Editor’s Note: We spend most of our time researching the best startup deals for you to invest in. But it’s just as important for you to know which startup deals to avoid. So today we’re featuring a report on one startup you should steer clear of. This comes from our friends at KingsCrowd, a Boston-based startup research firm.
– Andy Gordon
Key Deal Stats
- Company: Trouvaille
- Raising platform: truCrowd
- Pre-money valuation: $2.2 million
- Round type: Seed
- Security type: SAFE + revenue participation
- Minimum investment: $200
- As of May 13, 2019, Trouvaille has raised $18,900 of a maximum target of $107,000.
Trouvaille has been assigned an underweight rating. To learn more about our due diligence process, click here for our methodology page.
The Group Travel Market
Travel and tourism is big business. Last year, it contributed a record $8.8 trillion to the world’s total gross domestic product. According to the U.S. Travel Association, travel expenditures by U.S. citizens have grown steadily since 2009 from $720 billion to $1.076 trillion in 2017.
Of these trips, 44.9% was for overseas travel. Clearly, Americans’ appetite for international travel is growing rapidly – and they’re willing to spend to make it happen.
Most notably, baby boomers nearing their retirement years and members of the millennial generation who have adopted a travel mindset are contributing to this growth. Servicing this large population of travel enthusiasts won’t be easy – they expect unique experiences and world-class accommodations.
Trouvaille, French for “lucky find,” is a small-group travel company currently raising on truCrowd. The startup believes in connecting people by helping them appreciate the diversity of cultures, people and natural environments through global travel.
The aim of Trouvaille is to provide all-inclusive and stress-free travel options to travelers. The experiences range from domestic to international travel options, a one-day trip to a 10-day trip, and a standard package to a specially curated experience.
The three revenue streams of Trouvaille include Trouvaille signature trips, custom trip planning and development, and business-to-business travel. Demographically, it is targeting active seniors, families and millennial travelers.
Trouvaille appears to be entering a growing travel market – a positive. However, this leads us to our most significant concern: That market is relentlessly competitive.
The small-group travel industry has several large and established players that offer, more or less, the same services that Trouvaille does. These players include G Adventures and Intrepid.
Below is an in-depth look at Trouvaille as a prospective early-stage investment.
1. Competitive Market
Trouvaille is entering the small-group travel market (defined as group trips of two to 20) as a niche within the luxury travel market. No matter how you slice it, it is entering a large and growing industry. According to Skift, the global tours and activities market is a $150 billion per year industry. All the more impressive, this spending is expected to rise by 9% per year well into the next decade.
Simply put, the demand for small-group tours is rapidly increasing. Also of note, travelers increasingly prefer to take small-group tours focused on fostering a sustainable, eco-friendly experience.
The market is vast and diversified with sub-niches, such as adventure, ecotourism or ethno-tourism; however, the number of travel companies catering to these special needs and demands is also rising.
A Google search yields a plethora of competing options. The competitors of Trouvaille include large players, like G Adventures, Intrepid, Contiki (which caters to the 18 to 35 crowd) and Tourradar, that have more financial and marketing resources.
IfOnly, another tech startup in this space, has raised more than $50 million to date, including capital raised on SeedInvest earlier this year. With backing from some of Silicon Valley’s best firms, such as Khosla Ventures, this team is quickly becoming a leader in this growing experiential travel market.
And perhaps an indirect competitor, but still the largest elephant in the room, is Airbnb, which has invested in its experiences platform, enabling tourists to book unique local experiences on the same platform where they book their accommodations.
Bottom line: There is no shortage of competition, both big and small, vying for group-travel spending dollars, which will create intense pressure on customer acquisition.
2. Lack of Competitive Advantage
Trouvaille is aware of the highly competitive market it has chosen to enter. However, the company believes that it holds unique propositions – like local, customizable tours – that set it apart from its competitors.
We are less optimistic.
The truth of the matter is that Trouvaille is not the first company on the customization bandwagon – G Adventures created its own modern group-travel bus to satisfy tourists. A quick perusal of the competition’s offerings leads to one inevitable conclusion: There is no dearth of travel companies offering exclusive, intimate and unique experiences.
Airbnb and IfOnly, meanwhile, have innumerable options for special travel experiences to peruse. Trouvaille may not be able to keep up with these large players while still keeping its costs and returns on investment under control.
3. Lack of Experience
The team behind Trouvaille includes Paul S. Hardersen and Jazmin Jourdain. Hardersen is a university professor and does not have any experience with establishing or running a travel company. He intends to use his own travel experience and savvy.
However, as anyone who travels extensively knows, traveling individually and running a travel company are completely different ball games.
Similarly, Jourdain works around branding, corporate projects and large-scale events. In this case as well, she is aiming to leverage her extensive world travel experiences to the benefit of Trouvaille and its shareholders. Applying this to a small tech/experiential startup around the globe will be another beast altogether.
4. Headquarters Location
Trouvaille plans to establish its global headquarters in Tucson, Arizona. A part of the proceeds of the current crowdfunding round will be put toward opening a commercial office space there.
Tucson as the choice for the primary market is confusing. The city does not offer any advantage to the company, and it is not considered a tourism hub.
Apart from the fact that the founder lives in Tucson, there is no plausible reason for it being chosen as the headquarters.
5. Travel Spending Is Discretionary
Investors will also want to note the inherent risks associated with the travel industry in general. Travel spending is always highly discretionary, and as soon as recession hits, luxury travel and small-group travel are among the first industries affected.
The Rating: Underweight Deal
Due to the enormously competitive market, lack of competitive advantages and lack of managerial experience, we are assigning Trouvaille the rating of Underweight Deal.
The many deep-pocketed incumbents it is up against have already built sizable, scaled operations that are well-liked among customers.
We cannot escape the question: What can Trouvaille offer the patrons of these companies that is truly unique?
Lastly, the financial projections of Trouvaille also look quite unrealistic. The company expects to grow from practically no revenue ($27,000) today to revenues of $23 million in 10 years. The company is doing well; however, growing from nil to $23 million is not a cakewalk. Adding to the challenges for this organization, the team has decided to add in a revenue participation component that seems misguided for an early-stage venture of this nature. G Adventures itself took more than 30 years to reach its current size of servicing 200,000 travelers and 28 offices worldwide.
The road to $23 million in revenue will not be easy, and, in our estimation, Trouvaille is not equipped to get there. We advise investors to exercise extreme due diligence before investing in Trouvaille.
If you have any questions regarding the underweight rating of Trouvaille, you can reach us at email@example.com.
CEO and Founder, KingsCrowd