Artificial intelligence (AI) adaptation is imperative, but companies have to decide exactly how they want to leverage these new tools. This conundrum has challenged travel investors as they seek to understand the environment and separate the winning AI-focused startups from the hopefuls.
On top of this, investors face pressure from the consumer side, with the majority ready to use AI as part of the travel research and booking process.
Chris Hemmeter, managing partner at Thayer Investment Partners, said AI has rattled suppliers, intermediaries and incumbents to their core.
“What was a mature and well understood marketplace has been stood on its head by a technology that’s evolving so quickly it’s hard to keep up,” said Rod Cuthbert, founder of Viator.
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Cuthbert said founders with AI-based solutions are everywhere, but uncertainty is making investors unwilling to jump into markets that are in a state of flux.
Some of this is reflected in travel funding data, which has hit a 10-year low after spikes in 2021 and 2022.
Mike Coletta, senior manager of research and innovation for Phocuswright, attributed the funding shortage to a number of factors but said the biggest might be due to “core AI/LLM companies eating up so much of the available funds.”
Industry and investor response to AI has evolved with the technology, according Gilad Berenstein, founder of Brook Bay Capital LLC. He saw 2023 as a B2C race to launch a generative AI offering.
“Most of those were mediocre and are no longer around, but they pleased the markets,” Berenstein said. “2024 was the ‘sober up and focus back on business phase.’ And I call the 2025 to 2027 era the ‘mass adoption phase of the great commoditization of AI.’”
Cuthbert, who is also following AI developments closely, had a blunt take: “Anyone who says they know how it’ll all turn out is on drugs.”
The investor mindset
Bottom line, AI will have a lasting impact on the travel industry. The technology has already altered travel, affecting everything from customer service to engineering and beyond.
But the industry is more concerned about how discovery, search and booking will change, according to Cuthbert, with both anxiety and excitement high right now.
The excitement stems from the opportunity AI presents, while the anxiety centers on the difficulty in planning for longer-term success—even five to 10 years out—especially as AI assistants and agents could completely change how companies are run, according to Coletta.
Opinions vary as to how desperate the investor outlook is, but Berenstein said it’s a significant factor.
“None of them will say so, but they are all under pressure from both LPs and the market as a whole to get as much exposure as possible to AI,” he said. “Many will even say that nothing has changed since the arrival of the great commoditization of AI, but I don’t buy that.”
Hemmeter said “FOMO” or “fear of missing out” is another factor, adding “you can’t pretend your way to being an AI business.”
What was a mature and well understood marketplace has been stood on its head by a technology that’s evolving so quickly it’s hard to keep up.
Rod Cuthbert, Viator
For Coletta, however, desperation could come a year or two down the road as investors get a better understanding of how AI will change travel marketing, operations and distribution.
A further possible outcome is that LLMs begin to facilitate more direct bookings to suppliers. That might not sit well with industry incumbents—who are also beefing up their AI capabilities, partnering with major AI providers, creating their own products and snapping up startups.
“I can’t imagine Booking, Expedia, Viator and others sitting by idly while that happens, but that challenge is certainly in the cards,” Cuthbert said.
How does this differ from past technology booms?
Plenty of unknowns remain as AI evolves and develops, but experts see clear differences between this era and previous ones.
“When people say that it feels like this technology revolution is moving faster than ever before, they are correct,” Berenstein said.
The fact that AI is easy to use is another key difference, Berenstein said, noting that it leads to an accelerated adoption rate, more competitive markets and more choice for consumers.
“And it’s all happening with the tools in consumers’ hands rather than starting inside universities or corporations, which this time around are moving much more slowly due to the risks involved,” Coletta said.
Additionally, AI startups can run on a leaner budget while building products faster. This means they require less from an investment standpoint—potentially changing what founders might need and how investors strategize.
“The big dollars that are plowing into businesses, the eye popping rounds and amount of money that are being invested—those are being invested into businesses that actually have real and profound revenue,” Hemmeter said. “OpenAI has incredible, enormous revenue. Those businesses aren’t just going to go away.”
Hemmeter compared the AI boom to the rise of the internet.
“It seems like everything from the initial days of the internet, the late 90s, that sort of explosive energy,” he said. “It got way overheated. That’s exactly what led to the dot-com crash.”
But Hemmeter doesn’t see that happening with AI, partly because startups can run on leaner budgets and are still operating privately. This differs from the dot-com crash when many companies went public and later went under, undermining confidence in internet ventures.
“I don’t think that the public markets are going to buy that on pre-revenue AI stuff,” Hemmeter said. “When companies shut down and they’re private, it’s much quieter. It’s a much slower, sort of painful burnout. So it doesn’t really have an effect on sentiment overall. It’s just part of the value chain of institutional capital. That’s why we build portfolios, because some work and some don’t.”
Where does this leave founders?
Right now curiosity is high on the investor side—and that’s good for founders.
“Everyone is trying to speak with everyone to learn as much as possible,” Berenstein said.
But Coletta cautioned that many bets will still be conservative, so founders and founding teams should stick to the existing principles of pitching.
In a market with endless hype, it’s not the product demo or your pitch that will resonate most, but rather credible signs of actual ROI creation for your clients and the market.
Gilad Berenstein, Brook Bay Capital LLC
Hemmeter also said the basics remain the same.
“That part of the process hasn’t changed,” he said. “Entrepreneurs first have to have a very strong narrative around what they’re doing, and that narrative is a function of identifying a difficult to solve problem in a very large market, and then [they need] a perspective on exactly how they’re solving that problem, why it’s defendable and interesting.”
Being clear on a vision for the future matters, too, according to Coletta. That can help founders stand apart and demonstrate good business sense.
Meanwhile, Berenstein advised founders to double down on their commitment to tracking and measuring return on investment.
“In a market with endless hype, it’s not the product demo or your pitch that will resonate most, but rather credible signs of actual ROI creation for your clients and the market,” Berenstein said.
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