BEACH (Booking, Entertainment & Live Events,
Airlines, Cruise Lines & Hotels & Resorts) stocks have taken a
hammering with the COVID-19 crisis. More than $332 billion in value has
evaporated over the past month, according to this analysis. Booking Holdings has seen a
37% drop, Expedia Group an even bigger one at 53%; worldwide, airline
revenue is estimated to fall by as much as $113 billion in 2020.
If the giants are at risk of falling, what does
it look like for startups? At WiT Virtual, two venture capitalists
shared their perspectives on how the travel and startup landscape will evolve
as a result of COVID-19.
Looking at the travel industry broadly, Hian
Goh, co-founder and partner, Openspace Ventures, described travel as “a bad
product-market fit situation right now.”
Kuo-Yi Lim, managing partner, Monk’s Hill
Ventures, remarked, “Travel gets slammed the hardest and most immediately… not
just regional and long-distance, but within countries themselves.”
In such a period of uncertainty, it is difficult
to determine who the winners and losers will be. However, the general outlook
is that once the dust settles, the strong will get stronger and the weak will
get culled in almost all sectors – travel or otherwise. “It’s not unlike the
virus’ effect on the population,” said Lim, “vulnerabilities will show up very
“I generally think no one is going to get
stronger because it’s a systemic situation… the only situation where someone
gets stronger is because of mortality… because competition decreases,” argued
Using the example of rival super apps, Gojek and
Grab, Goh said, “They’re not fighting anymore,” suggesting that they are more
focused on ensuring their own survival than battling over market share.
Competition will come back after the crisis, he predicted. “The [players] who
survive the crisis will be weakened, but if they have a field where it is less
competitive, that’s where dominance grows.”
Meanwhile, some sectors are simply too big to
let fail, the airline sector being a particularly salient example. CAPA warned that
most of the world’s airlines could be “bankrupt by the end of May” without
government and industry intervention.
Both investors were clear that while
intervention may be necessary, not all airlines should necessarily get equal
support. “If an airline is badly run, the health of the airline isn’t going to
increase after a crisis like this anyway… that’s where it’s possible that
government intervention isn’t helpful,” adduced Goh.
Meanwhile, airlines with a stronger overall
track record, they said, should be more deserving of government bailouts, a
moratorium on mortgage payments or similar. They used Singapore Airlines as an
example of “a product everyone loves that is currently facing shutdown”. The
airline is currently aiming to raise $15 billion with the support of Temasek
Holdings (which currently owns 55% of the airline) by issuing new shares to
current shareholders to raise $5.3 billion, mandatory convertible bonds to
raise roughly $9.7 billion, and Temasek pledging to buy up all remaining
“SIA is a strategic asset to the country… in
this situation where it’s really out of their lap, governments are going to try
everything to save them,” said Lim.
Of course, not every business gets the privilege
of full-fledged government bailouts, least of all startups. Lim estimated that
under current circumstances, startups need at least 12 months of runway if the
business is to survive this pandemic.
The brutal reality, he explained, is that “We’re
going to be in this for a while… it’s about hunkering down and literally
cutting costs. Unfortunately that may include the need to lay people off… be as
bare bones as necessary [to survive].”
Comparing the current scenario to the global
financial crisis and the dot.com bubble, Lim emphasized that these dark moments
force entrepreneurs to really focus on the fundamentals of the business. “You
don’t have the luxury to do too many experiments or use capital to fuel growth
[beyond] what is the core product of your business.”
If that simply isn’t possible for the time
being, Lim added, “There is no shame in needing to pivot to keep yourselves
paid or to stay afloat.” Survival mode means doing whatever it takes.
Investors also have a role in lending support to
companies within their portfolio, but not necessarily in the form of cash. This
includes the need to review business plans, take accurate projections where
every company stands and potentially renegotiate term sheets.
“It’s almost a force majeure in some cases,”
said Lim. The conditions when the original proposals were made will likely be
entirely different and both sides of the deal will need to adapt.
“If you stick to the valuation expectation you
had before the crisis, you risk struggling to make money at the next round…
pricing is always a dynamic thing,” stated Goh.
Investors are still
browsing for the next big thing
Perhaps against expectation, Lim stated that VCs
are still looking for opportunities to invest. Specifically, they are looking
for companies that have the potential to succeed within the context of the
current situation. “As a VC, we’re looking for things that can grow in this
environment, as opposed to [providing] capital to survive.”
Pre-seed startups may be in an early enough
stage for active investors to take a look at, though they must ask themselves
about timing – is it the right time to do what you want to do? And what is the
cash for – to achieve certain things or to simply keep the company going?
However, the paralysis of travel does make
fundraising far more challenging. “VCs are going to be busy dealing with
their portfolio companies, and it’s very difficult to make investments without
meeting you… doing due diligence is harder, unless [investors] have local
resources [they] can tap on quite regularly.”
*This article originally appeared on WebinTravel.