Arnie Weissmann
What would you do if you received a check for $175 million, the only condition being that you had to invest it in travel and transportation technology companies? Mark Farrell and Chris Hemmeter are working through that very puzzle, having raised that sum and sorting through "a firehose" of possible investment deals.
The two men, co-founders of Thayer Ventures, launched Thayer Ventures Acquisition Corp. to create an investment vehicle known as a special purpose acquisition company (SPAC). Through an initial public offering last fall, they raised the money to take advantage of what they believe is a unique opportunity for investors: the post-Covid recovery of travel.
Common wisdom holds that leisure travel will see explosive growth beginning in the third quarter, but they're not looking simply to rise with a tide that will lift most, if not all, boats. In fact, Farrell -- who was mayor of San Francisco for a short period in 2018 -- said the group is attracted in particular to companies that "are less dependent on the broader recovery in the market." They're looking for companies that had strong growth headed into Covid, a compelling story during the pandemic and are positioned and eager to get on the offensive as they emerge from the crisis.
This complements their observation that, from an investor's point of view, perhaps the most important change from pre-Covid deal-making is that year-over-year growth is "no longer important to forecasting," Hemmeter said. The firm has always invested in technology and believes that, throughout the disruption and dislocation of travel during the pandemic, tech's role has become even more prominent and important than it was going into the pandemic. "There's a renewed commitment to agility, and technology has become 'gotta have,' not 'nice to have,'" Hemmeter added.
Hemmeter sees the hospitality tech stack as a very attractive area for investment, but the company is also taking a contrarian interest in corporate travel. That sector is viewed today as likely the last segment of the travel industry to recover. "The disruption caused by Covid has been so extreme," he said. "In our view, it will return, and as it rebuilds, we think there are opportunities for new players. The industry is ripe for that; in 2019, corporate travel technology was not exactly leading edge."
The SPAC has not ruled out investments in leisure travel -- "consumer travel and travel distribution is super interesting," Hemmeter said -- but they also believe that the expected snapback in leisure later this year doesn't necessarily translate into long-term opportunities. Thayer is disinterested in "me-too" OTAs "because of competitive dynamics," though if a company has "a defendable supply story or defendable affiliation angle of some kind," it could be interesting to them. "Three years ago, I thought it was a no-go zone," Hemmeter continued, but he said that a specialty player, particularly in tours and activities, could interest them.
Despite his professional focus on travel technology, Hemmeter uses a traditional travel agent for some of his travels and has both words of encouragement and a caution for travel advisors.
"At the end of the day, travel is still an experiential endeavor," he said. "Great agents who know their customer and the content they're promoting are worth their weight in gold. They will never be replaced by tech, especially for complex trips.
"I'm a firm believer in the human aspect of an agent's role," he continued. "But it's important to stay focused on delivering that expertise and service. If you focus too much on automation, you'll lose your edge."
There are, however, some forms of technology that he feels advisors need to embrace: robust pretrip media and itinerary builders.
"Be mindful of the way emerging travelers like to consume information. Show them the itinerary in a way that they can be immersed in what you're suggesting before they buy. Don't lose focus on your expertise, but find ways to use modern technology platforms to deliver content to customers. Millennial travelers have big-time expectations to be given rich content to look at, something they can touch and feel and share with friends and family. If you don't [deliver this], you can't cross that last 100 feet [to closing the sale]. Someone else will, and that's who they'll be loyal to."
It's not just millennials, of course, who want robust media that complements expert advice. As you prepare for the resumption of leisure travel, if you don't currently subscribe to an itinerary builder, I'd urge you to review the products currently on the market and use the next few months to become familiar with their features. (Disclosure: Northstar Travel Group, parent of Travel Weekly, owns the itinerary builder Axus.)
Itinerary builders do not require a $175 million investment, but combined with your expertise and service, they very much reflect what Thayer Ventures values in an investment: technology that differentiates, reflects visionary management, provides a compelling story and uses technology to solve problems.