VCs say online travel sites are just the ticket

Venture capitalists—known as a globetrotting bunch—are stepping up the pace of investment in companies that help people make travel plans.

In recent weeks, funds have taken stakes in about a half-dozen online ventures that sell travel services and offer trip planning tools in the United States and in India. Many newly funded sites are also incorporating Web 2.0 features such as user-generated content and tools for comparing information across multiple sites.

“It’s very similar to the phenomenon you’re seeing throughout the Web,” says Robert Abbott, a general partner at Norwest Venture Partners and board member of travel search site SideStep.com. “There was a round of companies created in the late ’90s, and now we’re going to the next generation of technology and services.”

SideStep, which helps users compare airfares, hotel rates, car rentals and package deals across multiple websites, disclosed last week that it raised $15 million in December from Norwest, Saints Ventures and Trident Capital. The 6-year-old Santa Clara, Calif.-based company had raised $15 million in three previous venture rounds.

In the market for cost-conscious travelers, SideStep will compete against another venture-backed player, Seattle-based Farecast, which operates a website for predicting when airfares are at their lowest price. Farecast raised $12.1 million in expansion capital in January. Backers included Greylock Partners, Madrona Venture Group, Pinnacle Ventures and Sutter Hill Ventures.

Other startups have raised small rounds. Denver-based Meridian7, which runs a site for “experiential travel” called Adventure Central, raised $3.5 million in December in an expansion round backed by Advantage Capital Partners, Allegis Capital and Wolf Ventures. Also, Orum, Utah-based Zonder, which provides online marketing services for vacation rental properties, raised $1.2 million in early stage funding in January from vSpring Capital.

In addition, venture funds have been active backing travel plays in India. Mumbai-based online travel service Cleartrip Travel Services raised $8 million in a December second round backed by Kleiner Perkins Caufield & Byers and Sherpalo Ventures. Not to be outdone, New Delhi-based MakeMyTrip, which operates as an online travel company focused on the leisure and small-business traveler, raised $12 million in a December expansion round that included Helion Venture Partners, SAIF Partners and Sierra Ventures. A month earlier, Mumbai-based TravelGuru raised $15 million from Battery Ventures and Sequoia Capital.

A comparatively strong exit climate no doubt plays into venture funds’ enthusiasm for travel sites. Online travel stocks have been on a tear in the last year. Shares of booking site Expedia.com have risen about 50% in the last half-year, and discount travel site Priceline.com has shown similar stock momentum. Investors in emerging market travel sites can also take encouragement from the performance of Shanghai-based Ctrip.com (Nasdaq: CTRP). Its share price was trading at about $70 a share last week, double what it was when the company went public three years ago.

Buyout funds have also been active investors in the travel sector. The Blackstone Group’s $4.3 billion leveraged buyout last summer of Travelport, formerly known as Cendant Travel Distribution Services, stood out as the largest transaction in the sector. Other travel-related LBOs within the last year involved British rail ticketing site Trainline Holdings and Barcelona-based Internet travel agency Vacaciones eDreams.

While recent funding moves are adding competition in the online travel sector, Norwest’s Abbott says that he’s confident a growing consumer demand for new services will create a broad range of profitable opportunities for VCs.

“Ten years ago, people would never have been pushing to do their travel research and booking all online,” he says. “Now the services have to be that much more robust.”