Travel startups: End of the boom, or beginnings of a renaissance ... - Web In Travel

With the second edition of WiT and Phocuswright’s Global Startup Pitch  still open for entries, Mike Coletta, manager of research and innovation, Phocuswright, analyses the state of travel startups in this report. The deadline to apply is April 30.

Travel startups have enjoyed a good run. Phocuswright is tracking 3,306 startups founded since 2013, and these companies raised $76.5 billion* in funding through mid-April 2023.

Initially, the COVID-19 pandemic seemed likely to devastate travel companies as the industry came to a standstill. However, most not only survived but prospered in the heady fundraising days of 2021 and 2022, which turned out to be some of the largest on record at $23.6 billion and $14 billion, respectively. Both years surpassed the previous record of $12.9 billion in 2018 (see Figure 1).

*Notes: Funding data excludes acquisitions, mergers, and IPOs. Data incorporates ~$20 billion for autonomous vehicle companies, including ~$15 billion for GM’s Cruise.

That said, the start of 2023 was abysmal on a relative basis, with only $421 million raised in Q1. This trend was in line with a broad downturn in financial markets, facilitated by a host of factors: a tech market sell-off, downward pressure on exit opportunities, rising interest rates, economic concerns and the geopolitical environment. The collapse of Silicon Valley Bank in March brought additional uncertainty to much of the startup world.

Travel demand has been seen as bucking the trend compared with many other industries. At The Phocuswright Conference in November, Mark Mahaney, senior managing director at Evercore, noted that as the economy was slowing, “the only part of consumer discretionary spend that’s holding up is travel.” Indeed, Phocuswright projects steady growth in global gross bookings through 2025 (see Figure 2), and the TSA is projecting record U.S. airline passenger levels this summer.

Yet, if travel startup investment maintains the same run-rate as in Q1, that would imply $1.6 billion raised in 2023, putting funding back on par with 2015. Not the direction anyone was hoping for, I’m sure.

Comparing Q1 only to previous years provides reason for more optimism. The amount of travel industry funding raised in Q1 varies wildly from year to year. While in 2022, 63% of all funding had been raised already (indicating that funding began drying up rapidly after Q1), the percentage has been as low as 11% back in 2015 (See Figure 3).

If we assume that $421 million is only 11% of funding for the year was raised in Q1 2023, that implies $3.8 billion to come in by EOY. Not great, but much better than $1.6 billion.

$421 million indicates a 95% drop from Q1 of 2022 (a record $8.9 billion), and a recent analysis by Crunchbase showed that global funding across all industries was down 53% in Q1. So, while travel demand is arguably more resilient than demand in other industries, travel funding appears to be getting hit much harder.

Innovation often thrives in tough times, as the launches of Uber and Airbnb demonstrated during the financial crisis over a decade ago. We have entered very difficult territory for fundraising in travel, and the days of easy money are over (at least for now). Growth at all costs is no longer acceptable, and startups must focus on profitability to remain attractive and viable.

Where will innovation come from this year and beyond? What types of companies will thrive in this environment? One wild card is surely generative AI – currently atop a wave of ChatGPT hype – which represents a potential paradigm shift for travel, impacting everything from planning to back-end operations. The Crunchbase article referenced above notes that 19% of investment dollars across all industries went to companies tagged as AI in their system. Travel doesn’t appear to be following yet, with the only Q1 deals on our radar being Akia ($6 million), Libristrip ($2 million) and Tryp.com ($500K).

However, travel is notoriously slow to invest in new technologies, so we expect things to pick up as time goes on. At least a dozen travel companies have integrated ChatGPT into their business recently, and no doubt dozens more are working on it. Perhaps the generative AI trend will provide the boost that travel needs to jump-start funding. The Crunchbase article also indicates that investors in private companies are holding record amounts of dry powder (capital available to be deployed). Are we on the verge of a renaissance?

Learn about some of the most promising travel startups from around the world at WiT and Phocuswright’s Global Startup Pitch, with Round 1 coming up on May 24, 2023. For startups, the deadline to apply is April 30.

 

Adblock test (Why?)

from "travel" - Google News https://ift.tt/xqmCOvQ
via IFTTT