Bangalore: It started its operations in India in 2006, got nominated as one of the hottest start-ups in 2008, has now shut operations, and is on its way to being sold. TripMela.com, a travel deals aggregator, was one of the many online travel portals in the country, which came into being three years ago riding high on the Internet and travel boom.
Things, however, were not quite easy for the firm which had a database exceeding 80,000 confirmed subscribers. Not able to keep with the losses, it had to put up its site on eBay for sale. “We did not have the cash to survive what looks like a long road to recovery in India,” said Jared Blank, chief executive, TripMela, in an email. Other factors including a slowdown in online advertising, cuts in airline agent commission, slower expansion of Internet users and a deceleration in the travel industry hastened the TripMela decision.
Treading cautiously: Helion’s Aggarwal (left) and Travelguru’s Damera.
TripMela’s closure shows the business is not what it and its peers—numbering nearly 20 at one point—had initially made out to be.
Investors, who had two years ago competed hard with each other to back such companies, now say they are content having one such firm in their portfolio. Five investors Mint spoke with clearly indicated an unwillingness to fund such businesses in the near future.
“There are (today) at least eight companies in the online travel portal segment… India does not need so many players. Also, there are no clear revenue models and it is purely ad driven,” said Naren Gupta, managing director, Nexus India Capital.
Pointing to Cleartrip.com, Yatra.com, Travelguru.com, Makemytrip.com, Travelocity.com, Ezeego1.co.in, Zoomtra.com and Ixigo.com, experts say there are far more companies than necessary to serve the market. “Winners have already emerged. I think it would be a waste of capital to create more companies,” said Sanjeev Aggarwal, managing director, Helion Venture Partners. Helion has backed Makemytrip.
A few funded companies have not fared as well as expected. Travelguru.com, for instance, had to raise an internal round of funding from its investor Sequoia Capital last year for working capital.
“The Mumbai attacks directly impacted as more than 97% of our business comes from hotels. This put our calculations on a toss. We needed a buffer and cash for the next six months,” says Ashwin Damera, chief executive, Travelguru. The firm has postponed its break-even target, initially set for the December quarter, by six months.
Estimates vary depending on who you ask, but various online travel portals reckon between 8% and 10% of the travel population currently make use of these portals. That could grow—Dhruv Shringi, chief executive, Yatra.com, estimates the online travel industry to cross $6 billion (Rs29,160 crore) by 2010—but a slower expansion of Internet users (from 40 million in 2006, 42 million in 2007, to 49 million in 2008) does not cheer.
Venture capital investors say existing players will get further rounds of investments, but will not infuse capital into new firms unless they come across significantly different business models. The investments in 2008 show this trend. According to Venture Intelligence, a research service focused on private equity and venture capital activity; there were three deals in the segment worth $29.5 million in 2008, all of which were follow-on, compared with four (which were new deals) worth $22.5 million in 2007.
“We are not keen on another online travel portal investment as we have a significant stake in Yatra and we want to focus on it. We want to ensure that it emerges as a winner,” says Mohanjit Jolly, executive director, Draper Fisher Jurvetson, India.
There are others such as Intel Capital that want to wait and watch. “I think we need to see how the investment plays out and would not be interested in investing in a new company before that,” says Sudheer Kuppam, managing director, India, Japan, Australasia and South-East Asia, Intel. The company backed Yatra.com with an undisclosed amount.
Harshal Shah, chief executive, Reliance Technology Ventures Ltd, predicts the Indian travel portal segment will track the US industry, where a couple of players lead, with a few niche players on the sidelines. Also, consolidation will become a reality through mergers and acquisitions (M&A), though valuations will continue to be an issue.
“Even though the market is down, expectations aren’t. It will be a while before it (M&A) happens,” says Yatra.com’s Shringi. Helion’s Aggarwal says only firms offering travel and stay, and packages will survive.
Sanjeev Aggarwal’s photo by Madhu Kapparath / Mint