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Exclusive Interview with Plug and Play

July 21, 2020 Headline News No Comments Email Email

The COVID-19 outbreak in 2020 hits tourism industry hard. Even big players like Ctrip and Bookings are under great pressure to survive, let alone those travel startups.

But how is the current business environment for travel startups in China and the world?How the pandemic changes travel startups in the future? Has venture capitals’ confidence in tourism industry restored?

Travel Link Daily invited Mr. Lio Chen and Mr. Amir Amidi, the travel business partners of Plug and Play (US headquarters), to share their cutting-edge views on tourism entrepreneurial ecosystem in China and the world. 

Meet our guests: 

Lio Chen

Managing Director, Travel & Hospitality 

Amir Amidi

Managing Partner, Travel & Hospitality 

Q1:  What do you think of the current status of global travel startup market? What are the characteristics of global travel startup market?

VC-backed startups raised $225 billion in 2019, of which $7.9 billion were raised by travel tech startups. If you do the math, that’s less than 4% of all of VC investments, for an industry that contributes more than 10% of the global GDP, pre COVID-19. So clearly the share of VC money travel startups manage to attract is disproportional to the size of the industry, which to us means that market has much more potentials to grow, both for much-needed infusion of innovation and for fueling VC interest.

In recent years, the definition of travel startup has broadened in scope, as startups are tapping into various sub-sectors such as hospitality, alternative accommodations, tours and activities, corporate travel, and more. Amongst all travel tech companies, alternative accommodation was the top sector raising the most capitals, followed by corporate travel. While themes like personalization, big data analytics, and sustainability have been generating a lot of buzz in the industry, those ecosystems remain under-developed and under-invested. Lastly, it is worth noting that there has been a downturn in # of early-stage investments in the last few years and more money are going into bigger and late stage companies as safer bets. In the short term, early stage travel startups will face a steep uphill battle as it relates to fundraising efforts.

Q2:  What do you think of the current status of China’s travel startup market? What are the characteristics of China’s travel startup market?

In 2019, VC investments dropped 42% year-over-year in APAC due to the lack of massive mega-deals in China. The shrinking sheer volume of venture capitals, particularly for early stage startups, is a constant struggle that travel startups have to battle through. However, we still expect China and Asia Pacific to become the region of growth in travel tech investments because of internet penetration and increasing travel expenditure. One of our travel accelerator programs is based in Shanghai, in partnership with Marriott International and Trip.com Group. In the past 12 months, we’ve met world-class travel startups like PKFare,  Pi-Solution, Travel-X that have gain great traction in our ecosystem worldwide.

Q3: What impact has the COVID-19 had on global travel startups, especially Chinese travel startups? 

 As an industry, travel & hospitality has been hit the hardest by COVID-19. While it feels like the sky is falling, not all fundraising in travel has stopped. In the last two months, many travel startups were still able to close new rounds of funding, including Chinese startups like Helios and Fenbeitong. At the same time, investors for travel tech are obviously more cautious, in the wake of Airbnb’s $1 billion down round as well as KLOOK’s acquisition of Huizuche (at a price that is significantly lower than previous valuation). In short, COVID-19 has not made VC funding more scarce but has certainly had a negative impact on valuation, the upper hand of setting which is now in the hand of investors. At Plug and Play, the number of investments we made in Q1 and Q2 this year is close to about 60% of the same period of last year. We are becoming more critical on the type of startups we invest in to hedge risks.

Q4: Do you have any suggestions for travel startups affected by the COVID-19?

Come up with a game plan for your company to weather the storm and survive through the next 12 months. Make sure to create and adapt to different versions of your P/L forecast based on various what-if scenarios. If you decide to pivot, be sure to focus on solving the biggest customer problem. As an example, As a B2B2C startup, if you were doing hotel bookings for large events pre COVID-19, now is the time to focus on the demand side not the supply side. Instead of building features that stimulate supply with a goal of generating more ad revenue, you should think about how to create new features on your platform to restore trust and sense of safety in order to stimulate demand. Lastly, bear in mind that some of the best startups were created either during a crisis or pre crisis and they came out of crisis stronger and better. As Andy Grove, Former President and CEO of Intel, once said: “Bad companies are destroyed by crisis, Good companies survive them, Great companies are improved by them.”  And pay attention to how much resources are you allocating to COVID-19 offerings that may be outdated in 12 months.

Q5: What is PNP doing right now to deal with the impact of COVID-19?

We are big believers that travel will come back, stronger, leaner, and better. On the investment side of our business, there are two priorities. Priority No. 1 for us is extending a helpful hand to our portfolio companies. Working with our existing portfolio companies is critical as they need the help of investors, advisors and board members more than ever. Priority No. 2 is investing in startups that are both serving an immediate need in our travel industry but even more importantly are building solutions that will stick around and be relevant post COVID-19. On the corporate innovation side, our focus areas have been completely reshaped to prioritize the discovery and rapid scaling of innovative solutions and processes to support the relaunch and reinvention of domestic (and global) travel as we know it. As an example, Airbus is working with us on their “Regaining Passenger and Crew Trust” project, for which we have sourced and completed due diligence on 80+ startups across 10 focus areas.

Q6: After the COVID-19, how is the corporate partners’ support for startup innovation projects? How can PNP continue to promote cooperation between corporate partners and startups?

We are looking to raise a Growth Fund, somewhere between $25M to $50M, with the corporate partners that collaborate with us. In the past, if we invested in a startup during their seed round or series A and we wanted to exercise our pro-rata rights in their Series B or Series C, our investment thesis with our own capital would not allow us to do that. So raising a Growth Fund would enable us in participate in subsequent rounds of our existing portfolio companies but also look into series B and beyond opportunities and startups that are moving in the right direction. Historically, Plug and Play has been one of the most active investors in early-stage startups. Going forward, with the support of our existing and prospective corporate partners, we will be writing bigger checks into later stage startups out of our Growth Fund.

 

Source:  Travel Link Daily

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