Where he places his bets now – Skift
Despite the challenges of the pandemic, the travel industry is well positioned to erupt with the love of investors. Lakestar, a Berlin-based venture capital fund, wants a stake in the next big travel startup as industry winners and losers emerge from the pandemic.
Remarkably, Lakestar even supports consumer-oriented startups at a time when many investors have turned to companies that compete with global giants, favoring business-to-business startups instead.
Lakestar takes stakes in startups from all types of industries around the world. But traveling is a specialty. He has invested more euros in travel startups based in Europe than any other venture capitalist. Its timely investment in Airbnb generated big returns on paper when the startup went public in December.
Feeling emboldened by recent bargains, Lakestar has raised the bar this year. He started a Special Purpose Acquisition Company, or SPAC, with the intention of bringing a startup to the stock market. (For background, see Skift’s explanation of PSPCs.) Over the past few weeks, Lakestar PSPC I signed a letter of intent to go public with HomeToGo, a vacation rental price comparison research company and software sales in which Lakestar’s venture division had invested.
Venture capital investment remains a separate activity for Lakestar. His corporate bets in travel besides Airbnb include HomeToGo (price comparison search for vacation rentals),
Limehome (which manages short-term rentals with a hotel-like service), Omio (meta-search for point-to-point travel, including ground transportation), GetYourGuide (a travel agency for tours and activities) and Impala (a startup specializing in next-generation hotel data connectivity and distribution).
The problem with customer-centric startups
Entrepreneurs who develop travel tech startups don’t just face an industry dominated by giant corporations on the consumer side: the proverbial Google, global online travel agencies, and vendors such as cruise lines with a wide influence on distribution.
The difficulty for consumer-facing startups is to compete with large corporations 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, giant platforms can emulate their best features and hinder their success.
So many investors, such as Thayer Ventures, JetBlue Technology Ventures, and Amadeus Ventures, have largely shunned consumer-oriented startups, with rare exceptions, like Thayer’s investment in Sonder, a hosting brand.
Lakestar was more daring. A lot of his risk bets have been in consumer-oriented startups. Why?
Christoph Schuh, partner in Lakestar’s venture capital firm, put forward three reasons. Lakestar tends to invest in more mature startups in the B or C series, after the companies have shown a strong track record. The firm wants to focus on emerging leaders in a category.
Lakestar also estimates that customer acquisition costs have come down over the past five years as many startups have gotten much better at retaining customers once they get them, reducing the churn rate. Schuh said Lakestar has seen startups across industries (inside and outside of travel) dramatically increase average “customer lifetime value,” which roughly matches the total revenue a business realizes on a customer less the cost of marketing to get and keep the person.
Lakestar is also targeting startups that focus on categories that are underserved or not served by the major players online. Schuh believes HomeToGo’s vacation rental search and GetYourGuide’s tours and activities agency is better and more comprehensive than comparable Google, Kayak, or Tripadvisor offers, although skeptics debate this point. Schuh believes Omio is better at booking end-to-end trips that include trains and buses than any other player, although skeptics question the cost-effectiveness of serving the “last mile” portions of the trip.
Schuh also argues (and unsurprisingly) that Limehome, which runs short-term rentals with hotel-style service, could be successful in Europe in the same way Sonder has gained ground in North America. (Sonder is expected to be released later this year.)
Schuh pointed out a few other factors besides marketing efficiency gains such as improving the survival chances of consumer-oriented startups.
He said consumer behavior is changing, for example. Consumers seem more willing to look for individual brands for specific needs, such as mattresses or shoes. The rise of Airbnb as a brand represents the application of this trend in travel, he said. People accepted Airbnb because it offered a category that they couldn’t easily find with existing travel brands.
To explain the change in consumer behavior, Schuh began with an observation from outside the trip. There has been a gold rush in “fast-trade” startups recently: companies like 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.
So many customers expect faster speeds and more online ordering customization. This expectation will also affect travel, Schuh said. Yet today’s travel reservation services are too cumbersome and slow to use, and they offer too generic and standardized products, by and large.
“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, like, say, traveling with a pet, they are underserved by today’s online travel brands. “
Schuh used the example of remote work as an emerging problem. He said there was a market failure in making it easy for employees to book remote workspaces that meet their exact needs.
“If you have a clear idea of what kind of workspace you will need for many hours, with a wait for Wi-Fi speed and a comfortable desk and a window with a view, you might have to spend hours looking at it. search online to find what you want using global brand travel sites, ”Schuh said. “If a subvertical player emerges that allows this type of part to be found quickly, consumers will find the brand and use it. You can forget about the giant players’ brand marketing expenses, more or less.
The most daring bet
Lakestar’s most imaginative prediction about the future is represented by its investment in Impala. Most of his other investments were 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 are based on a prediction that technology will change the behavior of consumers and suppliers.
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 this opens up new ways to sell. to consumers.
Impala is part of a wave of startups betting that new techniques for sharing data could make it more common for businesses outside of travel – think banks, e-commerce sites like Amazon, and ridesharing apps like Uber – selling hotel stays, flights, or other travel.
“Startups like Impala that rely on API infrastructure have huge potential,” said Schuh. “They add travel sales as a new layer on top of non-travel businesses that already have customer bases or audiences. I like that kind 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 step in and swallow every category invented by new startups.
“Many investors have overestimated the power of network effects in travel,” said Schuh. “There’s this notion that Booking.com or Airbnb can go into selling tours and activities, for example, and be successful quickly. But so far, they’ve had a lot more headwinds than expected. And this is just one example among many. Tripadvisor is now trying to sell hotels etc. again.
“It has proven to be more difficult for global brands to expand their range of offerings, so to speak, than a lot of people have assumed,” said Schuh. “This is good news for startups and good news for consumers. “
Photo Credit: A cottage that is a vacation rental bookable through HomeToGo travel search site, a Lakestar holding company. The Berlin-based venture capital fund has a distinctive investment strategy to secure a share of the next big travel startups. HomeToGo