Travel demand has increased, but what about VC funding for the sector?

Jan Seale and Cobai Kastan launched their travel planning company, Out of Office, in March 2020, just as the pandemic hit and international borders were closing.

While travel companies, along with companies in the live events and fitness industries, have borne the brunt of the COVID-19 pandemic lockdowns, Out of Office, which helps users get travel recommendations from friends, has prevailed. It launched its app in August 2021 and most recently raised a $3.5 million seed funding round in April.

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

soul is right. Travel spending in April 2022 topped 2019 levels for the first time since the start of the COVID-19 pandemic more than two years ago, according to a report released earlier this month by the US Travel Association.

But that doesn’t necessarily mean venture investing in travel companies will keep up, especially as investors fear a deepening recession. According to Crunchbase data, funding for VC-backed companies in the travel and tourism industry is approximately $3.2 billion worldwide so far this year.

This is slightly below where it was at the same time last year, when investment in the travel sector returned to pre-pandemic levels. In 2021, VC-backed travel and tourism companies raised $10.7 billion. That was almost as much as 2019, when peak funding for the sector was achieved over the past five years.

“With so much pent-up travel pent-up during the pandemic, the travel sector has recovered really quickly and is growing, and yet as a result of the pandemic, people are trying to do things a little differently,” said Steve Taub of Jetblue Technology Ventures of the 2021 investments.

Jetblue Technology Ventures invests in early stage companies that are innovating in the travel and hospitality space.

“It was kind of a reset,” Taub said.

Look back

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

At the same time, VC funding for the sector increased and companies in the industry made big strides themselves. Airbnb and Vacasa, for example, went public last year along with airline companies Frontier Airlines and Sun Country Airlines.

But volatility in public markets has caused investors to pause. Overall VC funding is on the decline, and travel is no exception.

So far in 2022, about a third of companies in the travel and tourism industry that have raised funds were seed-stage companies. These include Localeur, Out of Office and Showplace. Some are in travel planning, while others are in hospitality or aeronautical engineering.

What’s next

It is too early to tell if funding for 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 broader market.

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

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

“I think as long as people can remember a point in their life where they couldn’t travel, which wasn’t that long ago, they’re going to want to travel,” Patil said.

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

Out of Office’s Seale was similar, noting the increased flexibility many people with work-from-home policies have.

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

Crunchbase queries used in this article:

Figure: Dom Guzman

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