Demand for travel is rising, but what about venture capital financing for the sector?

Jan Seale and Cobai Kastan started their travel planning company Out of Office in March 2020 – right when the pandemic hit and international borders were closing.

As travel companies, along with companies in the live events and fitness industry, took the brunt of the COVID-19 pandemic lockdowns, Out of Office, which allows users to get travel recommendations from friends, continued to push through. It launched its app in August 2021 and recently raised $3.5 million in seed funding in April.

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“If you fast-forward to today, you’ll see that people are traveling more than ever, despite the looming economic conditions,” Seale said.

Seal is right. For the first time since the COVID-19 pandemic began more than two years ago, travel spending surpassed 2019 levels in April 2022, according to a report released earlier this month by the US Travel Association.

But that doesn’t necessarily mean venture investment in travel companies is keeping pace, especially with investor fears of a recession mounting. According to Crunchbase data, funding for venture capital-backed companies in the travel and tourism industry is approximately $3.2 billion worldwide so far this year.

This is slightly down from around the same time last year when investment in the travel sector bounced back to pre-pandemic levels. In 2021, VC-backed travel and tourism companies raised $10.7 billion. That was close to where the funding was in 2019, where the last five years has been the maximum funding for the industry.

“With so much pent-up demand for travel during the pandemic, the travel industry was recovering really fast and growing, and yet people are trying to do things a little differently due to the pandemic,” said Steve Taub of Jetblue Technology Ventures of 2021 investments.

Jetblue Technology Ventures invests in start-up companies that innovate in the field of travel and hospitality.

“It was kind of a reset,” Taub said.

Looking back

Last year, the foundation was laid for the recovery of the travel industry. The widespread rollout of the COVID-19 vaccines helped restore a sense of normalcy in the world and travel restrictions were eased.

At the same time, VC funding to the sector increased and companies in the space itself made great strides. For example, Airbnb and Vacasa both went public last year, along with airlines Frontier Airlines and Sun Country Airlines.

But the volatility in the public markets has caused investors to pause. VC funding as a whole has fallen, and travel is no exception.

So far in 2022, about a third of the travel and tourism companies that have raised funding have been seed stage companies. This includes Localeur, Out of Office and Showplace. Several are in the travel planning space, while others are in the hospitality or aviation technology space.

What’s next

It is too early to say whether the financing of the travel sector as a whole will pick up. It is somewhat dependent on the macroeconomic environment. Many VCs are waiting to see what happens in the wider market.

Particularly with a recession looming, travel in general is expected to decline after this year’s ‘super cycle’, said Hopper CEO Frederic Lalonde. In terms of funding, “I don’t think, travel or not, there’s a founder who can raise right now,” he said.

But according to Samantha Patil, founder of Well Traveled, a Los Angeles-based travel planning startup, even a recession doesn’t mean people will stop traveling altogether.

“I think as long as people can remember the moment in their lives when they couldn’t travel, which is not too long ago, they will want to travel,” Patil said.

That could mean more local travel rather than a multi-country tour of Europe, she said

Seal of Out of Office, expressed a similar sentiment, pointing to the greater flexibility many people have with work-from-home policies.

“People have had more flexibility than ever before, so either way, people will get out,” Seale said.

Crunchbase queries used in this article:

Illustration: Dom Guzman

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