Travel Startups Capitalize on Hot Venture Capital Market | Adweek Travel Startups Capitalize on Hot Venture Capital Market | Adweek
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Getaway Money

Travel startups capitalizing on hot VC market, with social sites leading

Photo: EyesWideOpen via Getty

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If the economy’s health is measured by cyclical industries like travel, consider the recession over. A recent influx of travel-related startups is finding success, both with investors and brands.

A study from research firm PhoCusWright analyzed 193 travel-related startups, finding the companies raised $243 million in venture funding last year, a 108 percent increase over 2009. In fact, funding in the first two months of this year exceeded $150 million, which is more than funding for all of 2009. Travel technology, a field dominated by a handful of large, mature companies, is being disrupted—a fact not lost on venture capitalists.

The hottest sub-sector for VCs is social travel, said Bob Offutt, senior technology analyst at PhoCusWright. There’s certainly enough buzz to go around. Wanderfly was named one of Time Inc.’s 10 NYC Startups to Watch. Airbnb, the home rental site, is backed by celeb investor Ashton Kutcher. Gogobot was deemed one of Michael Arrington’s “favorite startups of 2010.”

The buzz isn’t undeserved; most small, young social travel companies have raised small, reasonable rounds of funding. “I don’t get a sense of overvaluation that raises the alarm of another Internet bubble,” Offutt said. About a third of travel startups in the market focus on social, but they take a much smaller share of the capital. Buzzed-about travel inspiration site Wanderfly, which emerged from beta last year, has a $1 million Series A round under its belt. Social travel site Gogobot raised $4 million. Travel search site Hipmunk has raised $5.22 million. Social trip planning company TripIt, which sold to publicly traded Concur in January for $120 million, had raised $13.1 million.

Better than money raised is money earned. The new class of travel startups is finding innovative ways to bring in revenue.

Wanderfly this week announced its first ad campaign, a U.K. partnership with The Telegraph and Jeep. The campaign is a micro-website within Telegraph.co.uk, and it’s powered by Wanderfly’s recommendation engine. On it, users can search an “Adventure Generator” for travel ideas for an imaginary £6,000 trip. The results, presented with Jeep branding, all require driving. Wanderfly co-founder Christy Liu said the highly customized site took two weeks to build; future campaigns will take two to three days. Earlier this year the startup launched branded Wanderlists, a series of travel recommendations curated by brands like AOL Travel, Mint.com, Mashable, and Havaianas.

One subsector quietly soaking up investor interest and dollars is companies selling against long-tail content (meaning, a lot of different things sold in small quantities). The volume of bookings being done online is increasing as more companies digitize. “In the past, you could book a hotel or a car ahead, and that’s about it. Now technology is catching up, and you can book water skiing, or restaurant reservations, and every part of your trip,” Offutt said. The bookable market in the U.S. is growing, he said. “It’s huge and it just has to be tapped,” he added.