Perseverance, prudence – and slight pivots – are the key to the success of startups during a coronavirus

Plug and Play technical center manages one of the largest innovation platforms
in the travel industry, offering acceleration programs, business innovation
startup services and investments in startups around the world.

It is therefore remarkable when its management partner for travel and
hospitality, Amir Amidi, uses the word optimistic to describe how it is
feeling about the impact of the COVID-19 coronavirus on innovation and start-up
travel industry ecosystem.

At least from where we sit, we are actually more optimistic
that most of the news you hear through the main channels, says Amidi.

For people who are at an early stage and who really have the technology
that has a fit in the market, at least through the Plug and Play lens, I don't think
well slow down the number of investments we make in these early stages
startups for the foreseeable future.

"It could change next week, but from
today was not changing the strategy for the year we set at the end
2019.

This strategy requires investments
in around 200 startups this year, the same amount as in 2019, with around 60% in
North America and the rest in Asia, Europe and Latin America. And more
positive news: Amidi says Plug and Play is developing new
growth funds in 2020 that could allow it to offer even more capital to startups compared to
last year.

Typically, Plug and Play verification sizes are not
millions; they number in the hundreds of thousands. But I think with these funds, if
we manage to build them on top of each of the industries that were
active, control sizes in 2020 may actually increase rather than decrease.

As for the reaction of the business community, Plug and Play says
there has been some slowdown in the interest of travel agencies looking to
join its innovation program as partners, but those who are already involved
actively engaged, with strong participation in the recent Plug and Plays demo
Day and pitch competition in partnership with IATA in Geneva, Switzerland, February 25 and 26.

Lio Chen, Executive Vice President of Plug and Plays for Travel
and hospitality, calls Singapore's Changi Airport Group as an example
a company committed to innovation even in these difficult times.

They really didn't stop until the pursuit of
emerging technologies are affected. Quite the contrary, they are expanding
their research by including more innovative companies in their bidding process or
the salespeople they're looking for, says Chen.

Startup feeling

But while, on the investment side, it can be
usual, for startups it's anything but.

Gavin Delany is founder and CEO of Stride Tourist attractions, an Austin,
Texas-based meta-research platform that connects travelers with experience
travel to more than 1,500 operators worldwide.

Founded in 2016 – and a winner from Phocuswright Battleground who
year – Delany says the business has grown steadily since then and has done
about $ 30 million in gross benchmark in January. But from February 19
he started to see a slowdown in bookings and then a big drop in early February
29.

Since [then] we have actually been underwater in terms of
site traffic. Traffic has dropped … and its drop by about 25%
from one year to the next, which is crazy because normally up from one year to the next
significantly. And I expect it to get worse, says Delany.

Despite this dire trend, Delany says he and his team have moved
quickly reconfigure priorities, focusing on added value for consumers
with information and services that aim less to generate income and more
on building long-term relationships, like helping customers find
compare travel insurance options and assess health and
country security status.

He is grateful for the $ 2.5 million the company has raised
a seed tour last summer, led by JetBlue Technology Ventures.

We actually have a lot of silver cushion, so we're not
at any risk of cessation of activity anytime soon, even if we generate no income,
Said Delany.

But it's scary, because I think it's probably
massively influences demand because international pleasure travel is what we do and
it will be the hardest hit of all the trips.

My personal opinion on this is the sentence that was said by
others: "A crisis is a terrible thing to lose", which means I think it helps
galvanize a lot of energy and focus so that the team reorganizes and reassesses
what are the short, medium and long term priorities. Were also mentally prepared
for it to be a negative year more in terms of total demand.

Chen says he also sees examples of rapid strategic response
from some of the Plug and Plays startups in Asia-Pacific.

It’s an interesting moment of truth when some of the
startups have decided to find things that could be implemented right
far for these circumstances, he said.

Chen says examples include Face ++, a Chinese artificial intelligence
unicorn known for its facial detection technology which in a few days
developed an infrared camera solution which can be used to detect and track individuals
with a high fever in overcrowded areas such as airports and train stations.

Financial challenges

But startups like Face ++, which can not only resist this difficulty
period but also potentially generating new business, are the anomaly. For the
rest, especially those looking to grow and acquire customers, say investors
the emphasis should be on patience and caution.

It has all kinds of
implications for managing the overhead base, managing marketing expenses, says Christian Saller, general
partner at HV Holtzbrinck Ventures and co-founder of Swoodoo, which sold to Kayak, where Saller remained managing director for Europe.

It is usually
very difficult to spend on marketing against certain external developments, so startups
should probably accept that the level of demand in the market right now is
lower and the top line will go down.

"On the other hand, once it's all over and things have hopefully returned to
normal, I think investors and potential buyers would understand that there was this effect,
and the decrease in turnover was rather due to external factors
that something wrong with the business itself.

"I remember when we went public
with Kayak, no one said we didn't really grow in 2009. It was
something caused by external factors and said nothing about the business. "

In fact, says Amidi, startups have no choice but to get out of
this stronger.

With everyone tightening their belts and trying to become more
effective … and how they could increase the value proposition for their customers …
the strongest will survive as they always do, he says.

Saller says
as the industry bounces back, there may even be more appetite for innovation as a journey
companies are looking for strategies and tools to generate new revenue.

Amidi echoes
this feeling, noting that there may be a change from corporate investors as they
set aside long-term plans to prioritize short-term solutions related to digitization
which can provide cost reduction or operational efficiency, "which can stop the bleeding on the revenue side.

In addition, invest in
a bear market can also be a smart business.

Some of the best investments we've made at Plug and Play
shortly after the financial crisis because there was a shortage of capital
and whoever invested was able to invest in much more favorable valuations,
he says.

Delany says that her
reference point is September 11, 2001, when he had just started his first
at Starwood Hotels in the company's online distribution strategy group.
In the year after the terrorist attack, Delany said he saw a
appetite for innovation and a change of power.

Before that,
Expedia and Priceline and others were trying to get Starwood and Marriott and
other big hotel chains to give them rooms at cheaper rates, higher commissions. And
Starwood said: you represent a very small percentage of our total sales,
offering you better commissions, weren't going to give you the best uptime
and nights in a room.

"But after this big demand shock after September 11, the
hotel companies' mandate was to give as much as you can if that gives us
additional revenue and demand, and that's when the average commission rates
the hotel industry has gone from the old standard of 10% to travel agencies to 20 to 30%
online travel agencies. And even after the demand returned in 2003 and
2004 and surged, commission rates have never gone down and that dynamic has never changed
back, he said.

Obviously, the human tragedy of the coronavirus is very serious and
important but one of the things that helps us in our specific business situation
is convinced that in the medium and long term, this demand shock
will benefit Stride as a market in terms of connection
travelers and tour operators.