State of Travel Startups 2022: Investors betting on full recovery

Travel startups, like the rest of the industry, took a heavy hit in 2020, with annual funding dropping 45% to just $4.5 billion in the first year of the pandemic. 

In 2021, annual funding to travel startups bounced back impressively – notching $12.5 billion, exceeding the previous high of $8.3 billion in 2019.

Phocuswright's annual State of Travel Startups report, which has tracked the digital travel startup landscape since 2009, finds that investors are betting on a full recovery sooner rather than later and reports signs of a continuation of funding activity as of the second quarter of 2022. 

As of May 2022, investments in travel startups were just more than 40% of the total funding raised in 2021. If funding in 2022 surpasses 2021 levels, “it would be all the more remarkable, given that the financial markets are tightening and inflation is ramping up,” Phocuswright’s report states. 

However, although total funding numbers were up significantly over the past year – attributed in part to low interest rates and companies making technology investments a top priority amid the pandemic – deal count slowed greatly: In 2019, both dollar amount and number of deals, at 607, peaked, while far fewer funding rounds, numbering 292, occurred in 2021.

In line with past trends noted by Phocuswright, funding continues to benefit mid- and late-stage startups the most, with rounds going toward startups perceived as winners or potential winners in their respective categories.

In 2021, companies raised more dollars in Series A ($1.1 billion), Series B ($1.5 billion), Series C ($2.1 billion) and Series D ($1.4 billion) rounds than ever. With money cheap due to low interest rates, companies also chose to take on more debt than ever ($2 billion).

As a result, average deal size inflated in 2021 and 2022, rising to $43 million in 2021 and approaching $48 million so far this year.

Some investors believe this indicates a greater emphasis on quality deals. And as dollar amounts rise, more investors are contributing into each round: According to Phocuswright, the average number of investors participating in each funding round jumped from about 1.9 pre-2020 to 3.1 in 2021 and for the first half of 2022.

Top funded

The hotel and hostel vertical remains the top-funded in travel, with $7.6 billion in funding from 2012 to May 2022. While OYO accounts for more than half of that funding ($4.1 billion), other top-funded companies include Selina ($395 million), Cloudbeds ($250 million), RedDoorz ($185 million) and Life House ($170 million).

The short-term rental category – which has attracted significant attention over the past two years - is the second top non-mobility vertical with $3.8 billion in funding.

According to Phocuswright, the public debuts from Airbnb, Sonder, Vacasa and HomeToGo were a driving force in the funding of new short-term rental brands and technologies such as AvantStay ($810 million), Xiaozhu ($570 million), Chengjia ($350 million) and Blueground ($250 million).

Previously excluded mobility-related verticals, including ride-hailing, taxi-hailing, bike/scooter and urban transportation, are newly captured in this year’s Phocuswright’s research and comprise many of the top-funded companies.

The ride-hailing vertical has attracted $7.3 billion in funding – second behind hotel and hostel - led by top-funded companies T3 Travel ($2.6 billion), Bolt ($2 billion) and Via ($650 million).

Close behind are the urban transportation and bike/scooter verticals, which have $5.5 billion and $4.4 billion in funding, respectively. 

While funding to B2C startups consistently outpaces B2B, the share of B2C versus B2B has trended toward B2B companies for years, and in 2021, B2B funding hit its highest share ever at 39%.

Although there are warning signs of a market downturn, travel had not yet seen a slowdown as of Q1 2022, which was the biggest first quarter of funding in recent memory at $4.1 billion raised.

For more funding analysis, view Phocuswright’s State of Travel Startups 2022 report here. It includes funding raised by funding type, average funding round deal sizes and share of funding stages, as well as a full investor analysis, vertical analysis of all major travel segments, horizontal analysis, business focuses, regional analysis and more.