The AI-native edge

For many years, Phocuswright has put a spotlight on funding in its startup analyses. The reality is that funding grabs most of the headlines and is the easiest yardstick to measure progress. But this year, as AI stands to disrupt so many areas of the industry, we wanted to dig deeper into what travel startups are thinking and doing. So we conducted a global survey to gain visibility into how startups are navigating AI, plus how they view the current fundraising environment and gauge their top challenges and future outlook. The full report digs deep into:

The State of Travel Startups

• Founder motivations to start a company
• Founder backgrounds
• Changes in strategy
• Competitiveness of vertical segment and competitive advantages
• Business challenges

The State of Travel Funding

Funding for travel startups recovered slightly in 2024, advancing to $5.8 billion from $5.3 billion in 2023. But both years represented 10-year lows, significantly under the previous low of $6.6 billion in 2016. This reality arrives after a record high of $16.3 billion in 2021. 

• Deal count and number of rounds by year
• Travel funding vs. all industries funding
• Reasons travel startup funding is faltering
• Reasons for a positive outlook
• Valuations and the overall funding cycle

Funding by Region

Examining travel funding regionally over the past five years, Europe and the combination of the Middle East, South America and Africa have gained the most ground.

Travel Startups on the Funding Environment

• View of fundraising environment
• Fundraising plans for next 12 months
• What's missing in fundraising or support ecosystem
• Participation and value in support programs
• Top fundraising challenges

Travel Startups and AI in Context

• Uncertainty about AI
• The impact of generative AI and autonomous agents
• Whether travel startups will be able to use AI to out-operate incumbents
• Artificial General Intelligence vs AI

How Are Travel Startups Using AI?

It’s worth noting that only 5% of travel startups currently are not using AI and have no plans to do so. Fourteen percent aren’t using it but are actively exploring it.

• Current uses of Gen Ai
• Impact of Gen AI on the business
• Areas of positive impact
• Use of investment funds
• Percent of codebase expected to be written by AI
• Anticipated areas of impact
• Anticipated relevance of AI-driven commerce

The AI-Native Edge: Travel Startups 2025

Available now and free for Open Access subscribers

The funding analysis in this report strikes a balance between analyzing dollars raised by young travel startups and by important players in travel tech regardless of their age. Thus, it features analysis of technology-oriented travel companies founded any time in the past three decades, and it measures funding raised by these companies over the past decade—specifically between the beginning of 2015 and the third quarter of 2025 (3Q25). 

*Funding includes publicly disclosed amounts of venture capital, private equity, crowdfunding, debt and other types of traditional funding rounds. Dollar amounts associated with IPOs, acquisitions, mergers and post-IPO investments were excluded from the analyzed dataset. 

To avoid skewing the funding analysis, companies that have raised over $4 billion or only operate tangentially in travel (specifically, autonomous vehicle companies) were excluded from the analyzed dataset. As a result, 36 companies (e.g., Uber, Didi, Airbnb, Cruise, Grab, Waymo), which have raised $127.5 billion in aggregate, are excluded. 

For the first time since 2020, Phocuswright conducted a global online survey of travel startups to assess the state of the sector. The survey was fielded in May and June 2025 and yielded 150 qualified responses, with some partial responses included in select analyses. Qualified respondents were founders, executives or senior employees of companies that were founded in 2010 or later and operate primarily in the travel, tourism or hospitality sector. 

Investors are still in a wait-and-see period right now. The future is exciting but formidable with all the uncertainty that abounds. Stakeholders are trying to understand what’s coming with AI in addition to navigating financial and economic variables. But uncertainty and dramatic changes have always created dramatic opportunities, and there are good reasons to believe that travel startup funding will rise dramatically once again, even if it’s more spread out. 

In a September 2025 interview with PhocusWire, Chris Hemmeter, co-founder and managing partner at Thayer Investment Partners (previously mentioned as #1 in PhocusWire’s “Top Investors in Travel Tech in 2025”), confirmed an appropriate adjustment in their investing strategy: “We have adopted a strategy that we call construct and convict. We find a number of early-stage experiments and make smaller investments in those companies to get a seat at the table. And typically what happens is a subset of those companies begin to take off. That's when we come in with our conviction checks, which are much larger. We're about to start investing out of our fifth fund and we expect to have between 40 and 50 portfolio companies in this fund.” 

Most entrepreneurs are optimistic about their future, especially regarding growth. Only 5% expect growth under 10% in 2026, and nearly a third (27%) expect greater than 100% growth. Whether this will translate into VC-funded opportunities is a huge question. 

What about the end goal for both startups and investors? The largest share of startups (37%) is hoping to be acquired by a travel industry company such as an OTA, hotel chain or airline. Sixteen percent hope to go public in an IPO. Twenty-four percent are aiming for an acquisition or exit of $10-50 million, while one fifth are aiming for $100-500 million and 17 % are looking for an exit of more than $1 billion. For 42%, their preferred timeline for an outcome is three to five years. 

These are realistic expectations, especially in the AI era. The general downturn in VC over the past few years, in conjunction with the rise of AI has led to the popularization of “seed-strapping,” the idea of using AI to scale quickly to profitability or even an exit based on a single funding round. Some of the touted benefits include founders retaining larger shares of their companies, incurring fewer sunk costs and not having to stay on the VC treadmill. 

If AI enables an explosion of seed-strapped companies, ideas should proliferate and many smaller businesses will be built. This may not be ideal for VCs, who need to sort through the noise to identify potential large outcomes. But it could be excellent news for acquirers looking to fold in strategic acquisitions, as well as for founders, who can still achieve life-changing outcomes even without billion-dollar valuations. In short, AI may redefine not only how travel startups are built but how “success” is defined.