series A funding CB insights tnooz
633 days ago
 

Data shows the Series A crunch is real, but many consumer travel tech startups may still survive

It’s usually a few months into the new year before I regret my annual predictions about what will happen.

But this year, my industry forecast is already looking rough before the calendar has flipped over.

For Tnooz’s annual list of predictions, I argued that B2C travel startups would lose favor with investors, while enterprise startups would become the new darling.

It didn’t seem like the boldest of predictions. In late November, the venture capitalist Fred Wilson blogged that “the momentum/late stage investors have moved from consumer to enterprise.”

Other investors agreed. Most succinctly, Jeff Fagnan, partner at venture firm Atlas Venture, told Read Write Small Biz:

There is no shortage of interesting consumer Internet ideas that will get funded, but [in 2012] I did really see a shift in the public mentality and VC mentality away from the consumer side.

The democratizing effect of AngelList has also had an effect. Blogs venture capitalist Dave McClure:

Monetization keeps getting better and better, and exits are getting earlier and more often… [so] we will see less need for venture capital to finance customer acquisition for successful internet businesses.

It just won’t be cost-effective for big VC to finance all the “little” startups that are going to be built on consumer commerce and small business services. There will be thousands of small wins, but larger funds can’t handle the scale required to do so many small investments.

Maybe we need something like the SBA small business loan equivalent, but on the the equity side.

Series A crunch

It’s all about the funding. Are there fewer follow-on rounds? Yes.

Late last week CB Insights published a report on Series A funding that was highlighted by the ever-more-impressive PandoDaily. Of the 4,056 seed investments into US-based tech companies since 2009 that the study covers, more than 1,000 will be orphaned.

consumer travel series A venture capital funding tnooz

Relatedly, Dow Jones VentureSource recently found that, among Internet startups as an entire category:

Just under half of the 165 companies in the consumer information services sector that raised first rounds in 2010 have raised a subsequent equity round and fewer than one-quarter of those who raised a first round last year have done so.

True, this data is US-focused. But the blogs make it seem as if a move away from consumer is a global phenomenon.

Misleading debate?

The “consumer versus enterprise debate” is a fake argument because, essentially, there’s enough funding for both types of startups. Neither one has a clear advantage when it comes to getting to profitability.

In my own view, there’s no profitability magic in enterprise business models that is by definition absent in consumer startups. I should have worded my prediction more carefully.

Some venture money tends to travel in a pack mentality (as Fred Wilson notes), and I think the pack is switching to an interest in B2B, not necessarily because of hard evidence B2B is a safer bet but as a fashion statement.

In other words, startups whose customers are clients who are solvent and have large cash flows (enterprise customers) will be trendier in 2013.

Yet consumer startups still have enormous market opportunities and may even have market advantages for success.

Oracle founder Larry Ellison recently said that consumer information processing is now bigger than enterprise IT. The reason? The need to serve the market for mobile computing devices which is set to dwarf the market in desktop machines. He was speaking to Kara Swisher (see 21:20 for the comment)

Consumer information processing is the largest segment of our business.… We’re definitely not a consumer business, but we sell to companies that are in the consumer business…

Opportunities are out there, both for for-profit consumer models and for the funding of consumer startups.

The ultimate takeaway seems to be that, if you are a founder and your startup is worthwhile, it will find cash, regardless of trends in the markets.

Consumer travel startups haven’t going away, and it’s going to be an exciting year full of new developments in the sector.

 
 
Sean O'Neill

About the Writer :: Sean O'Neill

Sean O’Neill is a New Jersey-based reporter for Tnooz. He's also a regular contributor to BBC Travel.

Follow him on Twitter, Google+, and his personal site .

 

Comments

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

  1. Valyn Perini

    The pack mentality can artificially boost a non-viable business model – look no further than Groupon as a good example. Granted, they still have the opportunity to adapt to change (or pivot, as PCW might say), but now that they’re a public company that will be difficult. Their potential failure has been long coming and hard to watch.

    My hope would be that the pack mentality that pervades travel start-ups would have less of an impact in the coming year. It would be nice to see more emphasis on B2B offerings, as the travel industry has some serious enterprise-level weaknesses that could benefit greatly from some funded innovation, but not at the expense of solving some of the consumer-facing problems out there.

     
    • Timothy O'Neil-Dunne

      Valyn – spot on. I would just extend the pool of “pack” to be on all sides of the marketplace. Startups chasing the same thing (I really don’t want to hear about another aggregator of aggregators),. Investors chasing the same thin opportunity again and again – usually long after it has ceased to have value. Commentators who just parrot the same stories they heard elsewhere. So many animal analogies ;-)

      Genuine and meaningful activity requires a lot of hard work. The Travel category is complex and hard to fully understand its many different facets and inter-dependencies. Throwing 100 ideas against the wall and hoping some of them will stick is not smart. Series A for only players who are doing $5+ million is also unrealistic and short sighted.

      Cheers

       
  2. RobertKCole

    “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” – Charles Darwin

     
  3. Timothy O'Neil-Dunne

    Perhaps the question is not the correct one. Many will survive of that I think we all agree. But will they live up to their own expectations. Hardly. Those are few and far between. I do believe that the pipeline is over stuffed at the moment. The Series A vs early money debate is quite spurious and thanks to Sean for bringing some data points to that discussion.

    There are many ways to market. There are many bad ideas that get funding and good ideas that don’t. Its a crap shoot driven mostly by a lack of context/comprehension/conviction/etc.

    Cheers

    Timothy

     
 
 

Newsletter Subscription

Please subscribe now to Tnooz’s FREE daily newsletter.

This lively package of news and information from Tnooz’s web site provides a convenient digest of what’s happening in technology that drives the global travel, tourism and hospitality market.

  • Cancel