PhoCusWright

Travel startups such as trivago, Airbnb have raised $3.3b in last three years

STAMFORD, CT — The Internet has shaken up many industries in the last two decades and travel is one of the major ones.

Traditional agencies have had to adapt to powerful new players such as Expedia and Priceline as well as compete with sophisticated supplier websites.

And things are not slowing down, according to a recent study by PhoCusWright called The State of Travel Startups, which outlines a range of new companies that are shaking up the travel scene.

PhoCusWright looked at companies founded between 2005 and 2013 and they had to be focused on travel and digital. They also had to have a real product or at least have some credible and verifiable backing.

The study looked at almost 750 travel startups. Combined, those companies raised approximately US$4.8 billion over the eight-year period. That includes angel, venture and later-stage investments as well as strategic acquisitions but excludes IPOs.

“Has the market been pretty hot?,” asked PhoCusWright. “Well, the majority of that funding happened in just the last three years – more than $3.3 billion. This was led by some bigger deals with companies like trivago, Airbnb, Lyft, Uber and China’s Qunar, eHi Car Rental and Kuaidadi (it excludes the monster rounds raised by Airbnb and Uber in 2014).

“You could argue that ride-sharing and taxi-hailing services such as Kuaidadi, Lyft and Uber are not so much in travel as they are in local transportation. If we exclude them, a majority of the total funding would still have occurred within the last three years.”

The sharing economy is definitely having its day in the sun. Among the more than 90 peer-to-peer companies studied, there are two dominant vertical categories: lodging and ground transportation. The lodging peer-to-peer category includes Airbnb, HomeAway and their myriad imitators, while ground transportation includes the well-known ride-sharing services, as well as car rental plays such as FlightCar and RelayRides.

A third interesting category is in-destination tours and activities, where startups such as Vayable and Withlocals are creating marketplaces for local residents to become local guides. While this latter category is home to a number of startups, it accounts for just a sliver of travel’s peer-to-peer funding pie.

The big question for these nearly 750 startups is, how many have been successful? “Of course, that depends on the definition of success,” says PhoCusWright. “There have certainly been a few eye-popping exits, such as HomeAway, KAYAK, Qunar, trivago and Tuniu. There have been some incredible rounds of funding, including Airbnb, HomeAway, Uber, Lyft, eHi, Kuaidadi and Wimdu.

“But when it comes to acquisitions, the numbers are pretty small. Fewer than one in 10 companies have been acquired. And many of those acquisitions were not the big exits their founders (and investors) likely hoped for, but distressed asset sales or acqui-hires for developer talent.

“However, the good news is that only one in five of those companies has closed. The majority are still either working toward that next round, profitability or even that dreamed-of acquisition or IPO.