Plug and Play Tech Center runs one of the largest innovation platforms
in the travel industry, offering accelerator programs, corporate innovation
services and early stage investments in startups around the globe.
So it’s noteworthy when its managing partner for travel and
hospitality, Amir Amidi, uses the word “optimistic” to describe how he is
feeling about the impact of the COVID-19 coronavirus on innovation and the startup
ecosystem in the travel industry.
“At least from where we sit we are actually more optimistic
than most of the news you are hearing through the major channels,” Amidi says.
“For the folks that are earlier stage and truly have technology
that has a market fit, at least through the Plug and Play lens, I don’t think
we’ll be slowing down the number of investments we make in those early stage
startups for the foreseeable future.
"That could change next week, but as of
today we’re not changing any strategy for the year that we had set in late
2019.”
That strategy calls for investments
in about 200 startups this year, the same amount as in 2019, with about 60% in
North America and the remainder in Asia, Europe and Latin America. And more
positive news: Amidi says Plug and Play is developing new industry-specific
growth funds in 2020 that may enable it to offer even more capital to startups compared
to last year.
“Typically Plug and Play check sizes are not in the
millions; they are in the hundreds of thousands. But I think with these funds, if
we are successful in building them on top of each of the industries that we’re
active in, the check sizes in 2020 may actually increase instead of decrease.”
Subscribe to our newsletter below
As for reaction from the corporate community, Plug and Play says
it has seen a bit of a slowdown in interest from travel companies looking to
join its innovation program as partners, but those already involved are still
actively engaged, with strong attendance at Plug and Play’s recent demo
day and pitch competition in partnership with IATA in Geneva, Switzerland, February 25 and 26.
Lio Chen, Plug and Play’s senior vice president for travel
and hospitality, calls out Singapore's Changi Airport Group as a “shining star” example of
a company committed to innovation even in these challenging times.
“They haven’t really stopped as far as the pursuit of
emerging technology is concerned. Quite to the contrary, they are broadening
their search by including more innovative companies in their RFP process or
vendors they are in search of,” Chen says.
Startup sentiment
But while, from the investment side, it may be business as
usual, for startups it is anything but.
Gavin Delany is founder and CEO of Stride Travel, an Austin,
Texas-based metasearch platform that connects travelers with experiential
travel from more than 1,500 operators around the world.
The check sizes in 2020 may actually increase instead of decrease.
Amir Amidi - Plug and Play
Founded in 2016 - and a winner of Phocuswright Battleground that
year - Delany says the company has been growing steadily since then and did
about $30 million in gross referral value in January. But starting February 19
he began to see a slowdown in bookings and then a big drop beginning February
29.
“Since [then] we’ve actually been under water in terms of
traffic to the site. Traffic has been dropping ... and it’s now down about 25%
year-over-year, which is crazy because we’re normally up year-over-year
significantly. And I expect that to get worse,” Delany says.
Despite that dire trend, Delany says he and his team have moved
quickly to reconfigure priorities, with a focus on providing value to consumers
with information and services that are less about driving revenue and more
about building relationships for the long term, such as helping customers to search
and compare travel insurance options and to evaluate the current health and
safety status of countries.
He’s thankful for the $2.5 million the company raised in
a seed round last summer, led by JetBlue Technology Ventures.
“We actually have quite a lot of cash cushion, so we are not
at any risk of going out of business any time soon even if we generate no revenue,”
Delany says.
“But it is scary, because I think it is likely this
massively impacts demand because international leisure travel is what we do and
that’s going to be the most hard hit of all travel.
“My personal view on this is the phrase that’s been said by
others: 'A crisis is a terrible thing to waste,' meaning I think it helps
galvanize a lot of energy and focus to have the team reorganize and reevaluate
what are short-, medium- and long-term priorities. We’re also mentally prepared
for this to be a yearlong-plus negative in terms of total demand.”
We’re mentally prepared for this to be a yearlong-plus negative in terms of total demand.
Gavin Delany - Stride Travel
Chen says he is also seeing examples of swift, strategic response
from some of Plug and Play’s startups in Asia Pacific.
“It’s an interesting moment of truth when some of the
startups have decided to come up with things that could be implemented right
away for these circumstances,” he says.
Chen says examples include Face++, a Chinese artificial intelligence
unicorn known for its facial-detection technology that in a matter of days
developed an infrared camera solution that can be used to detect and track individuals
with a high fever in crowded areas such as airports and train stations.
Financial challenges
But startups such as Face++, which can not only withstand this difficult
period but also potentially generate new business from it, are the anomaly. For the
rest, particularly those looking to scale and acquire customers, investors say
the focus should be on patience and prudence.
“This has all sorts of
implications for managing overhead cost base, managing marketing spending,” says Christian Saller, general
partner at HV Holtzbrinck Ventures and co-founder of Swoodoo, which sold to Kayak, where Saller stayed on as managing director for Europe.
“It‘s usually
very difficult to spend on marketing against some external developments, so startups
should probably accept that the level of demand in the market right now is
lower and the top line will go down.
"On the other hand, once this is over and things hopefully have returned to
normal, I think investors and potential buyers would understand there was this effect,
and the decline in top line was something caused by external factors rather
than something wrong with the company itself.
"I remember when we went public
with Kayak, nobody talked about that we hadn’t really grown in 2009. It was
something caused by external factors and didn’t say anything about the company."
In fact, says Amidi, startups “don’t have a choice but to come out of
this stronger.”
Startups should probably accept that the level of demand in the market right now is lower and the top line will go down.
Christian Saller - HV Holtzbrinck Ventures
“With everybody tightening their belts and trying to become more
efficient ... and how they could increase the value proposition for their customers ...
the strongest will survive like they always do,” he says.
Saller says
as the industry rebounds, there may even be more appetite for innovation as travel
companies looks for strategies and tools to drive new revenue.
Amidi echoes
that sentiment, noting there may be a shift from corporate investors as they
set aside long-term plans to prioritize short-term solutions related to digitalization
that can provide cost-cutting or operational efficiency, "something that can stop the bleeding on the revenue side.”
Additionally, investing in
a down market can also be smart business.
“Some of the best investments we’ve made at Plug and Play
have been shortly after the financial crisis, because there was a shortage of capital
and whoever was investing was able to invest at much more favorable valuations,”
he says.
Delany says his
reference point is September 11, 2001, when he had just started his first job out of
college at Starwood Hotels in the company’s online distribution strategy group.
In the year following the terror attack, Delany says he saw an incredible
appetite for innovation – and a shift in power.
“Before that,
Expedia and Priceline and others were trying to get Starwood and Marriott and
other big hotel chains to give them rooms at better rates, higher commissions. And
Starwood was saying, ‘You are a tiny percentage of our total sales, we’re not
giving you better commissions, we’re not going to give you the best availability
and room nights.’
"But after that big demand shock post-September 11, the
mandate from hotel companies was you give as much as you can if it will give us
any incremental revenue and demand, and that’s when average commission rates in
the hotel industry went from the old standard 10% to travel agents to 20 to 30%
to online travel agencies. And then even after demand came back in 2003 and
2004 and surged, commission rates never went down and that dynamic never shifted
back,” he says.
“Obviously the human tragedy of coronavirus is very serious and
important, but one of the things that helps us in our specific business circumstance
feel confident is that over the medium- to long-term this demand shock actually
will be beneficial for Stride as a marketplace in the terms of how we connect
travelers and tour operators.”