There’s always someone in the group that takes the lead. Just ask Adam Goldstein.
While a member of MIT’s debate team from 2007 to 2010, Goldstein took on the role of the team’s “travel agent.” The debate squad traveled nationwide (and occasionally out of the country) every weekend of the academic year.
Goldstein spent entire days searching for the best airfare and hotel accommodations. Even after he made his selection, he says he wasn’t convinced he had made the best choice or had even seen all the relevant information to make the best choice.
While all this was going on, Goldstein was also sure he wanted to launch a startup after graduation. So Goldstein began to wonder if he could somehow take his travel search experiences and turn it into a startup.
“If I felt frustrated, I knew others had to, also. I wanted to build something that was better,” says Goldstein, now 23, who then partnered with Steve Huffman, founder of reddit, (which was acquired by Conde Nast in 2006).
“Steve was experiencing the same things I was,” Goldstein says. “He was living in San Francisco and his girlfriend, now wife, was in medical school in Virginia. So he was always looking for airfare, too, and having the same troubles. We decided to try this.”
The two co-founded online travel site Hipmunk in September 2010. The company is still so new that the “about us” page still describes its people in immature ways, like Danilo Campos’ title is the “mobile dude” and his job experience is simply “formerly a vacuum cleaner salesman.”
Nonetheless, the site is a hit with users and some VCs. Hipmunk has raised $5.2 million in venture funding from Ignition Partners, Y Combinator, SV Angel, Webb Investment Network and individual investors, including Erik Blachford, Simon Breakwell, Rob Glaser, Jim Hornthal, Rich Barton, Paul Buchheit and Ashton Kutcher. Its first round of funding closed in January 2011.
The site claims it gets about 100,000 unique visitors to its site every month—a number that is continuously growing, Goldstein says. With the inroads the site has already made with consumers, one would think Hipmunk has been around for a while or is heavily marketing its services, but that’s not the case. The site has simply gained users through word-of-mouth.
“Travelocity and Expedia have been doing this for a decade, and these two kids [at Hipmunk] came in and figured out a better way to shop for airfare and hotels,” says Bob Offutt, a senior technology analyst with PhoCusWright, a travel research firm. The organization named Hipmunk one of the winners of its Travel Innovation Summit award at its 2010 conference.
Hipmunk basically does what predecessors Expedia, Orbitz and Travelocity, also do, yet it boasts that it does it a little better. For example, instead of showing its users all airline results, Hipmunk displays the most pertinent ones and shows an agony button, which weighs price, flight duration and layovers.
“It’s a common sense way to air shopping,” Offutt says. “Most people do not want to bother with flights that have a layover if they don’t have to.”
Hipmunk is just one of many new travel sites garnering attention from investors these days. While the online travel sector is not new, it was in need of a facelift and entrepreneurs are aware of the increasing number of dollars consumers are spending to plan and search travel destinations online these days.
If I felt frustrated, I knew others had to, also. I wanted to build something that was better.”
In fact, only 15% of travel plans are made through a live travel agent today. That’s up from almost 100% just 15 years ago.
“Local travel agencies have gone the way of Blockbuster and long distance telephone carriers,” says Charles Lax, managing general partner with GrandBanks Capital, which invested more than $4 million in SilverRail Technologies, a Woburn, Mass.-based company that provides railway bookings.
The service is up and running in the United States and United Kingdom and aims to launch in Germany and Italy soon. SilverRail expects to be doing most of its business in Europe.
“It’s integrated shopping for trains,” Offutt says. “If you are traveling in Europe you can’t build one ticket across the system. SilverRail is building a cross supplier train ticket.”
SilverRail was also a PhoCusWright Travel Innovation Summit Winner in November 2010.
Founded in 2009, SilverRail has received $15 million in total funding from GrandBanks, Sutter Hill Ventures, Par Capital and Accel Europe.
Investors are taking note of the increasing activity in the space.
PhoCusWright reports it has tracked about 200 travel startups since 2006 and about one-third have disclosed funding rounds that totaling more than $1.3 billion. HomeAway, a provider of rental home listings, accounted for a large chunk of the funding, having raised more than $700 million in equity since 2005, according to Thomson Reuters (publish of VCJ).
Still, PhoCusWright says the startups it has tracked in the last five years provide a range of travel-related services, with many offering travelers help in planning trips. Others provide services to the travel industry, such as New York-based digital media provider Travel Ad Network, which raised a $15 million Series C round in late 2010 and has now raised $30 million from Village Ventures and Rho Capital Partners, among others, according to Thomson Reuters.
Other new sites that have raised funding include online travel agent Kukunu, which raised $19.1 million from Kima Ventures, Jaina Capital and Seedcamp, as well as online travel agent Wanderfly, which raised $1 million from Charles River Ventures, Jason Calacanis, StartupAngel, James Bailey, Roger Kickey and others.
While air travel garners the majority of attention from startups, other sectors in travel include hotels (which has raised more than $130 million from investors since 2006) and ground transportation (which has raised just $14 million during the same period).
“Travel is a good space,” says Brad Silverberg, a partner at Ignition Partners, which invested in Hipmunk even though Goldstein had been unsure his startup needed to raise money.
“Online travel has been a good area since Expedia founded the industry,” Silverberg says. “Sites with creative ideas and a consumer focus will get funded. Hipmunk is very straightforward and they are getting tremendous traffic. We are impressed with the level of enthusiasm from consumers.”
Local travel agencies have gone the way of Blockbuster and long distance telephone carriers.
Charles LaxManaging General PartnerGrandBanks Capital
Adds another VC: “It’s easier to build these sites and to aggregate data and put pictures online that it used to be. The older sites would probably be better off starting over rather than trying to update what they have already. The venture community realizes the sector is going to continue to grow and provide something helpful to the consumer. VCs should make money in this sector.”
However, getting consumers hooked on a travel site is an important part of the game plan.
Word of mouth is a great start, but most often a large marketing campaign is needed.
“The hard thing about travel sites is that consumers don’t travel all that often, so you have to build a big brand to make sure consumers remember you. It’s a challenge,” says Michael Krupka, a managing director with Bain Capital Ventures, which invested in TravelClick in 1999 and more recently backed Oyster Travel Corp.
Oyster, founded in early 2008, but launched in June 2009, helps consumers select hotels by providing what it calls clear and factual information. The site shows pictures from hotels’ websites, alongside pictures taken by Oyster, which tend to include all the unpleasant details that a hotel website might conveniently omit.
“There used to be independent paper-based guides that consumer could look at for accurate information. Not so much anymore. Oyster acts as an independent guide for the consumer,” Krupka says.
To date, New York-based Oyster has raised $19 million of funding. It most recently closed a Series B round led by Scripps, which owns Travel Channel and HGTV. Bain Capital Ventures was a seed investor and has invested about $10 million in the company since 2008.
Oyster’s plan to turn a profit, like most travel sites, is based on transaction revenue. Thus, bringing in traffic is the key to its success. Oyster’s traffic has grown four times year over year since it’s founding, the company says.
Additionally, while it’s too early to discuss an exit for most of the newer online travel sites, this new crop of companies seem versatile enough for any type of exit, whether it be an IPO, strategic buyout or a buyout by a financial sponsor.
Another hotel travel portfolio company of Bain Capital Ventures is TravelClick, which it initially backed in 1999. The company was bought in 2007 and then the firm reinvested $25 million as part of the sale. TravelClick helps hotels with deciding how to price their rooms and on which websites to list them. The company counts more than 20,000 hotels as customers and rakes in a couple $100 million in revenue, according to the company.
Krupka says that the company is big enough to pursue an IPO, although no exit plans are in currently the works.
It doesn’t hurt that one travel site had one of the biggest IPOs in 2011. Austin, Texas-based HomeAway raised more than $400 million in equity from Austin Ventures, Institutional Venture Partners and Redpoint Ventures, among others, before it priced its IPO at $27 a share, valuing the company at more than $2 billion.
Meanwhile, other travel startups are hoping for an outcome like ITA Software, a travel search company that Google bought for $750 million in April.
The hard thing about travel sites is that consumers don’t travel all that often, so you have to build a big brand to make sure consumers remember you.”
Michael KrupkaManaging DirectorBain Capital Ventures
“I certainly wouldn’t mind an exit like ITA’s to Google,” says Lax of GrandBanks.
Google isn’t the only strategic partner interested in the travel industry. In China, Baidu.com recently invested $306 million in Qunar.com, an online travel site that is reportedly readying for an IPO. Qunar has also raised about $25 million in funding from GV Capital and Mayfield Fund, among others.
In Europe, private equity firms have snapped up online travel sties. In April, Axa Private Equity bought France-based online booking website Go Voyages. In July 2010, Permira acquired eDreams, one of the largest online travel booking websites for Southern Europe, from TA Associates.
In July, Axa and Permira teamed up to acquire online travel company Opodo from Amadeus IT Group for €450 million ($640 million), 11.7 times Opodo 2010’s EBITDA. The firms plan to merge their sites, creating a large online travel destination in Europe.
In the United States, Concur purchased TripIt for $120 million while Next Jump acquired Flightcaster for an undisclosed amount.
As analyst Offutt looks at startups that have submitted nominations for the next PhoCusWright conference, he says there are plenty of more interesting travel-related companies that will need funding soon.
Submissions for the November conference of PhoCusWright (www.phocuswright.com) include companies that have come up with new ways to buy airfares, as well as new auction sites and some innovative technologies focused on ground transportation and tools to find better seats on airplanes.
One startup that is taking part in the PhoCusWright conference is San Francisco-based myTab Inc., which Heddi Cundle founded late last year with her own savings. Cundle says she is looking to raise $1.5 million to $2 million in funding for her company, which she calls a social travel gift registry that provides users the ability to gift, save, plan and book their travel plans. Cundle launched the site in June.
“The feedback I’m getting so far from investors is that it’s a novel concept that no one else is doing,” Cundle says. “I’m really excited and looking forward to presenting at PhoCusWright.”
For investors looking at the latest crop of travel sites, there’s still the normal checklist they have to go through, Offutt says.
“Investors need to fund companies with a good business plan and a strong management team,” he says. “The more lucrative areas are the ones that continue to gain deeper penetration into the market.”
Danielle Fugazy is New York-based contributor. She can be reached at email@example.com.