2016 is shaping up as a solid, but increasingly challenging, year for travel startup funding. Through the end of Q3, estimates suggest travel startups had so far raised $3 billion in funding worldwide. Based on this current pace, 2015 is unlikely to match last year’s record-breaking travel startup fundraising haul of $4.5 billion. But determining whether last year’s $4.5 billion was a one-time anomaly, or the height of an investment “bubble,” is still up for debate. There’s a number of potential explanations.
Some investors may be attempting to moderate last year’s “frothy” dealmaking by taking a wait-and-see approach to fundraising opportunities in 2016. Another explanation may be the basic dynamics of the online travel industry itself, where a number of large incumbents like Expedia and Priceline continue to dominate consumer mindshare, and the “infrequent” nature of travel purchases makes new startup ideas more challenging to execute. Still, the recent success of travel darlings like Airbnb and Uber is giving the travel startup sector new life, encouraging investors and founders to give the sector a second look.
A closer look at some of 2016’s biggest travel startup funding deals to date point to a number of investment trends. One is continued fundraising by travel startup titans Airbnb and Uber, both of whom have chosen to stay private and grow using debt and private equity rather than attempt an initial public offering (IPO). Another new shift is the growing travel startup interest from established companies like JetBlue, Marriott, and Audi, all of whom are experimenting with startup incubators or making strategic investments in early-stage companies. The last trend is the increasing range of travel startup funding moving to developing markets like India.
Despite these promising signs, the very nature of investment in the travel startup space remains complicated. Both founders and VC investors have emphasized the specific difficulties of building a startup in the travel industry, where new companies face stiff headwinds from dominant incumbents and there are growth challenges due to consumers’ sporadic travel purchase habits. B2B travel startups have trouble as well, as travel business owners are often not tech-savvy, and often have limited budgets to experiment with new innovations. In the future, many investors and founders are looking to new technologies like artificial intelligence, personalization, and messaging “chatbots” as key areas of interest and experimentation.