The retreat of angel and seed stage funding is not just a travel tech phenomena. In fact, the pullback has been steady for most of 2017 and hit a low point here in the Bay Area during the third quarter.
Much of this momentum is likely to prove cyclical as the bumper crop of peak‐time deals (Q3 2015 here in the Bay Area) matures and investors harvest before returning to the market.
It’s also reasonable to expect a new wave of active angels as the great heard of unicorns unlocks wealth for thousands of option holders and co‐founders. We saw this with the angel boom that followed Facebook’s IPO in May of 2012.
Do not despair, the great American startup engine is not dead, it’s just taking a break.
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Notwithstanding the broader market, however, there are forces at play in the travel tech space that are likely to drive a sustained reduction in angel and seed funding events.
Specifically, I am referring to the seemingly invincible kraken that has taken up residence at the top of the travel funnel. It is hard for me to imagine a return to the firecracker funding days of travel planning and consumer-related apps in this environment.
Not only is there blood all over the startup highway from failed ideas that enjoyed false‐positive early days, but also the true long‐term funding barriers to achieve escape velocity and sustain orbit have become virtually out of reach for all but the largest funds.
How can a reasonable seed investor make a bet like that, when the odds are in such sharp decline? It’s one thing to bet on product‐market fit but altogether more complex when extreme financing risk is factored into the equation.
This dislocating dynamic is likely to impact the absolute funding count, but not necessarily total dollars put to work, as consumer travel ideas are the easiest to understand and tend to resonate with angels.
The great American startup engine is not dead - it’s just taking a break.
Chris Hemmeter
In other words, it is easier to start a company when every wealthy person you know understands the pain you hope to solve because they too (or especially) travel extensively. Not so much when you are attacking an industrial problem deep in the working guts of the travel value chain.
Yet it’s the industrial guts, deep in each sub‐vertical of travel and transportation, that excites us the most at Thayer Ventures. We are in the early innings to be sure and have little doubt that many great companies are yet to be born.
The Baby Boom of 2015 may be cooling for now, but the brilliance of hard-working entrepreneurs has never been more apparent. While it may be harder for startups to raise seed rounds, gritty founders will find a way to get it done, and the global flow of innovation will continue to transform our industry.
Technology and its ever-expanding jargon‐dictionary (AI, blockchain, robotics, quantum computing, Internet of Things, etc.) is not just pointing to a new set of shinny tools and toys enjoying a temporary surge of adoption by the global business landscape; technology is utterly undermining every business assumption we hold sacrosanct, and we have only seen the early days.
A temporary retreat in angel and seed funding is like a whitecap on a vast ocean of change: interesting but transient and certainly unrelated to the power of the wave behind it.