Travel technology startups are suddenly attracting a larger share of venture capital (VC) funding as investors are lured by the growth prospects in online and mobile travel-booking services, especially overseas.
Reports from New York-based research firm CB Insights detail how technology companies that specialize in accommodations and flight bookings, fare alerts and travel reviews attracted a record $5 billion across some 350 equity-funding rounds last year, more than twice as much as it raised a year earlier.
Through June, travel technology startups raised $1.49 billion in 141 transactions, or about $10.6 million per round.
While San Francisco-based accommodations service Airbnb has raised more than $3 billion in equity since 2011, some two-thirds of the travel technology firms that received VC funding last year are based overseas, compared with about 50% in 2011.
Notably, within the past year, Tujia, which the Wall Street Journal termed “China’s Airbnb,” attracted a $300 million funding round, while China-based mobile flight-booking service Huoli and India-based hotel-room booking service Oyo Rooms generated funding rounds of $144 million and $100 million, respectively.
Other overseas travel technology companies receiving a boost in VC equity funding in recent years include the Brazil-based booking site Decolar and the India-based booking company Ibobo Group.
“In 2011, the U.S. market accounted for nearly half of all deal share for travel tech startups,” CB Insights technology industry analyst Ben Waxman wrote in his July 6 report. “Since then, U.S. share has seen a steep decline, accounting for just 33% of deal share in 2016 year-to-date. The drop in U.S. deal share is largely attributable to the rise in activity in Asia, specifically in India and China.”
Granted, part of the spike might be attributable to the general increase in venture-capital activity. U.S. venture-capital firms spent $58.8 billion funding startup companies last year, marking the second-highest total in two decades, according to a January report from Pricewaterhouse-Coopers and the National Venture Capital Association. While the report did not break out travel technology funding, it did say that financial services, education and consumer products were the sectors receiving the most VC activity.
Still, the activity reflects the confidence that VC firms such as Silicon Valley-based 500 Startups and Accel Partners; San Francisco-based SV Angel; and Cambridge, Mass.-based General Catalyst Partners have in travel-spending growth. Remarkably, that confidence appears to be rising even as online travel-booking levels plateau in the U.S.
In the Asia-Pacific region, online bookings as a percentage of travel spending are estimated to surge to 37% in 2017 from 25% in 2013, Phocuswright said earlier this year. By comparison, U.S. online travel penetration will remain little changed at about 45%.
Break out travel spending on mobile devices, and the overseas growth rates are even steeper. By next year, mobile will account for 60% of China’s online bookings, up from about 45% last year. In India, mobile’s share of online bookings will jump to about 25% from about 10% between 2015 and 2017, according to a Phocuswright report released earlier this year.
“China leads all markets in mobile booking and is set to become the first true leapfrog market,” Phocuswright senior research analyst Cathy Walsh reported.
Notably, the CB Insights report did not classify ride-hailing companies such as Uber Technologies and Lyft as travel technology, so it did not include any of those funding rounds in its report.
Uber reportedly has raised about $15 billion since its 2009 founding and has been valued at more than $60 billion despite never making a profit. Last week, the Wall Street Journal reported that Uber had secured a $1.15 billion loan, citing a person familiar with the process.
It remains to be seen whether such a boom in VC funding for U.S.-based firms such as Airbnb and Uber or overseas counterparts will create a type of financial hemorrhage reminiscent of the dot-com bubble that brought down many technology firms at the turn of the century. While year-to-date VC funding of travel technology is actually down about 45% from last year’s record levels, it remains historically high, according to CB Insights figures.
Lorraine Sileo, senior vice president for research at Phocuswright, said, “Online travel continues to be a hotbed for investment, especially in markets with lots of upside, such as Latin America, China and India.
“Despite political, social and economic turmoil, travel remains resilient, so we don’t anticipate investment drying up, though it might slow temporarily.”