Earlier this month, travel startup ZuBlu secured its seed funding round, raising USD 1 million amid the global pandemic of COVID-19. With border closures and travel bans heavily implemented across the world, travel has undoubtedly been one of the economic sectors to suffer the most in 2020.
So, how does a startup in the travel sector successfully fundraise through the global crisis of COVID-19? Adam Broadbent, co-founder and CEO of ZuBlu, shares his experience and learnings.
What did ZuBlu’s journey look like up until now and how long did it take to reach this point?
ZuBlu launched at the end of 2017, but our seed fundraising journey really began in mid-2019.
After successfully graduating from the Hong Kong-based Accelerator program, Betatron, and accelerating with 100% sales growth month-on-month, we dived into fundraising. We secured 60% of our initial target quickly but as the Hong Kong protests escalated it became more challenging to get over the line. Soon enough Christmas was upon us and the investor scene naturally quietened.
In early January, we shifted our focus from Hong Kong to Singapore and were kindly invited by Betatron to participate in a private pitch event hosted at the Singapore Stock Exchange. The response was incredible. We doubled our fundraising target and began the due diligence process with a number of exciting investors.
But as due diligence moved to term sheets, COVID-19 started spreading. As term sheets moved to agreement negotiation, lockdowns were being imposed and our sales dropped. As we moved to final execution, our sales prospects were zero and the general sentiment was 2020 being written-off.
What challenges did you face whilst fundraising as a result of the pandemic and how did you overcome them?
With early-stage/seed fundraising, the classic quadfecta of problem, solution, market size, and team always rings true. But your traction, in this environment, is likely to have taken an enormous hit.
Operating in a niche and fragmented sector with unrivalled domain knowledge continues to make ZuBlu an extremely attractive investment opportunity. But as the COVID-19 situation escalated, the focus of discussions both internally and with our investors were less about immediate ramping up and more about operational efficiency and to manage the short to medium term, including:
- Cash runway and how we flex according to various scenarios/timelines
- What are our expectations within the market
- What opportunities are available at this time
In all instances, we found a lot of positivity. We have always been burn efficient and have levers to pull easily. We spoke with our customers and suppliers to deeply understand sentiments and expectations. We identified clear areas to prioritise during the downturn in terms of product and offering. Plus there is a lot of talent available and plenty of time to build new strategic partnerships in anticipation of the rebound.
Ultimately the key long term strategic theme to emerge from conversations with key advisors was how we would strengthen our capabilities and resilience to emerge stronger both in absolute terms and particularly relative to the sector overall.
Sometimes these discussions were quite robust but we approached them with transparency and pragmatism. We are also in a very privileged position to have such proactive investors who are extremely committed to supporting us navigate these times.
Do you have any advice for others who are currently fundraising?
Investors are still very actively looking for opportunities. Generally the fundamentals haven’t changed but those with strong business models that are asset-light, scalable, and forecasting profitability within 8 quarters will do well. As I recently heard from a VC partner on a webinar, “The goal posts remain the same, you just need to kick the ball a lot closer.”
Although unique to each startup’s situation, don't get hung up on the valuation. It’s better to have a bit of something than a lot of nothing however investors are generally very considerate. They want you to remain motivated and any valuation adjustments aren’t opportunistic but just the reality of a new horizon.
Prioritise the relationships with your current investors. They know you and your business and will give you support on an advisory-level or, in certain cases, even financially. Don’t aim to just survive, look for opportunities. Clearly explain to investors how you are going to emerge even stronger.
Deeply consider your funding roadmap based on your cash runway and your current business situation and consider your options to fundraise now or wait until after the crisis when your valuation would have improved and capital would be more readily available. However, make no mistake that the next 24 months are very daunting in terms of available capital.
In Southeast Asia alone, total private capital raised by technology companies reduced 86% the year after the Dot.com bubble of 2000 and 80% after the 2008 financial crisis. History paints a bleak reality and the impact of both a pandemic and recession is yet to be seen.
Why was ZuBlu able to secure funding during this period, while many other travel businesses are making cuts and even closing?
Travel startups still managed to raise USD1.4 billion in the first quarter of 2020 but, as noted in a recent Skift article, "only a handful of consumer-facing categories, like sightseeing experiences, camping, diving, tour operator packages, and financial products like next-generation travel insurance, have yet to be heavily invested in by the conglomerates."
ZuBlu is an experience-driven travel start-up with a cost-effective niche strategy in a fragmented market - scuba diving and underwater adventure travel. So, while we navigate this current climate, there are still substantial problems to solve and solutions to build for our customers.
Our travel sector is unique and driven by adventurous, passionate divers and marine lovers. We aren’t part of mass density tourism sectors such as cruise ships, 100+ room hotels, or bus tours. We, as scuba divers, as a community, seek out incredible experiences in remote locations. And post-coronavirus, with travellers looking for deep, authentic, once-in-a-lifetime experiences, we are anticipating a strong rebound.
How does ZuBlu plan to utilise its funding?
Our goals and focus still very much remains the same. We are and remain extremely committed to supporting scuba diving travel and encourage travelers across the world to book their next adventures with the amazing resorts, liveaboards, and operators throughout Asia.
This funding will be used to further develop three core areas of its business; platform, portfolio and outreach. The platform will be enhanced to further ensure a seamless search, comparison and booking experience for our guests, whilst an expansion of our resort portfolio and experience offering will provide users with the very best selection of trusted and sustainable travel choices. With the funding, ZuBlu will also increase our marketing outreach, which aims to educate, inform and inspire current and future audiences.
What are your expectations for both ZuBlu and the wider travel industry over the next 12 months?
According to a survey of travelers by Destination Analysts, a tourism research and marketing firm, more than half of American travelers say they plan to avoid crowded destinations when they resume traveling.
In addition, the United States Tour Operators Association already predicted, pre-pandemic, the rise in a trend of smaller travel groups with lower guest-to-guide ratios — something scuba diving caters for perfectly.
In a recent survey by Skift Research, one-third of Americans hope to travel within three months after restrictions are lifted. However, at ZuBlu, we asked nearly 1,000 of our scuba diving community and 90% said they would be booking their next trip within a month of travel restrictions being lifted. So, at ZuBlu, we are extremely positive about the future of scuba diving tourism, especially within Asia.
Scuba diving and underwater adventure travel - in particular, to remote destinations offering incredible experiences - are uniquely positioned to flourish in a post-coronavirus market. More than ever, we expect people to seek out memorable encounters, to want to escape the crowds, experience new cultures and support sustainable business practices - all of which are central to our ethos.