Travel startup founders on the complexities of fundraising

Despite the ongoing headwinds of the COVID-19 pandemic, news of travel startups raising money has maintained a steady pace.

The funding has ranged from massive later-stage investments, such as two rounds totaling $345 million for Hopper and two for TripActions totaling $430 million, to a $160 million Series B for Avantstay and Series C rounds of $80 million for Peek and $60 million for Life House. There have also been several instances of Series A and seed funding for startups including Selfbook, Troop, RoomPriceGenie and GuruHotel.

According to Phocuswright manager of research and innovation Mike Coletta, investor confidence in travel came back strong in 2021, with funding reaching 2020’s level of $3.2 billion by the mid-point of the year and growing to $5 billion by Q3 – comparable to the funding for the full year in 2017.

Many founders report their rounds have been oversubscribed, while others that are not pursuing formal fundraising say that, nevertheless, the inbound inquiries from investors are continual. Matthijs Welle, CEO of Mews, says the cloud-based property management solution has been “batting away investors."

"On an average week I’ll get about six to eight different investors approach me because there is so much excitement about the space.”

For travel startup founders, making fundraising decisions can be a complex process – and that applies across growth stages.

In the case of Mews, founder Richard Valtr says he has taken a very targeted approach since launching the company in 2012.

“We are always very focused in terms of what we want out of a round, who we want out of that round, why we want them and what we expect from that relationship going forward,” he says.

Mews’ last round was a $33 million Series B led by Battery Ventures in August 2019. In early December of 2021 the company announced it received a “multi-million dollar” investment from Salesforce Ventures, which it plans to roll into a Series C round in the first half of next year.

“In every round we’ve always been offered a hell of a lot more money. I think in the last round we could have taken in three times as much money as we did... but for us it made zero sense to sell that much more of the company and to push ourselves into places that we didn’t think the company needed to go,” Valtr says.

“We’ve always been quite careful, and we like to be custodians of the future we are building, rather than just going out for the big buck, and that’s still going to be the case for the Series C.”

AvantStay founder and CEO Sean Breuner says when he was launching the vacation home rental management company in late 2017 his focus was on finding “generalist” investors that believed in his mission and could aid with building the company and provide access to “massive networks to hire great people.” The company’s $5 million seed round in 2018 was led by Bullpen Capital, an early stage venture firm.

Now the alternative accommodations platform has more than 1,000 properties in 100 cities and just closed a $160 million Series B round in December led by Tarsadia Investments, a firm that provides capital and strategic support. 

“Our round was well oversubscribed. There were a lot of people we had to say no to that wanted in, and we had to decide and prioritize the investors that we felt would be able to accelerate the business. There’s a point in which there’s a shift in who is pitching who,” Breuner says.

“Once you have a lead investor, once you have momentum behind the raise, it’s really a lot of investors are interviewing for a position in the round. ... At that point you can really be thoughtful and strategic about who is going to come in, because smart money is powerful.”

Relationships matter

To be “thoughtful and strategic,” founders say they devote a substantial amount of time to relationship-building. Mews had been talking to Salesforce for several years, exploring ways to work together, which led to the conversation with its global investment arm. Valtr says the investment from Salesforce Ventures is a sign it wants to have “skin in the game” as the companies work together.

There is a danger to thinking that money is itself some kind of risk reducer, because it brings the same amount of risk and you just make more expensive mistakes with more money.

Richard Valtr - Mews

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“They recognize what we are trying to do in the hotel industry is different than the other types of partners they are dealing with on the enterprise level, and I think they were just quite excited about the fact there could be a new paradigm in which they could also play a much bigger role than what they had done up until now,” Valtr says. 

The nurturing of relationships can also facilitate an expedited timeframe for funding. Selfbook founder Khalid Meniri says this was definitely the case as the company vaulted from an April product launch and Q2 seed round of $2 million to an oversubscribed $25 million Series A by October, with the Series A going from opening to receiving term sheets in just a week. 

“It was fast because we did a lot of ‘dating’ if you will. From the seed to the A we never really stopped talking to people,” Meniri says.

“It’s much better to get to know investors over a longer period of time than to show up when you need the cash or start fundraising," he continues.

"We really evaluate these investors. ... If you can’t grab an espresso with an investor on a Sunday afternoon, you probably don’t want to work with them.”

"Next new cycle of difficulty"

Along with timing, founders are making judgements on how much capital to take in. Breuner says his strategy is to have at least 12 to 18 months of runway and, once there is product-market fit, to aim for rapid growth.

“If you have product-market fit you want to move as fast as you can because scale matters. It enables you to deliver a better experience that’s also more affordable,” Breuner says.

“Despite the pandemic, we still had significant growth. And there’s such a big addressable market for short-term rentals and such a benefit to having scale in terms of delivering an elevated experience, so we felt a larger round would be a better fit for those reasons.

"This [round] will give us plenty of runway, perhaps into perpetuity, but as we think about potential international expansion and growth beyond U.S., that’s when we can start to look at additional funding.” 

Meniri says it is a matter of balancing potentially conflicting issues: on the one hand needing to raise money because fast growth requires growing the team - and “talent is rare and expensive” - while also remaining cognizant of dilution.

“Taking that into consideration, looking at valuation, building a business and generating revenue to make sure you have a valuable business is key, not just the round size,” he says.

Valtr says he often recalls a line he heard in an interview that founders should not view a round as a “congratulations,” but rather as the start of the “next new cycle of difficulty.”

“There is a danger to thinking that money is itself some kind of risk reducer, because it brings the same amount of risk and you just make more expensive mistakes with more money,” he says. 

Instead, he says he tries to stay focused on a goal of giving every Mews investor a “huge payday.”

“I want them to be talking about it as one of the best investments they’ve ever made. For us the biggest shareholder in Mews is the family of employees that we have, and it’s things like that that we really, really care about,” he says. 

“It’s a great motivating factor in the way I conduct the business. It’s a great way to walk that tightrope and to make sure you know your responsibility isn’t toward your own back pocket and greed but toward the fact you are trying to have an outcome for people that are your responsibility.”