With Airbnb’s initial public offering expected tomorrow and the first doses of COVID-19 vaccine being distributed in the United Kingdom, investment in startups in the travel and hospitality space is expected to pick back up in 2021, according to investors.
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“I think the No. 1 question we get right now is ‘Are you investing? Are you investing back in travel?’ A lot of travel startups think people aren’t investing in travel and hospitality, and I think that’s a wrong misconception,” said Kristi Choi, an investor at Plug and Play who focuses on travel and hospitality. “We definitely are still investing in travel. We’re looking for great opportunities.”
Crunchbase data shows the travel sector has seen a dip in venture investment over the past year as COVID-19 restrictions have limited movement, especially internationally. But depending on people’s views of the vaccine and how quickly they begin traveling again, investment in travel could rebound in 2021. That could bring more VC funding to smaller, early-stage startups, which have been hardest hit by the impacts of the pandemic.
Investment in the travel space looked “really good” until about February, according to Raj Singh, managing director at JetBlue Technology Ventures, the corporate VC arm of JetBlue Airways that invests in early-stage travel and hospitality startups. But from March onward, things were bleak.
Crunchbase data also backs that up: Both the number of funding rounds and the average dollar amounts raised by venture-backed travel startups have been on the decline this year.
Keep in mind, outsized funding rounds like Airbnb’s $1 billion private-equity round announced in April and U.K.-based Travelport International’s $500 million private equity round announced in June have skewed some of the monthly totals in terms of U.S.-based and global funding.
The COVID-19 pandemic hit the early-stage travel and hospitality startups the hardest, according to Singh. With investors unsure of how long the pandemic would last, few wanted to place bets on smaller, earlier-stage companies that weren’t well-established in the market.
“Those startups that were really small and early … when they started running out of money, there were very few people interested in investing,” Singh said.
It was a different story for late-stage travel startups like Airbnb. A major player in the short-term rental space, it had no problem quickly raising an emergency $1 billion in funding and $1 billion in debt financing in April.
Early-stage investors like Plug and Play Ventures, on the other hand, largely took a step back. Early-stage startup investing is inherently more risky, and when the pandemic hit, the firm first prioritized making sure its portfolio companies were OK before looking for new deals, according to Choi. The firm plans to do “many more” investments in 2021, she said.
How much investment flows back into travel and hospitality startups next year will depend in large part on how much people trust and take the vaccine, according to Singh.
“I suspect that people will start investing in early-stage companies, figuring that by the end of 2021 things will be back to normal,” Singh said.
Recovery for travel in general and investment in the travel and hospitality sector could also differ for leisure and business travel. Singh suspects leisure travel will pick up before business travel because of the liabilities and duty of care associated with business travel. There’s also pent-up demand for leisure travel, he said.
Some aspects of the travel industry, like vacation home rentals, have already picked up a bit. That’s because short-term rentals have been perceived as safer than hotels, Singh said.
The travel sector could see renewed interest in concepts like health passports (proof of identity and vaccination status), he said. He also anticipates another push into virtual reality and augmented reality for a hybrid version of virtual and physical travel.
Both Choi and Singh pointed to sustainability and hybrid events as emerging themes for travel investment in 2021. COVID-19 has changed peoples mindsets in a lot of ways, and conferences could be part-virtual/part-in person in the future. And technology to enable that will be necessary.
“I think the IPO of Airbnb will be very positive news and there will be others who look for similar types of outcomes, so I expect later-stage to be interesting,” Singh said. “But it is all kind of predicated on the vaccine.”
For most travel startups, private financing has been the focus. But there’s also the option of the public markets.
The COVID-19 pandemic brought the tech IPO market to a halt early on, but things picked up and have been busy since, with Airbnb’s IPO tomorrow helping to cap off a robust year for offerings. While Airbnb has been a fixture in the travel and hospitality space and one of the most anticipated IPOs of 2020, it’s not the only late-stage travel company that could go public soon.
Among the travel companies research firm Renaissance Capital has been tracking for a potential IPO are Sun Country Airlines and SoHo House, according to Matt Kennedy, a senior strategist at the firm. Sun Country Airlines, which is owned by Apollo Global Management, was reportedly preparing for an IPO as soon as 2020 before the COVID-19 pandemic hit. Now, the company plans to restart its IPO preparation if demand for travel gains steam, Bloomberg reported in October.
Soho House reportedly looked into an IPO in 2018, but those plans are now believed to be on hold, Kennedy said. Other potential 2021 IPOs include IBS Software, which provides IT solutions for the travel industry, and vacation rental management company Vacasa.
“We’re out here ambitiously looking for opportunities and we’re ready to invest more,” Choi said.
Illustration: Dom Guzman
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