to accomplish the goal of why you started the business
in the first place.
travel industry is really difficult and you don’t know what’s around the
corner. There is always something: pandemic, new competitors, technology
change, new government regulations, supply-side issues, employee issues.
The list is long.
have a better chance of getting hit by lighting than selling a business
for $5 million-plus.” That’s a quote from a travel tech founder who
recently raised $185 million.
you hit year seven of operating the company, you’ll get burned out. It’s
called the seven-year itch. It’s real. Just ask any travel CEO.
It’s a miracle you’ve made it this far
When you launch a travel startup, there is an upwards of 80%
chance you will fail. If you raise venture capital, you’re less than 2% of all the
businesses that year.
Of the companies that are VC-funded, around 35% of these completely
fail. Another 35% flounder, not reaching VC expectations. Just 30% ring the
register through IPOs and getting acquired.
Yes, that’s correct. Of all the millions and billions that get
invested, a massive amount gets wiped out. Just because you’ve raised $67
million doesn’t mean it will work out.
This is a hard concept for entrepreneurs to grasp, as we are wired to keep
building, keep raising capital – grow, grow, grow. We also read about the big
successful exits, which we know are difficult to attain. Still, this keeps us
motivated and pushing forward.
How do you know you’re on top?
The value of your company is the greatest at a specific time in
each of your company’s lifecycles.
Hopefully your value increases as you go
through the lifecycle phases: pre-launch, launch, MVP (minimum viable product),
iteration, commercialization, growth, scale, mature. You can sell a company at
any phase. Most travel companies sell during the last four.
Here are the key on-top indicators through lifecycle phases:
financial indicators let you know you’re on top. Revenue or EBITDA is at
the top; it’s reached the highest point during the phase.
keep approaching you, wanting to give you more capital. You find it easy
to raise. You’re on top right now.
start copying your innovations, products and services. You’re innovating
and probably the category-leader - or a close second or third.
receive an unsolicited offer from a company. You’re obviously doing
start to personally feel that you’ve done all you can do to build the
company. You’re physically and emotionally on top.
Looking back, Adara may have been close to being on top at $100
million in revenue, then the pandemic hit with a whole bunch of other issues
fighting against them.
Knowing when you are on top can be difficult to see. It’s not a
perfect science. These indicators are just a few signals to help founders
decide to sell.
But sell when you are on top, and you won’t ever regret it.
About the author...
Matt Zito is managing partner at TSI