Written By: Jonathon Cocks

A New Investment Checklist

The venture capital landscape in the travel and hospitality sector has shifted dramatically in recent years. Growth still matters in travel technology, but the era of “growth at all costs” has completely wound down, replaced by a “flight to quality” and extreme operational discipline. This has put early-stage travel startups in a position where far more discipline and rigour is needed to ensure investors remain interested and continue to fund expansion.

Survival of the Fittest

For Seed and Series-A travel startups looking to raise, the milestones have changed. VCs are no longer validating on growth alone. High-conviction term sheets are strictly tied to clear paths toward EBITDA positivity, strong unit economics, and deep first-party data ownership that insulates the startup from technology changes.

VC funding has entered a highly bifurcated “two-tier” era where the few companies that do secure funding are commanding valuation premiums because their business model and metrics are excellent while mid or low-tier operators are facing a severe cash squeeze.

The Death of the “Gross Booking Value” Metric

Historically, consumer-facing travel marketplaces and booking platforms raised massive late-stage rounds on the back of growing GBV. But this metric can easily hide poor margins, particularly during high-inflation or off-season cycles.

Investors increasingly examine Net Revenue and Take Rate (the actual margin the platform retains after paying out suppliers, airlines, and local operators). If a marketplace has a massive GBV but a low take rate, it signals fragile unit economics and high risks under inflationary pressure. Investors expect B2B travel SaaS or infrastructure layers to demonstrate clear, predictable Annual Recurring Revenue (ARR) and high gross margins (greater than 75%) before writing a Series-A check.

CAC-to-LTV

Customer Acquisition Cost (CAC) has historically been the Achilles’ heel of consumer travel startups, given the advertising dominance of incumbents like Booking Holdings and Expedia and the high cost of paid Google or Meta ads. Leisure travellers are notoriously hard for brands to retain with every single transaction incurring additional marketing spend.

Across the industry, travel CAC rose by roughly 35% over the last few years, while the lifetime value (LTV) of those customers grew by less than 5%. This has raised the bar in terms of what constitutes an acceptable CAC.

An LTV:CAC ratio of at least 3:1 is often used as a directional benchmark alongside a CAC Payback Period of under 12 months. Founders must prove they can acquire users organically through viral loops, low-cost B2B2C distribution partnerships, or proprietary data advantages, rather than relying solely on paid Google or Meta ads.

Net Revenue Retention (NRR) and Seasonality Smoothing

Travel is inherently cyclical and highly sensitive to macroeconomic shocks and regional seasonality. VCs are using Net Revenue Retention (NRR) to determine if a startup can survive a travel downturn.

The Standard: For hospitality tech selling to hotels, enterprise accounts, or property managers, investors expect an NRR of 100% to 110%+. This means that even if the startup doesn’t sign a single new customer, revenue from existing clients grows year-over-year via software tier upgrades, transaction fees, or fintech monetization (like taking a cut of payments).

Look-to-Book (L2B) Ratios and Infrastructure Efficiency

A trend heavily impacting travel tech platforms—especially those leveraging Generative AI—is the explosion of the Look-to-Book (L2B) ratio.

The Problem: Consumers are using AI trip planners to search thousands of combinations, generating massive quantities of API calls to global distribution systems (GDS) or airline inventories before actually buying a single ticket. This sends infrastructure and cloud computing costs skyrocketing.

VCs are therefore vetting startups on their computational capital efficiency. Startups must prove they have built local caching layers, custom data structures, or optimized LLM search frameworks that prevent high L2B search volume from wiping out transactional profitability.

Defensibility and First-Party Data Moats

With big tech companies natively integrating AI into travel search and mapping ecosystems, pure “wrappers” that search web data will no longer outperform and VCs are looking for proprietary data moats.

Startups must demonstrate high-density ownership of hard-to-replicate, first-party data—such as detailed traveller profiles, exclusive B2B inventory APIs, proprietary corporate travel compliance logs, real-time localized operational data, or deeply integrated hotel property management system (PMS) integrations. If an incumbent can duplicate a startup’s core value proposition in a single product cycle, the valuation suffers a severe discount.

The “Default Alive” Timeline Check

Finally, the ultimate survival metric is a startup’s proximity to being “Default Alive” where the company has achieved a long-term sustainable positive cash flow without needing further funding rounds to survive.

Why has this shift in VC risk appetite occurred?

The VC industry has always been subject to a self-perpetuating loop where the availability of capital creates a willingness to take risks, risks create growth, and growth secures higher valuations and more funding. The risk for a startup was not the next funding round, but the possibility of missing out on capturing a new market before someone else did.

However, this self-perpetuating effect also works in reverse, as a hand-brake on startups, when funding dries up.

Prior to 2022 interest rates had been sitting at close to zero for over a decade, driving capital to riskier assets such as VC in order to get returns. The VC self-perpetuating flywheel was in full swing. But after inflation spiked in 2022 and central banks raised interest rates the economics flipped and capital demanded higher, less risky returns to compete with high yield bonds.

Suddenly the next funding round was not so certain. Existing investors feared their entire portfolios being wiped out and demanded founders tighten their belts and enter survival mode. As a result, growth rates fell and the high returns demanded by capital in a high-interest rate era were not so certain. Many high-quality startups simply couldn’t raise their next round.

This change led to a shift in the VC industry from “one unicorn is all I need to return the fund” to a more balanced portfolio approach of reducing write-offs and demanding modest returns across the portfolio.

Will we return to the good old days of growth at all costs?

Given that the origins of the change in approach were driven by inflation, we can only expect early-stage investing to attract more loose capital once global inflationary pressure reduces.

Unfortunately, the outlook for inflation is not good: Geopolitical Shocks, Energy Shocks, Protectionism, and the AI-driven competition for capital are all macro trends that mean high inflation is here for the foreseeable future.

Who is well placed to outperform during this era?

Successful portfolio construction and portfolio management now relies less on securing your position in the funding round, and more on being able to support early-stage companies on business strategy and operational excellence. Sector specific funds with in-house, sector-specific experience in business management, such as Velocity Ventures, can support their portfolio companies to navigate these difficult times and build businesses that not only survive, but prosper, during the era of limited capital.