Investing in tourist start-ups in the covid era: a dangerous lottery or a genius move?

Despite the fact that the pandemic has had and continues to have an overwhelming effect (according to preliminary estimates, tourism has fallen by as much as 90% in terms of income), it is only a short-term change. For years the travel industry has been going through a much larger revolution. In recent years many companies went out of business because they have not been competitive enough. The market structure has been changing for a long time in favor of companies and startups that are innovative, digitize and meet customer needs.

For example, one of the oldest travel agencies in the world, Thomas Cook, went bankrupt in 2019 after more than 150 years of operation. Unfortunately it became a bureaucratic behemoth and did not adapt to changing trends. The pandemic only confirmed what we have known for a long time: that digitization is really the key to success in today's travel market.

And when I talk about digitization, I mean digitization as a whole, from acquisition of tourists, to services provided, to payment options and connection to the digital community. Many tourist destinations and attractions have also begun to acquire digital solutions in response to changing trends to help them reach new tourists. The need for digital acquisition was suddenly enormous.

SmartGuide saw an opportunity
 

When I heard the news about the lockdown last March, I expected SmartGuide, an application that turns phones into personal audio guides, to be bankrupt in three weeks. Even the founders of the project clearly understood that for many companies in business, the situation will be devastating.

But that didn't happen. Instead of resigning, they immediately cut 70% of the costs and began to prioritize. There has also been a change in the business model, which has shifted from customers to the destinations and attractions themselves. We started selling SmartGuide for individual destinations as a solution that digitizes their services and helps them establish a relationship with tourists. When every tourist has his or her digital guide in their pocket, it helps customers to navigate safety measures associated with Covid 19.

The tourist destinations did not stop functioning, they just had to switch to local tourism. At a time when it was not possible to visit foreign countries, people started to explore the Czech Republic. As it turned out, we doubled our profits every month in the fall.

What startups will be successful?
 

Most companies dependent on transactions from tourists were hit by pandemic. Popular travel platforms such as Airbnb or GetYourGuide or Czech Kiwi.co experienced layoffs. But I'm not worried that they won't survive if they have sound financial management. These platforms already create a substantial part of digital tourism infrastructure, with strong investors behind them. However, at the same time they are slowly becoming a product of past generations (we call them tourism projects 2.0)   created around 2009, 2010. They are as outdated as anything that used to be based on phones, Excels and officials (tourism 1.0).

The pandemic hit most companies dependent on transactions from tourists. Popular travel platforms such as Airbnb or GetYourGuide or, for example, the Czech Kiwi.co had to lay off people. But I'm not afraid they won't survive if they have solid financial management. These platforms already co-create a substantial part of the digital tourism infrastructure and are backed by strong investors. At the same time, however, they are slowly becoming the solutions of the last generation (we call them tourism projects 2.0) - they were created around 2009, 2010 and are already as obsolete as everything that used to be based on telephones, excel sheets and administration clerks (tourism 1.0).

"There is now a huge investment opportunity in the travel industry. If we believe that covid will disappear one day, we also believe in the future of tourism. It is only necessary to imagine!"

Current and future companies will no longer deal with only some of the needs. I expect that companies will consolidate/merge and that the best will be able to cover multiple services at once, including creating an online community that significantly increases engagement. Today, we're looking for a solution  – a tool that will completely guide tourists around an unknown destination so that they don't have to plan, have a community at their disposal and order and pay for everything in one virtual place. Of course, this is related to the connection of various fintech services.

Today's and future big companies will no longer deal with partial needs. I expect that the trend will be their consolidation and that the best will be able to cover more services at once. Including creating an online community that is proving to be a big trend and significantly increasing engagement. Today, we are looking for a solution to whoever creates a monopoly - a tool that will completely guide a tourist to an unknown destination, so that he doesn’t need to have a plan, have a community at his disposal and pay and order everything in one virtual place. Of course, this is dependent on the connection of various fintech services.

The development of the travel industry also includes the topic of ecology and the impact on the environment - an effort to eliminate the problem of so-called over-tourism. And from a technological point of view, it is the development of augmented and virtual reality (AR, VR) that allows virtual reality experience. Traditional travel agencies should now consider whether to close down or follow new trends. Otherwise, they may soon end up like Thomas Cook.

Should you invest or wait?
 

That investment in technology start-ups did not fall significantly compared to previous years, reaching around 70-80% of the figures from 2019. Was a pleasant surprise last year. In the world of capital investments, these crises are seen as an opportunity. Smart investors are eager and know they have a bargaining power.  Some investors began to worry but this mainly concerned tourist and food services startups. There are, however, enough investors who correctly see tourism as a market with a huge potential.

Investors now have a unique opportunity to get to know the future leaders of the travel industry. We saw that it was projects like SmartGuide that were able to take advantage of the situation. Every investor has a unique chance to see how startup will cope with this huge challenge. If they make it, it is a clear indicator that the company will make and that the investment portfolio has a winner.  We offer a highly experienced team ready to provide immediate solutions. It is no longer tourism 2.0, but tourism 3.0, which is much more complex.