New travel start-ups in Asia-Pacific will face difficulty in getting funded as investors bet on galloping horses that were formed earlier.

And that’s not the only bad news. New entrants face “unprecedented obstacles”, including incumbents that have become more powerful through consolidation; product expansion into travel by the likes of big brands such as Google or Amazon; and maturing start-ups that are being oiled by investors who prefer winners established within the past few years (think India’s Oyo or Hong Kong’s Klook).

That’s not to say, however, that funding has dried up for new start-ups, sessions during the recent WIT 2018 Bootcamp and interviews conducted on the sidelines of the event, heard.

“It is not impossible for new start-ups to raise money,” said Coney Dongre, Phocuswright’s research analyst based in Bengaluru, India.

The consensus is, the further away a start-up is from transactions, the less attractive it is to investors. Phocuswright’s research shows the top three verticals that failed (from 2008-1H2018) were non-transactional Inspiration, Itinerary and Destination content.

“Social networking sites or inspiration-based sites may help travellers, but investors question the revenue source,” said Dongre.

Yet, it is difficult to get traction with transactions unless the product has sufficient differentiation and marketing means, especially when the start-up is up against giant incumbents such as Booking and Expedia. Thus, interest from investors have shifted to B2B, from B2C, in the last two years.

However, there is still hope for small B2C start-ups. They could play in B2B too, in areas such as personalisation or experience improvement, pointed out Bart Bellers, founding partner and CEO of Xpdite Ventures.

Or, said Mizuho Hiraguri, corporate development, Recruit Holdings, they might transform themselves into another type of business, more mobile for instance, provided they had begun with a core business and had a clear value to offer.

Added Dongre: “Categories such as software or product as a service have seen phenomenal growth because of the interest in B2B. Nobody likes to have a legacy system that would require millions of dollars to be invested and see not much of the product being used.”

But Norman Tan, CEO of uBingo, a China travel start-up, remains optimistic. He believes declining funding is “a normal cycle”.

“In the last couple of years lots of money were pumped into travel and travel-related startups such as Uber. People felt good, so a lot tried to get a piece of the pie. But many were not sophisticated investors. Now, it’s winter, and we see those funds go away.

“(The funds) will return because good companies are still surviving in China. These focus on product and service. Some 100 million new passports are expected in China in the next few years, and these are new outbound travellers who need trustworthy product and service,” said Tan.

Asia also has emerging markets such as the Philippines, where opportunities for new travel start-ups are aplenty and are expected to be watched by investors.

Worldwide, start-ups have raised US$19 billion from 2008-1H2018, but funding has been sliding since 2014, said Dongre, citing a Phocuswright study.

North America leads with 38 per cent share of start-ups. Last year was a phenomenal year for Asia-Pacific, with 42 per cent of total funding raised for start-ups here, including OYO’s US$1 billion deal.