Travel Demand Is Up, But What About VC Funding To The Sector?

Jan Seale and Cobai Kastan started their travel planning company Out of Office in March 2020—right when the pandemic hit and international borders closed down.

While travel companies, along with businesses in the live events and fitness industries, bore the brunt of the COVID-19 pandemic lockdowns, Out of Office, which helps users source travel recommendations from friends, pushed through. It launched its app in August 2021 and most recently raised a $3.5 million seed round of funding in April.

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“If you fast-forward to today, you’re seeing people are traveling more than ever despite the economic conditions looming,” Seale said.

Seale is correct. For the first time since the COVID-19 pandemic began more than two years ago, travel spending surpassed 2019 levels in April 2022, according to a report released earlier this month by the U.S. Travel Association.

But that doesn’t necessarily mean venture investment in travel companies is keeping up, especially with as investor fears about a recession rise. Funding to VC-backed companies in the travel and tourism industry group is at around $3.2 billion globally so far this year, according to Crunchbase data.

This is slightly behind where it was at the same time last year when investment into the travel sector rebounded to pre-pandemic levels. In 2021, VC-backed travel and tourism companies raised $10.7 billion. That was close to where funding was in 2019, which saw peak funding for the sector of the past five years.

“With so much pent-up demand for travel during the pandemic, the travel sector was really recovering quickly and growing, and yet people are trying to do things a little differently as a result of the pandemic,” said Steve Taub of Jetblue Technology Ventures of investment in 2021.

Jetblue Technology Ventures invests in early-stage companies innovating in the travel and hospitality space.

“It was sort of a reset,” Taub said.

Looking back

Last year laid the foundation for the travel industry’s recovery. The widespread rollout of the COVID-19 vaccines helped restore a sense of normalcy to the world, and travel restrictions eased up.

Simultaneously, VC funding to the sector picked up, and companies in the space made big moves of their own. Airbnb and Vacasa, for example, both went public last year, along with aviation companies Frontier Airlines and Sun Country Airlines.

But volatility in the public markets have caused investors to pause. VC funding as a whole is down, and travel is no exception.

So far in 2022, about a third of the companies in the travel and tourism sector that have raised funding were seed-stage companies. This includes Localeur, Out of Office and Showplace. Several are in the travel planning space, while others are in the hospitality or aviation tech space.

What’s next

It’s too early to say if funding to the travel sector as a whole will pick up. It’s somewhat dependent on the macroeconomic environment. Many VCs are waiting to see what happens in the broader market.

Especially with a recession looming, travel in general is expected to come down following this year’s “supercycle,” according to Hopper CEO Frederic Lalonde. In terms of funding, “I don’t think, travel or not, there’s a founder that can raise on an up round right now,” he said

But according to Samantha Patil, founder of Los Angeles-based travel planning startup Well Traveled, even a recession doesn’t mean that people will stop traveling altogether.

“I think as long as people can remember the point of time in their life that they couldn’t travel, which wasn’t that long ago, they’ll want to travel,” Patil said.

That might mean more local trips rather than a multicountry tour of Europe, she said

Seale of Out of Office, expressed a similar sentiment, pointing to the increased flexibility many people have with work-from-home policies.

“People have had more flexibility than they’ve ever had before, so regardless, people will get out,” Seale said.