Sounding Off: Risky startup investments now have a new risk attached

Each Friday, PhocusWire dissects and debates an industry trend or new development covered on our site that week.

As a sign of optimism, it has been refreshing to see some funding rounds come the way of startups in recent weeks.

While the negotiation process for these will probably have started in late-2019, they were closed during a health pandemic and probably the worst crisis the travel industry has ever faced.

One interesting element is how deals, almost over the line, have had to be renegotiated to take in the potential increased risk, as per the comment above from Jasper Dykes, CEO of Fly Now Pay Later.

The metrics for measuring startups, it seems, have changed.

In the same article, Phillipp Mintchin, CEO of Splyt, says his company was also scrutinized for the measures it took to deal with the crisis, on top of its growth forecasts.

And most recently, Francis Davidson, CEO of private accommodation platform Sonder, which just announced $170 million in funding, called it “validation” of a plan implemented at the start of the crisis to ensure its survival.

Over the course of the pandemic, PhocusWire has observed travel startups, at all stages of growth, scramble to reinvent themselves and/or develop additional services to cater for the short to medium term needs of the industry.

How they will hold up longer term amid the increased scrutiny from investors remains to be seen.

Investors speaking during Phocuswright’s Battle Ground: The Americas online event this week said short-term solutions are fine but a viable business model is needed to attract investment.

And, travel restrictions will make it harder for startups because it’s difficult to assess the size of an opportunity with borders down, as Katherine Grass, a venture partner at Thayer Ventures points out.

Although she was speaking about hospitality businesses, the same could be said for tours and activities, for example.

Domestic markets don’t necessarily search and book their travel and related elements through intermediaries in the same way they would perhaps for an overseas trip.

So, startups not only have to contend with surviving the crisis, but also they must climb a hill in terms of the viability of their product or service for the long term and in the "new normal."