Where he places bets now

Despite the challenges of the pandemic, the travel industry is well positioned to flourish with the love of investors. star of the lakea Berlin-based venture capital fund, wants to get a share of the next big travel startup as winners and losers in the industry emerge from the pandemic.

Remarkably, Lakestar even backs consumer-facing startups at a time when many investors have soured on companies that compete with global giants, favoring business-to-business startups instead.

Lakestar buys stakes in startups in all types of industries around the world. But travel is a specialty. He has invested more euros in European-based travel startups than any other venture capitalist. His timely investment in Airbnb generated some greasy paper returns when this startup went public in December.

Feeling emboldened by recent bargains, Lakestar upped the ante this year. She started a Special Purpose Acquisition Company, or SPAC, with the intention of taking a startup public. (For background, see Skift Explainer on SPACs.) These last weeks, Lakestar SAV I sign a letter of intent to make public HomeToGoa vacation rental price comparison research and software sales company in which Lakestar’s venture capital division had invested.

Venture capital remains a separate business for Lakestar. His company bets on travel in addition to Airbnb includes HomeToGo (price comparison search for holiday rentals),
Limehome (which manages short-term rentals with hotel service), Omio (metasearch for point-to-point travel including ground transportation), GetYourGuide (a travel agency for tours and activities), and Impala (a startup specializing in hotel data connectivity and new generation distribution).

The problem of consumer-oriented startups

Entrepreneurs building travel tech startups not only face an industry dominated by giant corporations on the consumer side: the proverbial Googles, global online travel agencies, and vendors such as cruise lines that have a large influence on distribution.

The difficulty of startups facing consumers is having to compete with large companies by buying advertising on search engines or other channels. The cost of acquiring new customers keeps increasing as they try to grow. If they gain popularity quickly, giant rigs can mimic their best features and undermine their success.

So many investors, such as Thayer Ventures, JetBlue Technology Ventures, and Amadeus Ventures, have largely avoided consumer-facing startups, with rare exceptions like Thayer’s investment in Sonder, a hosting brand.

Lakestar was bolder. Many of his venture capital bets have been in consumer-oriented startups. Why?

Christoph Schuh, a partner in Lakestar’s venture capital firm, offered three reasons. Lakestar tends to invest in more mature startups in the Series B or C cycles, after the companies have demonstrated strong balance sheets. The firm wants to bet on the emerging leaders of a category.

Lakestar also believes that customer acquisition costs have fallen over the past five years as many startups have become much better at retaining customers once they have them, which reduces churn. Schuh said Lakestar has seen startups across all industries (inside and outside of travel) dramatically increase average “customer lifetime value,” which is roughly the total revenue a company earns. realizes on a customer minus the cost of marketing to get and keep the person.

Lakestar also targets startups that focus on categories underserved or unserved by major online players. Schuh thinks HomeToGo’s vacation rental search and GetYourGuide’s tours and activities agency are better and more comprehensive than comparable offerings from Google, Kayak or Tripadvisor, though skeptics will debate this point. Schuh thinks Omio is better at booking end-to-end travel that includes trains and buses than any other player, although skeptics question the cost-effectiveness of serving the ‘last mile’ parts of travel.

Schuh also argues (and unsurprisingly) that Limehome, which handles short-term rentals with a hotel-like service, could succeed in Europe in the same way Sonder has gained traction in North America. (Sonder is expected to go public later this year.)

Schuh pointed to a few other factors besides marketing efficiencies as improving consumer-facing startups’ chances of survival.

He said consumer behavior is changing, for example. Consumers seem more inclined to search for individual brands for particular needs, such as mattresses or shoes. The rise of Airbnb as a brand represents the application of this trend to travel, he said. People accepted Airbnb because it offered a category they couldn’t easily find with existing travel brands.

To explain the shift in consumer behavior, Schuh began with an observation outside of travel. There has recently been a gold rush in “fast commerce” startups: companies such as Amazon, DoorDash, Uber and others have focused on delivering food and other goods almost instantly. An Irish startup, Manna, is even working on drone deliveries to consumers.

Many customers expect faster speeds and more personalization from online ordering. That expectation will also carry over to travel, Schuh said. Yet today’s travel booking services are too cumbersome and slow to use, and they offer products that are too generic and standardized, in a broad sense.

Christoph Schuh, partner at Lakestar. Source: Lakestar.

“Consumers want instant gratification, and they’ll have less tolerance for searching a dozen sites or apps to plan a trip,” Schuh said. “If they have special needs, such as traveling with a pet, they are underserved by today’s online travel brands.”

Schuh used the example of remote work as an emerging issue. He said there was a market failure to allow employees to easily book remote workspaces that meet their exact needs.

“If you have a clear idea of ​​the kind of workspace you’ll need for many hours, with an expectation of Wi-Fi speeds and a comfortable desk and a window with a view, you may need to spend hours at search online to find what you want using global branded travel sites,” Schuh said. will use. You can forget about the brand marketing spend of the giant players, more or less.

The boldest bet

Lakestar’s most imaginative prediction of the future is represented by its investment in Impala. Most of its other investments have been in new applications of proven models, such as how GetYourGuide applies the online travel agency model to the tours and activities product. But Impala represents a category of startups that rest on a prediction that technology will change consumer and supplier behavior.

To explain Lakestar’s vision for the future, Schuh spoke about the spread of application programming interfaces (APIs) and the broader architecture of a more modern Internet and how it opens up new ways to sell to consumers.

Impala is part of a wave of startups betting that new data-sharing techniques could make it more mainstream for businesses outside of travel — think banks, e-commerce sites like Amazon and ride-sharing apps like Uber — selling hotel stays, rides, and more. flights or other travel.

“Startups like Impala that rely on API infrastructure have huge potential,” Schuh said. “They add travel sales as a new layer on top of non-travel related businesses that already have a customer base or audience. I like this type of horizontal business model, unlike the typical travel startup, which is a vertical game. »

Skeptics will wonder why well-capitalized giants like Expedia Group or Ctrip.com can’t come in and swallow any category invented by new startups.

“Many investors have overestimated the power of network effects in travel,” Schuh said. “There’s this idea that Booking.com or Airbnb can get into selling tours and activities, for example, and be successful quickly. But so far they’ve had a lot more headwinds than expected. And that is just one example of many Tripadvisor trying again to sell hotels etc etc.

“It’s proven more difficult for global brands to expand their range of offerings, so to speak, than a lot of people had assumed,” Schuh said. “This is good news for startups and good news for consumers.”

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