Know your industry. Know your customers. Know yourself.

If you’re the founder of a seed staged company looking to get funded, know your industry, know your customers and know yourself.  Let me start with industry.

I deal with first time founders to ones on their 5th company who speak at Davos and one common trait among the successful (or soon to be successful) is their respective level of expertise.

Genuinely come across as having been in the industry beyond your years.

The confidence these founders exude when I ask them pointed questions and the “wow, this guy really knows what he’s talking about” feeling I get back. It separates the funded founders from the rest of the noise filled grandiose pitches investors hear all day.

Tell an investor something he doesn’t already know. The more of an expert you talk to, the better you have to be. You may be able to pull a mediocre answer past a generalist but talk to a vertical VC (that’s a term I coined BTW) and you’ll get your behind handed to you.

Successful founders don’t know it all but they know their space very well. By virtue of (a) reading trade and trade blog posts, (b) taking the time to think through trends and their impact on the industry and their company, (c) to actively pattern match and eliminate incorrect assumptions, (d) to accurately convey facts and figure from reputable (and not always mainstream) sources, (e) to stay hyper vigilant on their competitors & potential competitors and most importantly the courage to (f) execute upon their conclusions. They attend conferences, they speak at conferences and leverage social media and blogs to embody thought leadership. They aren’t afraid to dig deep into SEC filings for research. They seek out contrarian points of view and engage in active listening. They aren’t afraid to admit they’re wrong yet aren’t afraid to argue a point without feeling defensive or making the other person feel the same way.


Simply having the right information is not enough. If a little knowledge is a dangerous thing, bumbling through an explanation is arguably a close second.

You must be able to effectively communicate your point of view, with the least yet most effective number of words possible and be prepared to back your opinion up with supporting evidence.

Investors look at team and product or some combination thereof depending on the stage of company and in every scenario, they want to know you’ve done your homework on everything (the industry, competitors, trends, threats, who’s gotten funded and who hasn’t, analyst reports, social media buzz — the list goes on and on).

That you’ve thought things through. That you’ve played out ‘if then’ scenarios and not just regugitated what you’ve read on TechCrunch. From what features your product will have in 6 months or 9 months, to the headcount, to how you intend on attracting talent to what competitive advantages you seek to exploit. That you didn’t just put this startup on a whim based on a few Google searches and some “personal pain point” you wanted to fill.

  • What are the pro’s and con’s of addressing your current niche versus another?
  • Why does your product actually matter? How do you know that?
  • What companies could come into your space that would positively or negatively disrupt your business?
  • That you realize your weaknesses and have an answer for them. “We know we are overly reliant on ____ CRM package but that’s only the case for 6 months; after which we’ll have an API and can connect with SalesForce and SugarCRM”.
  • If you rely on 2 key suppliers, what happens if they merge. If you rely on PayPal as your merchant provider, what happens if they turn you off one day? What % of your revenue have you set aside of chargebacks? What is the industry chargeback average and how you expect to be lower than that?
  • What trends need to catch on for your business model to skyrocket or fall off a cliff? And what are you going to do about it? What threshold needs to be reached before you start to worry? Are you waiting for SaaS storage pricing to drop to 10 cents a GB versus 15 cents now.
  • What truly differentiates you and what evidence do you have that others will pay you based on these factors?
  • How are customers going to find you without you throwing money at acquiring them? And how you know they’ll be around after the 30 day trial is over?

Founders sometimes stop after identifying the low ball questions — if you run a CRM company, a SalesForce question is highly probable.

It’s intelligently answering the deeper dive questions that will truly separate you and tip the funding percentages in your favor.


Is the dot com bubble back? Not if you look at total VC Investment, Deal Sizes or Follow On %’s

There’s a growing notion coming out of the Valley that the hey days of high valuations and free investment dollars of the dot com boom are back in full swing.To the extent you’re on the beneficial end of this phenom, more power to you.

Diving deeper into VC investment numbers paints a different picture.


MoneyTree Total Venture Capital Investment Dollars for and Q1-Q3 2010 was $4.93B, $6.94B and $4.82B respectively.

The same for Q1-Q4 of 2000 was $27.43B,  $26.66B,  $25.21B and $20.76B respectively.

Year over year differences aren’t rounding errors — we have a ways to go before it’s even in the realm of an apples to apples comparison.


Average deal size in Q1-Q3 of 2010 is $6.53M, $7.22M and $6.18M respectively.

Average deal size in Q1-Q3 of 2000 is $12.71M, $12.56M and $12.99M respectively.

Similar disparity is found when looking at how many new investments versus follow-on investments are taking place.

I wish I could take credit for this tid bit of information — that goes to a trusted Partner at Perkins Coie; I simply researched the numbers.

Here’s to a follow on post a year from now that’s considerably more optimistic.

There’s Not Enough Innovation in Travel

This is a simple diagram known as a Business O...

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There’s Not Enough Innovation In Travel

Looking just at the growth rate of travel startups like Hipmunk offers a simple example of why innovation hasn’t reached it’s peak. You may like Hipmunk, you may not. What you can’t argue against is people are using it. $70k a day in sales very soon after launch is not something you can ignore. You can argue the novelty will wear off or you can argue it’s a fundamental change in how search is done. Regardless, customers are using it. That’s my point. What once was booked on X travel agency (or online agency) is now being booked on Hipmunk.

In retrospect, it’s not surprising. There hasn’t been a fundamental change in the to/from search box in years. Why is that? Have we reached the travel innovation plateau? Absolutely not.

Travel innovation is just getting started. It’s a great time to innovate in travel — but you have to do it right. There are different approaches to innovation depending on where you stand in the travel ecosystem (are you a new company or old? Is the innovation a feature or a business? Do you have a company to put the innovation to use on? Do you know how to bring the innovation to the masses?)

You don’t need to base your livelihood on investing in travel companies to realize this is the case. Though in fairness to my colleagues in travel, it’s hard to separate the trees (innovation) from the forest (the travel ecosystem) if you’re not doing it on a full time basis. Travel isn’t known for it’s innovation and limitless budgets and boundless budgets.

I had a few thoughts come to mind on what travel companies can do about the lack of innovation; sparked by Tom Tunguz’s post on “The single greatest reason for the failure of new ventures”.

Large Travel Companies

“Not to innovate is the single largest reason for the decline of existing organizations.”

Established companies don’t put enough time or money into new growth areas. They may even know the growth areas — social travel, location travel, all the things we invest in — but can’t find the time or mental bandwidth to act on it.

Some suggestions,

  • Ideally take an investment in a promising travel startup. Work with a professional on identifying one if you aren’t sure.
  • For the more savvy TMC’s, perhaps a skunkworks internal project that gets its own staff and budget led by a trusted member of the internal team. Maybe a mid-level manager or director that’s worth investing in who’s been yearning for extra time and money to pursue “the next big thing in travel”.
  • If you can’t buy or invest in a company, become an early (beta) customer. Travel startups are always looking for early key customers to validate their business or revenue model, for feedback, for mentoring. Contact me if you’re a big shot somewhere and have an interest in doing this.
  • Mentor these companies. Informal ‘help’ and advice and to be a sounding board will put a pep in your step if you’re an executive at a more stodgy travel company. Who knows, maybe you’ll like it enough to jump ship.
  • Be on the Advisory Board or Board of Directors. You can choose a formal or informal structure that you’re most comfortable with.
  • Contact me, I love matching travel companies with travel startups.

Travel startups face an entirely different scenario.

Travel Startups

“Not to know how to manage is the single largest reason for the failure of new ventures.”

Which is worse, knowing you don’t know and doing nothing  — the predicament large travel companies find themselves in — OR doing something in a way that is never going to succeed?

Two sides of the same coin but I’d much rather be in the first category. Yet the latter happens all the time in travel startups; particular ones without travel industry executives as founders.

Being outside of travel has it’s benefits but it also has it’s limitations. The problem is, most travel startups don’t know where the line is.

Some thoughts,

  • Find a former travel executive to help you.
  • Be open to new ideas and actually implement them; especially if you come across somebody who’s in the space you’re going after. If somebody from Meetings & Incentives tells your M&I travel startup will go nowhere, think long and hard if that’s true.
  • Attend travel events and association meetings for your particular niche in travel.
  • By all means, contact me.
  • Find mentors through SCORE or through your contacts.
  • Be prepared to give up equity based on how involved the executive will be.

I come across business models and revenue models and ‘next steps’ from travel startups that will never work. NEVER as in never ever. One step up are travel startups which follow a plan that may succeed but will take forever to do. Even when they get to the promise land (revenue, clients, customers, “traction”), I’ll all but guarantee it won’t be worth it.

The ones that avoid these landlines are the ones to watch (and in our case, invest in!).

Is FriendSourced Travel The Next Big Thing?

This UML diagram describes the domain of Faceb...

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Imagine the ability to tap into everything your friends know about travel. Every destination they’ve been, every activity they’ve done, every hotel they’ve stayed in, every trip they’ve taken. If you could bottle that up and use it for your next trip, wouldn’t that be valuable to you? That’s the power of FriendSourced Travel.

What Is FriendSourced Travel?

FriendSourced Travel describes the process of tabulating input from your Facebook friends for the sole purpose of making a more informed and personalized travel decision. Facebook friend covers friends/family/acquaintances that are your ‘friends’ on Facebook.

FriendSourced travel falls under the banner of social travel.

Simple Example

If you were trying to decide where to go for your honeymoon, you’d FriendSource this to all your married FaceBook friends. You could suggest a few destinations and gauge their input or leave the destination list entirely up to them.

It’s a conscious decision to include a cross section of your friends in the travel decision making process and not just a few random phone calls or emails asking where you should go.

Why Would You FriendSource your Travel?

FriendSourcing your Travel captures conscious and subconscious nuggets of information we all collect from one another, through initial and ongoing interactions, for the purpose of making more informed travel decisions.

When I recommend a trip or a destination or activity to you, I automatically use what I know in the decision making process. That’s the beauty of FriendSourced Travel.

Even in very loose interactions, people get to know you. By meeting you at a party, I’d get to know a little about you (first impressions, what do you do, interests, where you work, who else you know here, where you went to school, whether you’re smart or not, how much I like you …). Maybe we see each other at church or over dinner, we talk some more. Fast forward a few months and we become Facebook Friends. By this point, we know quite a bit about one another don’t we? Maybe you find out I’ve been to Fiji and London and Hong Kong. I find out you’ve been to Italy and Morocco.

With FriendSourcing, we can tap into each others travel knowledge to make our next trip better.

FriendSourcing Travel Done Right

FriendSourcing Travel can’t be done through wall posts and comments. There needs to be a Facebook application built around the components of FriendSourcing Travel.

That allows for suggestions on where to go/what to do/where to stay.

To allow for a healthy discourse (read arguments) so people can share their experiences and influence one another. Think a few one liners and not lengthy soliloquy’s like this blog post.

Last but not least, to allow for people to rank the collective suggestions and vote on them like you would a Digg post.

There needs to be a mechanism to give more weight to some friends than others — so friends who’ve been to that destination before (because their profile says so) get more weight in the decision making process. I can assign a 3.0X multiple to my friend John who lives on a plane. I could assign more weight to a destination my wife “votes” up. Even the ability to remove friends from the decision making process all together.

The application should allow me to segment my friends by geography, status, age, etc. I should be able to ask just my married friends about where to go for my honeymoon, or only my single friends on where I should go for my bachelor party. I should be able to ask my friends in New York for what Indian Restaurant I should go to next time I’m there. I should be able to leverage the “Facebook Lists” functionality.

The use of ‘game mechanics’ to drive friends to share their views and a reward system (points, karma, goodwill..).

The application needs to assign all my friends a ‘score’ based on where they’ve been. This can be derived literally from the  ‘Where I’ve Been‘ Facebook Application but not everybody has that installed so we’d have to look at interests, tags, destinations and more nuances sources like “Our Fiji Honeymoon Pictures” or “Fiji Videos”.

I’m just scratching the surface on functionality.

Where Can I FriendSource my Travel?

There are a few companies that are starting to do this but none that warrant me listing them here. I’ll post a list in October 2010. Sorry!

What to FriendSource

Any trip qualifies. Even business trips (imagine a LinkedIn FriendSourcded Travel application).

When to FriendSource your Travel

When you have enough of a “network” of friends, when you have some connection to your friends, when (on the whole) you trust your friends, when you’re open to the idea of outside influence in your travel decision making process.

When NOT to FriendSource your Travel

This approach is based on the premise that your online friends (Facebook friends for example) have some connection to you. If you accept every Facebook Friend Request regardless of whether you know them or not, this doesn’t apply to you. I would argue you’re getting closer to CrowdSourcing your Travel there.

If you don’t have a large enough pool of Friends, don’t bother. If it’s just you and 3 Facebook friends, this isn’t going to work. You need at least 50 friends or more and ideally more. On the whole, certainly after 6 months to a year, you’re going to have enough friends to qualify for FriendSourcing your Travel.


Can’t you just search travel review sites and do a little homework? Sure you can but FriendSourcing can extend that research even further. It’s not an either or, you can do both. Even if you compare FriendSourcing to individual research, done right, FriendSourcing yields a better result.

What if I’m friends with someone who’s travel opinion I don’t want? The application should allow to ‘ignore’ a persons recommendation in the final tally.

Can I use this with Twitter or Ning or other networks? Possibly. Preferably social networks that mimic the social dynamics of Facebook.  Networks where anybody can friend or follow you do not apply.

Tell me what you think!

Share some comments and follow me on Twitter (@travelalchemist) for updates.

The first company that does this will offer a leap forward in social travel in a way we have yet to see.

YCombinator Demo Day Observations

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I had a chance to attend YCombinator’s (“YC”) Demo Day — where the latest batch of 36 YC startups present for 2 1/2 minutes to a broad spectrum of investors.

  • It was nice to see so many of the startups had secured 1 or more key clients. This is where the YC brand and the YC team can set crucial introductions.
  • If memory serves me right, only 1 of the companies had 1 founder. Everybody had 2 or more. When I ran my own online travel agency, I was the only CXO for a very long time and that was a mistake. We have a company we’re looking to invest in and a key roadblock is it’s a 1 man show and that’s concerning when we’re putting in $500k.
  • Is it a feature or a company? I took to the companies that solved a problem that made me want to signup and pay for them on the spot. AdGrokHireHivePagerDutyBrushes. Others had nice offerings and solved simple pain points but not deep enough pain points for me to actually pay for the service even after discounting the fact that they’re early stage companies. I won’t pick on them them here but I wish them well.
  • Notable absent any B2B or B2C Facebook related companies. I would have thought at least 1 or 2 of the 36 would have something on the FB platform. It’s hardly one you can ignore and certainly not without it’s risk.
  • It was nice to see women founders. This wouldn’t have come to mind had I not thought about it after reading blog comments on a TechCrunch post asking “how many of the YC companies had women co-founders?” — there were a few.
  • Interesting how many of the founders had Harvard, Columbia,  MIT, Stanford degrees. Equally notable that a few had ‘dropped out’  to pursue their dreams. ‘Dropping out’ just means ‘taking a year of’ and resuming if the startup fails but at least they did it. It’s not easy to quite the PhD program at MIT to pursue a startup.
  • Notable how many startups had experience at larger & more established companies. Being part of the industry you are now trying to disrupt is something we look for when investing.
  • “If you remember one thing about my company, it’s _______” was a stable part of the presentation.
  • The founders did a good job of working the room after the presentations were over. Kudos to getting out there and striking up a conversation with investors — who aren’t the easiest bunch to deal with since guess what, we get pitched all the time and have our guards up.
  • It was quite a varied bunch of investors. Individual investors, angel groups, university related angel groups, early stage funds, super angels, VC’s, celebrity investors and media/press. Made for an interesting cast of characters in the room.
  • Notable how many of the startups were profitable. They offered a product or service somebody paid for; usually a few hundred people (sometimes a few thousand) paid for. Which in turn raised their valuation and likelihood of getting funded. Gone are the day of slaving away for months and months without a profit.
  • It was a good mix of B2C, B2B and mobile applications. No one sector dominated which kept the presentations interesting.
  • I attended the 3rd and final batch of presentations and undoubtedly the companies used the first two batches to polish themselves up.

Applications this time include: disposable social networks, site metrics, restaurant tablets, travel search, mobile TV apps, child tracking, email context, mobile app promotion, job interview software, tablet games, file syncing, non-virtual goods, social motivation, apartment search, SEO tools, grocery price search, sports chat, tablet paint software, project management, service provider hubs, memorial sites, eyetracking, glanceable displays, SEM software, Twitter follower management, tablet productivity software, enterprise Q&A, outsourced sysadmin, a new inbox, a financial dashboard for businesses, geolocal chat, server notifications, and debt management.

Travel Startup Founders from Outside the Industry

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As an investor in travel companies — from private beta travel startups to larger VC & travel growth equity deals — I am fortunate to talk to travel companies of all sizes from all corners of the world.

One common theme are travel startup co-founders who do not come from the travel industry who reach an invisible ceiling when dealing with travel suppliers, reservation systems and members of the trade.

Foremost, If you find yourself in this situation, don’t feel bad. You’re not alone. That’s just the way it is. It won’t change anytime soon.  Heck, I wouldn’t have a job if it was that easy! Took me 12 years in travel (on the agency and travel technology side) to get a feeling for how things truly work and even now I learn new things by virtue of the seasoned executives I work with.

Secondly, there is nothing wrong with this situation. It’s what you do about it that I have an issue with.

How to Fix The Problem

  • Going It Alone: The Worst Thing To Do. There are outliers who do it alone but they are so few and far between that they’re not worth mentioning. The majority (in my experience circa 95% of) shouldn’t. The ones I’ve seen — and I can’t name them or I would — are because they are so different that traditional travel suppliers are willing to give it a shot  and these companies almost always have a very strong ‘IN’. While the founders may not be from the industry, they engaged somebody with some industry gray hair on their behalf. Rarely is it a ‘cold call’ into a supplier. Somebody new to the travel game going at it alone doesn’t have a chance past some fluke wins and never enough to have a sustainable business model. Ask for help, it’s natural
  • Get Good Advisors from the Travel Industry. Former travel executives, former travel company operators, somebody who has already done what you’re trying to do; who can advise you with your strategy and business development.  Somebody hands on through till the deal is completed. Not just an introduction and you’re on your own.  I’m biased but ask any travel startup whether I’m right. It would be one thing if “Going At It Alone” was only 2 or 3 times harder but my experience show it’s considerably longer. 7 to 10 times harder. That’s a lot of time and money to spend hitting your head against the wall — assuming you have the time and money to spare — which no travel startup ever does. All the while other travel startups are popping up every week.
  • Mashup with other travel startups/Web 2.0 Company API’s. Don’t have your own reservation system to pull flights from, what about using the Kayak API. What about a travel affiliate program in lieu of your own relationships. You won’t make alot of $ but you’ll have something to show your clients. Unfortunately this strategy won’t work because you’re selling what’s already out there. If you’re selling the same fares as everybody else, do you expect alot of transactions? You’re just keeping up appearances to avoid gaping holes on your site.  You’ll almost always need deep integration deployments which most affiliates programs don’t offer. It’s a viable interim solution. Travel startups use API mashups because they’re  (a) not concentrating on revenue or (b) as a stop gap measure until professional industrial grade travel technology (booking engines, GDS links, etc..) are available. You’ll need a proper travel technology platform if you intend on building a sustainable business.
  • Use Free or Open Source Data. You can get valuable content from to WikiTravel to a variety of places for free or for a low cost. Many travel startups already do if you take a deeper look. They have a core set of unique features complemented by 3rd party API’s (Google, Kayak, IAN, etc..). Panaramio is a good example. There are some good services out there I would use as an interim solution.
  • Do a Round to Hire A Travel Executive. This is a tough proposition. Most investors ‘don’t get’ travel investments. Be prepared for a lot of hand holding, a lot of ‘educating’, a reduced valuation and little in terms of productive post-investment relationships. While an investor “who knows somebody at Expedia” is better than nothing, knowing the contact is 1 thing — actually talking the talk in a way a travel supplier will understand is something only a travel industry executive can do best. Is that investor going to be with you every step of the way for the next 4-6 months it takes to close a deal? It can be done  — don’t get me wrong — but when you’re at a travel startup you don’t have the time to ‘experiment’ and no investor is going to put up with ‘trial by error’ on their dime.  Many a founder has realized money isn’t enough. You need domain expertise. At an angel investment level I think “non-travel” investors should be avoided unless they’re fine with putting in the money and hiring “travel experts” to formally guide the company. Being a “travel investor”, I am biased, but ask any travel startup founder and I suspect they’ll agree with me. If you have to get angel money, augment that with some travel executives and ensure everybody knows their place. The angel investors are the funds and the executives bring the travel industry knowledge.
  • Know What You’re Good At and What You Not. Or find somebody you trust to guide you. I had a meeting a few weeks ago with somebody in the tourism business who wanted to advise our experts on SEO and Online Marketing Initiatives yet prior to the meeting simply outsourced his website to somebody else and wasn’t using the Internet to sell his inventory now. It was purely a content site. My response was, what competency do you have with SEO/Online Marketing? This wasn’t a “I like to listen in so I can learn” call — which I encourage — this was a “I have some serious notions in mind” call yet I’ve never done this before all while I want to work with a team that’s done this for the past 5+ years with people who’ve done online travel marketing for the past 10 years. I gave him the benefit of the doubt and heard a few suggestions only to end the engagement 3 hours later. Its critically important to set the boundaries (ie: the vision is spearheaded by the founders, the travel related decisions are joint but favor the travel executive..) between what the (non travel) founders know and do and what the travel executives will do.
  • One Supplier Is Never Enough. Just because you have 1 vendors inventory — say a hotel vendor — doesn’t
    Image representing Expedia as depicted in Crun...

    Image via CrunchBase

    mean you have all the inventory to sell. Said another way, getting or CCRA isn’t the end all of all. They are both fine companies but the more inventory you can get, the better. They may be enough for certain use cases but without knowing the strengths/weaknesses of all the discount discount hotel inventory, how do you know you’re okay? Particularly if you have a broad client base. If you have a niche — say Las Vegas Hotels — and you do a deal with the largest Las Vegas Discount Hotel Provider — you’re golden. Most travel startups don’t follow such a narrow niche.

  • Inventory is critical to any travel startup. You don’t need 1 set of inventory, you need them ALL. Do you even know how many pools of discount inventory are out there — multiply that for every travel product you sell. Let alone getting ‘approved’ at the highest purchasing levels to actually compete with established players. The introductory “you’re a small agency” commissions and price breaks isn’t going to cut it. You need the volume purchasing discounts and its unlikely you’ll get that without millions of dollars of existing volume and a track record even if you negotiate well and are funded. Once you get your account setup — assuming it happens at all and it always takes more time than you could ever imagine — you still have to get the inventory from their system into yours. A Javascript embed isn’t going to cut it. Do you have a team of developers that have nothing else to do? And you need to repeat this for every vendor you plan on adding. If there are 12 pools of discount hotel inventory, that’s 12 integrations, 12 relationships, months for each relationship and that’s assuming you actually get approved. Oh by the way, all of the API’s change all the time so you’ll need to keep up. Did I mention there are discrepancies between what a reservation system says it does and what it can actually do via the API. There are times — shockingly — where the marketing team suggests features the technical team hasn’t implemented yet. As a new client — will you be in on the beta group to figure this out early? I can list dozens of situations any one of whom would bog a travel startup down.
  • Travel Developers, Not Just Any Software Developer. Depending on the use case, you may have no choice but in hiring software developers versed in travel technology. Simply hiring very good programmers isn’t enough. There is a steep learning curve when it comes to travel supplier integrations and the nuances of travel trade that cannot be taught on the fly. Who’s going to teach them at a travel startup without travel founders? I’ve seen this happen time and again. The project does get done but multiples longer and costlier than intended. Which to a founder translates to stress and investors screaming at you for missing deadlines. There’s enough that can go wrong with any software development package — which are sometimes rushed, poorly planned and underfunded — coupled with offshore development headaches that by the time you throw in the travel trade learning curve, the founder is really dealing with a low to single digit success rate for an on time deployment.

You can see why travel startups have a low hit rate when it comes to penetrating the industry. They’re fishes out of water. Rest assured there is help out there.

Give Me Your Feedback

Do you work at a travel startup? What are your experiences? Have some ‘horror stories’ to share? If you find this post valuable, please comment and Retweet!