Despite the ongoing headwinds of the COVID-19 pandemic, news
of travel startups raising money has maintained a steady pace.
The funding has ranged from massive later-stage investments,
such as two rounds totaling
$345 million for Hopper and two for TripActions totaling $430 million, to a $160 million Series B for Avantstay and
Series C rounds of $80
million for Peek and $60
million for Life House. There have also been several instances of Series A and seed
funding for startups including Selfbook, Troop, RoomPriceGenie
to Phocuswright manager of research and innovation Mike Coletta, investor confidence in travel came
back strong in 2021, with funding reaching 2020’s level of $3.2 billion by the
mid-point of the year and growing to $5 billion by Q3 – comparable to the
funding for the full year in 2017.
Many founders report their rounds have been oversubscribed, while others that are not pursuing formal fundraising say that, nevertheless, the inbound inquiries from investors are continual. Matthijs Welle, CEO of Mews, says the cloud-based property management solution has been “batting away investors."
average week I’ll get about six to eight different investors approach me
because there is so much excitement about the space.”
For travel startup founders, making fundraising decisions can be a complex process – and that applies across growth stages.
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the case of Mews, founder Richard Valtr says he has taken a very targeted
approach since launching the company in 2012.
are always very focused in terms of what we want out of a round, who we want
out of that round, why we want them and what we expect from that relationship
going forward,” he says.
Mews’ last round was a $33
million Series B led by Battery Ventures in August 2019. In early December of 2021 the company announced it received a “multi-million dollar” investment from
Salesforce Ventures, which it plans to roll into a Series C round in the first
half of next year.
“In every round we’ve always been offered a hell of a lot
more money. I think in the last round we could have taken in three times as
much money as we did... but for us it made zero sense to sell that much more of
the company and to push ourselves into places that we didn’t think the company
needed to go,” Valtr says.
“We’ve always been quite careful, and we like to be
custodians of the future we are building, rather than just going out for the
big buck, and that’s still going to be the case for the Series C.”
AvantStay founder and CEO Sean Breuner says when he was
launching the vacation home rental management company in late 2017 his focus
was on finding “generalist” investors that believed in his mission and could aid
with building the company and provide access to “massive networks to hire
great people.” The company’s $5 million seed round in 2018 was led by Bullpen Capital, an early stage venture
Now the alternative accommodations platform has more than
1,000 properties in 100 cities and just closed a $160
million Series B round in December led by Tarsadia Investments, a firm that
provides capital and strategic support.
“Our round was well oversubscribed. There were a lot of
people we had to say no to that wanted in, and we had to decide and prioritize
the investors that we felt would be able to accelerate the business. There’s a
point in which there’s a shift in who is pitching who,” Breuner says.
“Once you have a lead investor, once you have momentum behind
the raise, it’s really a lot of investors are interviewing for a position in the
round. ... At that point you can really be thoughtful and strategic about who is
going to come in, because smart money is powerful.”
To be “thoughtful and strategic,” founders say they devote a
substantial amount of time to relationship-building. Mews had been talking to
Salesforce for several years, exploring ways to work together, which led to the
conversation with its global investment arm. Valtr says the investment from
Salesforce Ventures is a sign it wants to have “skin in the game” as the
companies work together.
There is a danger to thinking that money is itself some kind of risk reducer, because it brings the same amount of risk and you just make more expensive mistakes with more money.
Richard Valtr - Mews
recognize what we are trying to do in the hotel industry is different than the other
types of partners they are dealing with on the enterprise level, and I think
they were just quite excited about the fact there could be a new paradigm in
which they could also play a much bigger role than what they had done up until
now,” Valtr says.
The nurturing of relationships can also facilitate an
expedited timeframe for funding. Selfbook
founder Khalid Meniri says this was definitely the case as the company vaulted from an April product launch and Q2 seed round of $2 million to an oversubscribed $25 million Series A by October, with the Series A going from opening to receiving term sheets in just a week.
“It was fast because we did a lot of ‘dating’ if you will.
From the seed to the A we never really stopped talking to people,” Meniri says.
“It’s much better to get to know investors over a longer
period of time than to show up when you need the cash or start fundraising," he continues.
"We really evaluate these investors. ... If you can’t grab an espresso with an
investor on a Sunday afternoon, you probably don’t want to work with them.”
"Next new cycle of difficulty"
Along with timing, founders are making judgements on how
much capital to take in. Breuner says his strategy is to have at least 12 to 18
months of runway and, once there is product-market fit, to aim for rapid growth.
“If you have product-market fit you want to move as fast as
you can because scale matters. It enables you to deliver a better experience that’s
also more affordable,” Breuner says.
“Despite the pandemic, we still had significant growth. And there’s
such a big addressable market for short-term rentals and such a benefit to
having scale in terms of delivering an elevated experience, so we felt a larger
round would be a better fit for those reasons.
"This [round] will give us plenty
of runway, perhaps into perpetuity, but as we think about potential international
expansion and growth beyond U.S., that’s when we can start to look at additional
Meniri says it is a matter of balancing potentially
conflicting issues: on the one hand needing to raise money because fast
growth requires growing the team - and “talent is rare and expensive” - while also
remaining cognizant of dilution.
“Taking that into consideration, looking at valuation,
building a business and generating revenue to make sure you have a valuable
business is key, not just the round size,” he says.
Valtr says he often recalls a line he heard in an interview
that founders should not view a round as a “congratulations,” but rather as the
start of the “next new cycle of difficulty.”
“There is a danger to thinking that money is itself some
kind of risk reducer, because it brings the same amount of risk and you just make
more expensive mistakes with more money,” he says.
Instead, he says he tries to stay focused on a goal of
giving every Mews investor a “huge payday.”
“I want them to be talking about it as one of the best
investments they’ve ever made. For us the biggest shareholder in Mews is the
family of employees that we have, and it’s things like that that we really, really
care about,” he says.
“It’s a great motivating factor in the way I conduct the
business. It’s a great way to walk that tightrope and to make sure you know your
responsibility isn’t toward your own back pocket and greed but toward the fact
you are trying to have an outcome for people that are your responsibility.”