Business Startups Venture

VCs Increasingly Seek Travel Startups As Destination For Investment

On Tuesday, short-notice hotel booking service HotelTonight announced a $37 million Series E round led by Accel Partners. Other participants in the round included Battery Ventures and First Round Capital, which, along with Accel, have been investors in the company since its Series A round.

To date, the company has raised a total of $117.69 million according to Crunchbase data. This Series E financing round was raised at a $463 million pre-money valuation, which makes the company worth around $500 million today.

Funding Into Travel And Accommodations Companies

Over the past several years, there has been a great deal of interest in the travel, hotels, and travel accommodations sectors by startup investors. In the chart below, Crunchbase News plotted the investment activity over time in the travel, hotel, and accommodations market.

Between the beginning of 2012 and the end of 2015, the number of deals struck with companies in the travel space doubled, and the total amount of equity funding increased by around 240 percent. However, in the following year, both deal and dollar volume experienced declines from 2015’s peak.

It’s arguable that the company responsible for the huge uptick in startup funding activity between 2013 and 2015 is Airbnb, which to date has raised over $3.4 billion in equity funding, including the $447.48 million second tranch of its Series F round announced in March. To show the relative share of funding Airbnb has taken in the travel, hotel, and travel accommodations market, Crunchbase News broke out Airbnb’s equity funding from the data displayed in the first chart.

There are two stories here. On the one hand, Airbnb has received the lion’s share of the funding into these sectors. Between 2013 and the end of 2016, Airbnb has raised almost exactly half of the total amount of capital invested into US-based startups in the travel, hotels, and travel accommodations industries. No doubt, Airbnb is the best capitalized startup company in the space, but it’s by no means sucked all the air out of the market for investment.

Travel, Now and Going Forward

Even as Airbnb grew quickly and raised billions of dollars, investment into all of the travel-related startups that aren’t Airbnb has significantly picked up in recent years. Between 2014 and 2016, the amount of capital invested into the rest of the travel market increased by a factor of around 250% as companies like Jetsmarter, Wheels Up, Getaway, Vacasa and, of course, HotelTonight raised significant amounts of money to continue their up-ending of the travel business.

The travel market is highly competitive no matter which way one looks at it. On the one hand, there are startups creating entirely new markets for accommodations, others working on new ways of booking air travel and making private air travel accessible to more people, and others are working with incumbents to reduce slack in demand for their services by using technology. Sure, travel is a crowded and highly competitive market, but there are still niches to be found.

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