Phocuswire readers don’t need to be told that the travel
tech industry is accelerating and finally adopting new models of innovation or that we’re currently seeing disruption and dislocation at an unprecedented
scale. These are the raw materials that get us up in the morning!
But it’s worth pointing out that the investment community, venture
capital (VC) in particular, is also facing an era of disruption and dislocation,
which is driving a need to recalibrate and to find ways to innovate, to
preempt and to respond to travel and hospitality-specific dynamics. This means
forging new ways of thinking to find use cases and synergies for horizontal tech
advances such as payments and digital identity while managing whatever macroeconomic
shocks have materialized overnight.
Meanwhile,
travel suppliers and legacy players are changing how they integrate into the
startup story. Perhaps it’s always been this way, but in my view, the C-suite’s
post-COVID realization that tech requires investment, along with the ongoing
impact of generative artificial intelligence (AI), is leading to a new, collaborative form of industrial
intelligence. The paradigm shifts emerging from these changed market conditions
are incredibly exciting.
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A hybrid, ecosystem-centric structure is an emerging trend that is already
thriving in travel tech. This new structure positions the VC as a
catalyst—completely independent yet connected—with a clear commercial model.
This template benefits everyone in the value chain: the startups and
entrepreneurs, the VC firms supporting them, the enterprise players engaging at
the digital edge and the strategic investors and limited partners contributing
to the VCs’ funds. The value created is a collaborative output that elevates
all participants and helps mitigate the zero-sum game dynamic that has
historically cast a shadow over traditional VC.
Adjacent spaces
Thayer’s
travel tech industrial intelligence model has been developing since our launch
in 2009. As a serial founder, I have always placed the entrepreneur at the
center of the story and sought ways to put real wood behind the concept of a
“value-added” investor. I recognized early that accomplishing that mission
required more than contacts; it required forging a true, collaborative
partnership with both sides of the trade: the entrepreneur and the user. To
that end, we cultivate direct economic relationships with the world’s largest
travel companies, many of which are strategic investors in our funds. However,
sustaining the power of those partnerships requires a double-bottom line
approach. Returns are not enough; we must bring more to the table.
One of
the ways we create value is by extending our reach beyond pure-play travel
startups and committing significantly to tracking horizontal tech trends, both
enterprise and consumer-facing—such as fintech, generative AI and the rise of
social commerce. While not classified as “travel tech,” these trends are deeply
intertwined with innovation in our sector.
This
cross-functional approach has sharpened our ability to see how developments in
adjacent spaces can be aligned with what is needed in travel. Recognizing the
existence of overlapping circles of travel tech and general tech becomes a true
differentiator when the value of this network effect is embedded in how
investors and entrepreneurs collaborate. It involves a deep understanding of
how to bring the best ideas from elsewhere and apply them to travel.
For
example, NLX, a Thayer portfolio company, is an agnostic no-code conversational
AI platform that Cara Whitehill from the Thayer team identified as interesting
and relevant for travel companies. She understood what set NLX apart from the
other conversational AI platforms we looked at, and we looked at a lot—I mean
a lot—of companies in travel and general tech. Cara’s operational background
and collaboration with our key strategic investors allowed us to act swiftly on
a competitive financing, close the deal and start delivering value to our
partners by connecting the dots.
It's important to note that this model is not a substitute
for corporate venture capital (CVC) but rather an integrated component of the
story. For some corporate venture funds, a holistic approach to adjacent spaces
conflicts with the demands of their mothership; airline/hospitality CVCs are
incentivized to focus on specific airline/hospitality tech and often don’t have
the skill set or mandate to look beyond their domain, making it difficult to
connect with these adjacent opportunities in a meaningful way.
Identifying winners
While
these insights are valuable to strategic investors, the returns for all limited
partners are the cornerstone of success for any fund. I referred to the
strategic VC as having a clear commercial model, and the truth is, it's simple.
If we are not distributing a reasonable multiple of what we are taking in, we
will not raise our next fund. Therefore, the VC running the fund needs to be
fully committed to ensuring that investments deliver those returns, which can
only happen if the VC is dedicated to helping entrepreneurs build great
companies by giving startups access to their network.
That
purity of purpose adds a level of integrity to the larger narrative. Investors
seek returns, entrepreneurs desire capital, connections and a shot on goal,
while strategic limited partners (LPs) look for unique insights that can’t be bought from a
consultant. There's no better way to fulfill that promise than by emphasizing
portfolio quality.
Deeper connections
Strategic
VCs situated at the intersection of an industry and investment ecosystem also
provide CVCs access to companies they might struggle to connect with directly.
So, if I’m a startup confident in my killer app for hotels to personalize
images at various stages in the intent/discovery phase, I may be concerned
about receiving investment directly from a brand because it might hinder my
ability to negotiate commercial deals with other competitive brands in the
future—many good companies prefer not to have corporates on their cap table
because they want to sell to everyone. There needs to be a layer between the
two interests, and that’s precisely what strategic VCs are there for.
Takeaway
The
net result is that a new industrial intelligence playbook is emerging, centered
around the importance of networks for investors to identify, operationalize and
scale truly great companies in travel and hospitality tech. With disruption and
dislocation defining the current landscape, entrepreneurs and
investors—strategic and corporate VCs—need to leverage their strengths and
create a team that is stronger than the sum of its parts.
The
primary motivation for investors and LPs in any fund is to achieve
a financial return, which remains constant amidst change. Venture capital
requires reevaluation, and there is a sweet spot at the intersection of domain
expertise, deep technical knowledge, a commitment to supporting startups and a
belief in the power of ecosystems. This is the realm where strategic VCs
operate.