Berlin After the IPO of its portfolio company Hometogo, the finance company Lakestar, led by Klaus Hommels, is again looking for investment targets in the travel industry. “We are currently looking at start-ups that are developing technology-based infrastructure for the travel market,” said Christoph Schuh, governor of the risk investor in Berlin, the Handelsblatt. There is a particularly high level of interest in so-called “dynamic packaging”, a last-minute business compiled from databases.
It had Lakestar listed as a “Special Purpose Acquisition Company” (Spac) in Frankfurt from February 2021 and had more than 250 million euros in share capital. The merger valued the housing broker, which has been in deficit for years, at 1.2 billion euros.
Travel sales via dynamic packaging, which Lakestar is now looking out for, is also considered a risky business in tourism. With the help of various electronic booking systems, travel sellers put together vacation packages on the spot market – and only at the moment of the customer inquiry. Usually they combine flights with hotel accommodation, meals, transfers and excursions within a few minutes.
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There are plenty of providers in Germany. Tui, FTI, Alltours and DER Touristik all operate this brokerage business within minutes, as do Expedia and Opodo. They can usually be recognized by the “X” in the brand name such as Alltours-X, Big-Xtra or LMX, but in the corona crisis, the business model was doomed for most.
If vacationers step back en masse, sellers remain at their expense
The reason: the tour operators usually have to pay for the travel services purchased at the computer terminal immediately. If vacationers then withdraw en masse from their bookings – as with the first lockdown in 2020 – travel sellers like X-Tui or XFTI are left at their expense.
In order to reduce risks like these, Hommels entrusted the tourism sector to the Hamburg industry expert Christoph Schuh. The 57-year-old, who organized the IPO of the Holidaycheck predecessor company Tomorrow Internet AG for Burda 21 years ago, sits on several advisory and supervisory boards of prominent tourism start-ups for the investor.
Not only does he take on responsibility as Hommels’ envoy on the board of the hotel broker Impala, he also represents the interests of co-investor Lakestar in the circle of shareholders of Getyourguide, an excursion marketer valued at more than one billion euros. The same applies to the European train ticket seller Omio and the Munich boarding house provider Limehome. At Hometogo, Schuh has even headed the supervisory board since going public.
Experienced tourism professionals are therefore aware of the challenges of dynamic packaging. “Dynamic packaging has shown itself to be a complex product in phases of the pandemic, because each element of a package has to be individually canceled or rebooked for the customer.” Different cancellation rules would make things more difficult.
“In any case, the business model fits into our strategy,” Schuh defends his plan. It usually consists of paving the way for a small group of providers to reach customers using technology. This already applies to participations such as Getyourguide, Omio, Hometogo or Impala.
Schuh sees the severe blow that Corona has inflicted on the holiday industry since March 2020 for his portfolio companies. Companies such as Getyourguide, Hometogo or Omio suffered a decline in sales of up to 90 percent in some cases, but they are now mostly back to the level before the crisis – Hometogo or Limehome even significantly higher.
“Marketing efficiency improved during the pandemic”
In the meantime, these providers have also significantly improved their marketing efficiency and have positioned themselves more independently of intermediaries such as Google by systematically building up their own customer data and increasing the purchase rates of regular customers. “That will help us in the future,” expects the Lakestar managing director.
The company, which is controlled from Zurich, is not the only venture capital company that is placing its hopes in start-ups in the travel scene. Softbank, KKR, HV Capital, M12 (Microsoft), Project-A and many others have recently invested heavily in the travel industry. Every fifth euro that financial companies distributed immediately before the corona crisis went to such a start-up.
In the ten years before the pandemic, 2.9 billion dollars in risk capital flowed into young German tourism companies, as a survey by Lufthansa Innovation Lab shows. Together with the recipients in Great Britain, France and Spain, the donations even totaled 6.5 billion dollars. A profitable business for some, as it turns out. For the seven largest European travel start-ups alone – including companies such as Flixbus, Blablacar, Omio and Getyourguide – Travellandmobility determined a joint market value of 12.4 billion dollars.
“The pandemic only affected the massive start-up investments in the travel sector for a very short period of time,” says Schuh. According to calculations by Lakestar analysts, around ten billion dollars were invested in travel start-ups worldwide in 2018 and 2019.
In 2020, which was marked by corona lockdowns, it was around five billion dollars, while ten billion dollars are expected again in 2021. “The share prices of the listed travel companies have mostly been back at or even above pre-Corona level for a few months,” observes the venture capitalist.
At Hometogo, however, the stock market hopes have not been fulfilled so far. The shares, which were valued at ten euros when the company went public in mid-September, are currently trading at just 8.13 euros.
Even after the crisis, there are good reasons for Lakestar to invest heavily in tourism. “The need to catch up after the pandemic is enormous,” observes Schuh – an impression that industry experts such as Tui boss Fritz Joussen, Dertour director Mike Lehmann and travel association boss Norbert Fiebig share with him. As a result of the pandemic, trips were also planned much more individually, earlier and, above all, more online. “All of these trends are positive for us.”
The three largest tourism holdings of the financial investor – Getyourguide, Hometogo and Omio – collected a further 500 million euros from investors during the pandemic. The Lakestar VC itself invested over 30 million euros in travel start-ups during the pandemic.
Exit after eight to ten years
The investment strategy does not differ from Lakestar investments in other industrial sectors, which in the past have already included start-ups such as Spotify, Revolut, Opendoor and Sennder. In the early phase, one participates with up to 20 percent, explains Schuh, with later entries in growth companies with up to five percent.
An exit is planned at the latest after eight to a maximum of ten years, according to the term of the Lakestar funds. “During this time, we help start-ups with topics ranging from recruiting, technology and marketing to regulatory issues and the financing of further rounds,” reports the Berlin financial expert.
Lakestar has not yet decided whether there will be another exit via Spac. On the one hand, Hometogo has secured a lead of at least one year on the capital market and 250 million euros in additional equity, Schuh considers this step, in retrospect, to be “spot on”. On the other hand, a spac is associated with considerable effort. This included an initial public offering of the company shell, a merger agreement with the target company and the acquisition of further so-called “pipe” investors.
In addition, tourism start-ups are finally appearing on the stock exchange. The Holidaycheck Group AG, which Schuh once proudly brought onto the floor, will be taken off the market by Burda these days. It started in mid-2000 at a price of 13.17 euros; after a continuous decline, Burda is now offering outside shareholders only 2.70 euros for each security.
More: Burda takes Holidaycheck off the stock exchange.