Investors raise the bar for AI-powered travel startups

Far from levelling the playing field for startups, artificial intelligence (AI) has steamrolled it, paving the way for countless founders to build.

Following the rise of generative AI a few years ago, trip-planning startups exploded onto the market. Today’s entrants are AI-native, building leaner products with smaller teams and faster cycles than their predecessors could imagine, according to Phocuswright’s The AI-Native Edge: Travel Startups 2025 report.

The battleground is firmly agentic.

“We're seeing founders build systems that don't just surface recommendations but take actions, handling rebookings, resolving complaints, managing service requests, in ways that genuinely reduce headcount and improve margins for operators,” said Sarah Finegan, associate partner at Antler, an early-stage investor.  

It’s a far different proposition to the first wave, but investors are warning founders they don’t want to hear about AI. 

“The travel VCs I speak with are increasingly wary of ‘AI-native’ as a pitch in itself,” said Mauricio Prieto, co-founder of eDreams and founder of Travel Tech Essentialist. “They've seen too many decks where AI is the feature, not the moat.”

Investors instead want to hear how fast AI makes them go. “Speed of execution” matters to Finegan, and founders that treat every customer conversation as a data point, and keep iterating until the signal is clear, are the ones who stand out for her.

Speed was highlighted in Airbnb’s recent shareholder letter, where it said it was “building and iterating faster than ever before,” and claimed AI reduced the time from concept to delivery by as much as 60% on key initiatives. 

However Mike Coletta, senior manager of research and innovation for Phocuswright, said the 60% boost was impressive—but increasingly common.

“What will separate companies going forward is speed of learning. How fast can you learn what the customer wants and how fast can you adapt as their behavior changes over time?” he said. “How quickly can you test and master distribution channels? Sustainable go-to-market remains the most enduring moat in travel tech, and this skill set is required to achieve it.”

Failure caution

Lack of speed could be behind the main cause of startup failures. A report on startups in general from CB Insights found the main reason is running out of capital (at 70%), followed by poor product market fit (43%).

These two factors are inextricably linked to not moving fast enough, according to Matt Zito, M&A broker at TravelExits.com.

“They say they ran out of money, but effectively they do because the next investor doesn't want to give them any money,” he said. “What happens is that they are not growing at speed, and that's the reason for … not having product market fit. It is basically a growth failure.”

Coletta said Phocuswright’s own survey of travel startups found 33% ranked access to capital as their single biggest business challenge. But like Zito, Coletta agrees running out of capital is more of an end result than a reason for failure: “The causative reasons are most often poor product-market fit and wrong timing.”

It is also increasingly difficult to secure capital. Based on Phocuswright’s AI-Native Edge report, 33% of respondents ranked access to funding or capital as their top challenge.

Part of the reason is funding is shifting to foundational AI companies like OpenAI, Anthropic and Perplexity, and larger players in the travel sector. Phocuswright’s Travel Startups Interactive Database reveals the amount of funding has almost tripled this year compared to 2025—but the number of rounds is almost in freefall.
 
“Access to capital and angel investors is a challenge we hear about consistently from early-stage travel technology founders,” said Laura Chadwick, president and CEO of the U.S.-based Travel Technology Association, which has just opened applications for its second annual Start-Up Summit in Arlington, Virginia, this October.

Heightened risks

Investors also watch out for startups that might risk “getting ‘Sherlocked’” by foundational AI companies. In other words, with the likes of OpenAI or Anthropic releasing a new native feature every few months, an entire category of startups can become redundant overnight. 

“Founders should be honest about this rather than papering over it,” said Antler’s Finegan. 

“There are two distinct risks. The first is model obsolescence: You build a product on today's capabilities, and tomorrow's base model makes your feature table stakes. The second is unit economics. Inference costs have fallen dramatically, but agentic workflows that run multiple model calls per transaction can still produce surprising cost structures at scale. We look hard at both.”

Sectors under watch

Investors are also wary of travel startups that rely on physical assets, following a string of failures in recent years Cabana, a startup that rented high-tech camper vans, suspended operations in 2024, as did property management company Frontdesk. Similarly, Sonder offers a cautionary tale, succumbing to the weight of long-term, fixed master leases.

“A lot of times, for these physical asset purchases, travel companies use debt, and then if it doesn't go well, they owe money,” said Zito.

The CB Insights report also states “wrong market timing or macro conditions” as the third reason why startups fail, at 29%, and it’s a situation that is specifically “punishing” for the travel industry, according to Finegan. 

“The sector is acutely sensitive to macro shocks, like a pandemic, cost-of-living squeeze or geopolitical instability, in ways that other sectors simply aren't,” she said. However, she added that it’s hard to blame founders entirely for not predicting the macro environment. 

Regulation impacts with a similar force too. Journera is one such case study. In 2024, experienced travel exec Jeff Katz called out Europe’s General Data Protection Regulation as one of the factors his startup stalled. Many businesses will likely now be keeping up to speed with the EU’s new Artificial Intelligence Act.

Agentic bets

Yet investors overall are positive for the year ahead. Chelsea Salamone, VP at Thayer Investment Partners, noted AI has created opportunity in “every crevice of the industry and in some areas that have yet to be digitized.” 

BizTrip AI, a PhocusWire Hot 25 Travel Startup for 2026, aims to help enterprise companies streamline their corporate travel management program. It is backed by the AI Fund, a venture studio led by AI luminary Andrew Ng, and it said it now plans on solidifying its position as the leading agentic AI platform.  

Zito calls out soon-to-launch Mindshare as one to watch. It has developed an “intelligence layer”—or technology that understands the individual traveler, travel suppliers and travel specialists and brings them together in an agentic marketplace. It claims it will do this through relationships with companies that source and administer 160 cashback, loyalty and rewards programs, reaching 1.5 billion credit card customers.

For Finegan, Inntelo AI stands out as a good example where the founder has “domain expertise”—a highly desirable trait investors want to see in a complicated travel industry. She also called attention to the startup’s founder, Asif Alidina.

"Alidina's decade inside hotel operations offers a competitive advantage that pure-tech founders can't easily replicate,” she said.
 
As for the bigger picture, AI continues to make an impact at the top end of the market. AI specialist Long Lake announced it was acquiring American Express Global Business Travel, while Expedia Group just bought AI trip planning and booking app Layla. 

While AI-native startups face growing hurdles, this shows they can become attractive acquisition targets when incumbents look to buy for speed rather than build themselves.