Startups play an basal role successful spearheading invention that benefits consumers, businesses, and industries. But recreation startups person been underfunded erstwhile compared to startups successful different sectors. Looking backmost complete nan past 15 years, nan recreation and tourism manufacture received astir 1 percent of backing for startups crossed each industries. This comparatively debased level of finance stands retired successful opposition to nan industry’s size: Travel and tourism contributed to complete 10 percent of world GDP successful 2019. These factors propose that it’s a reliable manufacture successful which to raise money.
Despite these backing challenges, and unprecedented manufacture uncertainties, complete $27 cardinal worthy of investments were poured into recreation companies from 2020 to 2022. In fact, successful 2021, finance group a caller grounds of conscionable nether $11 billion—indicating that investor appetite has not only returned to pre-COVID-19 levels, but moreover surpassed it.
Given this context, a caller study Travel startups: Disruption from within–or not? presents an overview of nan recreation startup environment, and really nan backing scenery has evolved crossed geographies, and crossed nan different types of recreation startups. Analysis is based connected accusation obtained from nan Phocuswright startup database and draws connected insights from manufacture executives (see sidebar, “About this research”).
The study examines nan kinds of investors that are backing these startups—and nan types of businesses they take for investment. It besides puts guardant imaginable early scenarios that would person implications for recreation companies and stakeholders successful nan startup space. This article presents immoderate of nan cardinal findings.
Fewer recreation startups are attracting funding, but erstwhile they do, they unafraid a important amount
Even though backing whitethorn beryllium difficult to travel by, compared to different sectors, investors are willing successful recreation and tourism. Investment successful recreation startups has returned to pre-pandemic levels and has moreover surpassed record-breaking years successful nan past, specified arsenic 2015 and 2019. These peaks were achieved done important acquisitions that whitethorn person consolidated nan market. For lawsuit nan online recreation agency Expedia acquired HomeAway for $3.9 cardinal successful 2015.
Furthermore, backing per information has accrued complete nan past decade from an mean of astir $4 cardinal successful 2010 to $20 cardinal successful 2022, pinch nan steepest summation seen during nan pandemic (Exhibit 1). This indicates that less recreation startups could beryllium attracting funding, but erstwhile they do, they unafraid a important amount. In essence, nan comparatively mini magnitude of backing that exists is shifting toward less startups.
Funding has shifted toward much mature startups
Across industries, later-stage backing (i.e., Series B, C, D) has made up nan mostly of startup finance (Exhibit 2). Between 2020 and 2022, much acquisitions (e.g., Getaroom.com and On Location Experiences) and nationalist financing rounds (e.g., Sonder and Vacasa) took spot than successful erstwhile years. This could beryllium symptomatic of a trend: Investors whitethorn want to backmost class leaders that person reached standard (See sidebar, “Q&A pinch Johannes Reck, CEO of GetYourGuide”).
Hospitality startups stay nan starring class for investment
Most caller backing has been channeled to hospitality startups, making up 49 percent of finance betwixt 2015 and 2019, and 41 percent betwixt 2020 and 2022. This is apt owed to nan rising fame of short-term rentals. Startups providing services for short-term rentals, specified arsenic Airbnb aliases AvantStay, accounted for 55 percent of hospitality startup backing successful 2021.
Business recreation startups doubled their stock of finance during nan pandemic, and wrong this category, startups successful nan firm segment, specified arsenic nan expense-management package supplier Divvy, secured 98 percent of backing betwixt 2020 and 2022. The MICE conception received nan remaining 2 percent, apt owed to nan alteration successful events during nan pandemic.
In nan aforesaid period, booking and carrier startups mislaid immoderate stock of backing arsenic investor priorities whitethorn person shifted during nan crisis. In nan booking category, online recreation agency businesses secured 90 percent of funding.
Overall, nan pre-trip class remains nan slightest funded, having attracted 1 percent of full backing successful nan past 7 years. Within this category, startups successful security attracted 84 percent of backing successful 2021 (Exhibit 3).
Travel companies relationship for a comparatively mini percent of recreation startup funding
Since 2015, 5 categories of investors person funded recreation startups:
- Angel and backstage investors: These investors oversaw 138 rounds of superior raising totaling $3.6 cardinal betwixt 2015 and 2021.
- Banks and nan nationalist sector: These institutions oversaw 125 backing rounds, totaling $6.4 billion. Much of this backing took spot successful 2021, apt owed to pandemic-related bailouts and ample rounds of indebtedness funding.
- Venture superior (VC) and VC-orientated backstage equity (PE) firms: This group raised 2,090 rounds of funding, totaling $72 billion.
- Travel companies: These are often in-house incubators aliases associated ventures that supply imaginable businesses pinch nonstop support. Travel companies raised $7.8 cardinal successful finance done 389 rounds.
- Non-travel companies: Despite not being successful nan tourism sector, these companies raised much money ($12.5 billion) successful 264 rounds than their travel-industry counterparts.
Overall, VCs person been nan starring investor category, and spent 9 times much than recreation companies successful 2021. Since 2015, recreation companies accounted for a comparatively mini percent of startup funding, and this has decreased successful caller years, dropping from 18 percent successful 2020 to 5 percent successful 2021.
Between 2015 and 2019, VCs and PEs invested astatine slightest doubly arsenic overmuch per backing information compared to recreation companies. Average backing size was astir $37 cardinal for VCs and PEs, compared to $17 cardinal for recreation companies. This leveled retired betwixt 2020 and 2022 wherever some groups invested astir $30 cardinal connected mean per backing round.
In 2021, banks greatly accrued their finance stock and matched VC investments, apt driven by increases successful indebtedness backing (Exhibit 4).
The recreation manufacture could use from supporting startups
To date, recreation companies person played a very mini domiciled successful investing successful nan industry. As startups mostly spearhead innovation, recreation companies could return up opportunities to support startups—and reap nan benefits. Furthermore, by not supporting, aliases uncovering ways to prosecute different players successful nan industry, recreation companies whitethorn beryllium missing an opportunity to style nan adjacent procreation of recreation businesses. And arsenic nan finance scenery becomes tougher, recreation companies are good placed to guarantee that nan invention pipeline continues to flourish, moreover if VCs and larger players withdraw.
Travel companies could go much progressive successful investing successful nan manufacture and bring their expertise to carnivore connected invention and nan sorts of capabilities and technologies that whitethorn beryllium needed. And they guidelines to summation from leveraging startup capabilities in-house. Research into collaboration betwixt corporates and startups successful different industries shows that some parties guidelines to benefit. Startups tin use from firm funding, resources, and customer access, while corporates whitethorn request nan invention that startups connection to enactment up of competitors and disruption, and besides to entree caller technology.
Three imaginable early scenarios could materialize successful ray of nan trends successful recreation startup funding.
- Incumbent-driven consolidation: In this scenario, sustained accent connected short-term profitability owed to ostentation and expanding costs of superior would make it difficult for recreation startups to pull backing and summation crushed successful nan industry. Funding rounds would beryllium smaller owed to early exits, closures, bankruptcies, aliases consolidation by established and scaled technology-driven firms. Established players would attraction much connected processing products and services that tin beryllium scaled globally and little connected optimizing backend processes wherever accelerated scale-up is perchance much challenging, specified arsenic manual check-in processes successful hotels. This business would lead to little invention crossed nan industry. In nan agelong run, reduced invention owed to little startup diverseness whitethorn require much in-house invention for optimizing backend processes and technology.
- Emergence of aggregate niche startups: Early-stage startups would spot sustained and perchance accrued funding, while backing for startups successful nan later stages would plummet. This could lead to an exit activity crossed later-stage startups owed to bankruptcies. At nan aforesaid time, a activity of new, much diversified, startups could look that purpose to tackle a assortment of niche problems successful nan industry, specified arsenic halfway exertion elements. The consequence could beryllium an moreover broader but much fragmented ecosystem of caller manufacture players, starring to higher levels of invention passim nan industry. Travel companies could get distressed startups, astatine little valuations, which would boost in-house invention and let incumbents to supply caller offerings.
- Travel startups aureate 20s: In this scenario, recreation startups crossed each maturation stages and categories would spot continuous increases successful backing and growth. There would besides beryllium an summation successful larger investments aimed astatine processing exertion and halfway manufacture processes specified arsenic AI-enabled fulfillment, and disruption management. Innovation could flourish crossed nan industry. In this fast-growing landscape, title for backing would intensify and investors’ expectations astir capacity could increase. At nan aforesaid time, collaboration would go much analyzable owed to nan diversified scenery of partners and suppliers. Established businesses would request to build in-house invention capabilities organically aliases get them. Differentiation would go much difficult and respective starring incumbents whitethorn beryllium replaced by caller challengers successful nan market.
However nan early pans out, support for startups tin boost invention and fortify nan recreation and tourism worth chain, for each participants.
Giuseppe Genovese is simply a advisor successful McKinsey’s Dallas office, Evgeni Kochman is an subordinate partner successful nan Frankfurt office, Vik Krishnan is simply a partner successful nan San Francisco office, and Nina Wittkamp is simply a partner successful nan Munich office.
The authors wish to convey Karel Dörner, Markus Berger-de León, Patrick Naef, and Christian Dominka, for their contributions to this report.
The authors besides wish to convey Hollis Thomases, a elder investigation expert astatine Phocuswright, Chetan Kapoor, a investigation expert Asia Pacific astatine Phocuswright, and Johannes Reck, CEO of GetYourGuide.