Preparing For Takeoff: What Startups Should Know
(Part 1: An Investor’s Perspective)
The travel industry is one with large barriers to surmount — it’s heavily regulated and has several incumbents with large competitive moats. It takes a lot of perseverance, capital, and perhaps a bit of luck for startups to break through.
Venture firms traditionally invest in less than one percent of all the startups they review, and JetBlue Technology Ventures is no different. However, as a corporate venture capital (CVC) arm, we evaluate startups not just as an investor pursuing financial returns, but also as an operator and a potential customer seeking business improvements. That gives us unique perspective and value when reviewing and partnering with startups looking to improve the future of travel.
Here are some of our insights and tips for early-stage founders seeking funding, whether you are already involved in the travel and hospitality industries or are interested in expanding into them.
Do your homework
Who and how you pitch is just as important as what you pitch. It’s important to research and choose your potential investors and partners wisely, as you want to build the ideal mix of investors that can offer strategic value as well as money.
- Know the firm’s thesis. For example, JetBlue Technology Ventures doesn’t invest in technologies, we invest in solutions for the travel industry. Technology may power those innovations, but we don’t invest just for the sake of the technology. We invest where we can make a difference and actively help due to our position in the industry.
- Know their focus areas. At JTV, we have five focus areas for investments and are interested in ideas improving the entire travel ecosystem and end-to-end journy, not just aviation. Be sure that whatever you’re working on makes sense for that investor’s portfolio.
- Know their track record. You need to know if a potential investor has already made their bets in that space. Typically, though not always, investors do not fund competitors to existing portfolio companies. If your startup is similar, but not competitive, be ready to explain the differences.
Connect the dots
Use this research to tailor your pitch to each investor. The objective is to illustrate how your startup fits into an investor’s thesis and existing portfolio. Show us the “why” — why your company and why right now. Don’t assume investors make the connections on their own. Tell us both the emotional and strategic story. Show us why this deal makes sense for them and why they would be crazy to miss out.
And remember the power of scarcity. Exclusivity matters! Run your process carefully so that investors you want to be in the round feel like they have to move quickly. When you connect the dots effectively, you’ll build urgency around your raise and being a part of it. That’s a powerful place to be as a founder raising money.
Timing is everything
In aviation, everything needs to work for any of it to work. As travel investors, we’re interested in seeing the balanced evolution of the elements that make up the business. Your objective as a founder is to deliver improvements that people will buy to make your business plan work. You can be right but too early, which means you’re wrong. You want to have the right product at the ideal time. You also want to pitch investors at the most optimal time, which we would define as an inflection point that shows promising initial progress that can then be amplified with funding.
Orient your calendar according to the rhythms of investors. If you start at the wrong time of the year, people might ask how long you’ve been fundraising. You don’t want to indicate that the process is taking too long. When you start getting serious interest, that’s when we’d suggest starting the fundraising clock. Six months is a good number (three months is a great number), which means that the ideal time to start your raise is in the first or third quarter of the year. You can raise money in that compressed window where attention is high and deals are getting done, if you have built relationships.
Be patient and build relationships
On that note, if you know the timing isn’t yet right for pitching a specific investor, seek them out in advance of your fundraising efforts. The timing might be perfect later — especially if you take the longer-term view and nurture relationships with potential investors. The number of travel-friendly investors is low, so getting to know them should be a top priority.
Ask investors if you can send them updates about your progress — and then actually do it! Send quarterly one-pagers that highlight progress made and problems overcome. Share new hires, favorable press mentions, and key milestones. If you’ve recently pivoted, explain how you listened to the marketplace feedback and adjusted accordingly. Then, once you’re ready to raise a round, you have built relationships such that the people are already familiar with the story and you will now be pitching on the progress made versus the idea itself.
A quick side note — relationships might not lead to direct investment, but they may lead to the right introduction. An investor’s network is his or her filter, and a warm introduction from a trusted peer carries weight.
Understand the operator mindset
With CVC, there’s one big difference from traditional VC — deals aren’t only about exits. We also want to improve margins and increase efficiency for JetBlue Airways itself and our partners. For instance, our portfolio companies Gladly and Unico.aero help JetBlue deliver more personal human customer service and better manage any mishandled baggage, respectively.
If your startup can help JetBlue reduce cost, increase revenue, enhance safety or improve customer service, that could be a compelling narrative for us at JetBlue Technology Ventures. A hidden part of the cost ‘iceberg’ is maintenance and operations — if a startup can help improve margins by just half a percent per year, then that creates huge value. Since the average global airline makes less than $10 profit per passenger per flight, any margin improvement has major impact.
Another value that a CVC brings to the table is the strategic perspective of the industry. Having one or two strategic investors in a round is typically a win-win for you and for the financial investors on the cap table.
Understand the investor mindset
“The market isn’t that big.” All investors have thought it to themselves while sitting in a pitch meeting. We know it’s tempting to put up a large figure to show the enticing opportunity of an addressable market, but investors in the industry will know their stuff. For example, when a company approaches us wanting to sell software into aviation, the reality is that the market may not be that big. We’re going to remain cautious and realistic when it comes to market sizing. Likewise, the hospitality industry is huge but fragmented, gaining a very large market share is unlikely in the short term.
The same can be said about growth rates or product road maps or anything else that makes it into a pitch deck. Things change. Pivots happen. Avoid over promising because that leads to underdelivering. Be thorough, thoughtful, and intentional when pitching and you’ll come off as an expert. (If you want to highlight the upside case, include a set of scenarios rather than just one). Travel-savvy investors are aware of how the market buys (cautiously, mostly) and will factor that into your metrics.
Lastly, venture capital tends to be a cottage industry where partners often work independently. Travel investing is even more niche. As a startup, you need to think about how individuals invest and how you can help them reach their goals, just as you would for your own customers. Most investors have a target ownership level or target check size, and may also have a standing policy about leading a deal or not.
A few final words…
All money isn’t equal. Investors should add more value than just money — they should make introductions to potential prospects and customers and provide valuable advice during good times and bad. Our team at JetBlue Technology Ventures guides our portfolio of startups to help them understand the broader industries so that they can move faster, access more opportunities, and make fewer mistakes.
You want to stack the deck in your favor with experienced, well-connected partners that can amplify your progress. A great stable of investors are accelerants to a startup’s success, especially within an industry that is as complex and fragmented as travel.