2014-06-30

Co.Labs

How Startups Can Use M&A To Hack Growth

Sometimes joining forces with another startup is the most expedient way to ensure your product survives.



Startup lore demands that founders stay hungry, stay foolish. Stay friendly? Not so much.

But Travefy, an early-stage group travel startup based in the heart of Silicon Prairie—aka Nebraska—has been playing nice with its competitors and reaping the rewards. Travefy cofounder and CEO David Chait tells Co.Labs that his team recently took the unusual step of acquiring challenger Tripeese, after months of informally swapping notes.

"Many startups when they think about growth and scale, don't necessarily think about partnerships or M&A," says Chait. In this case, however, "it's actually a cheaper source of growth."

Under the terms of the acquisition, Tripeese’s users and partners will migrate to Travefy’s platform. Tripeese cofounders Matheus Riolfi and Rodrigo Boscolo, who previously raised a $65,000 seed round from friends and family, will serve as advisors, but will not play a day-to-day role in the rolled-up entity.

"When you build a company, you want to solve a problem and create value for your customers," says Riolfi. "It doesn’t mean that you shouldn’t fight, but there are times where it’s better to join forces. We decided they were better positioned than us to tackle this market."

Chait founded Travefy in 2012 and set up shop in Lincoln, Neb., after meeting his technical cofounder, a Nebraska native. They raised a $320,000 seed round and launched a beta version of the product in mid-2013, giving the site a narrow head start on Tripeese. Both companies promised to eliminate the hassles of group travel booking and payments—a market worth $120 billion—and both were founded by business school students exploring entrepreneurial paths. (If my Facebook feed is any indication, coordinating jaunts to the world’s party capitals is indeed the primary hardship facing MBAs; challenges related to learning or career development appear to be secondary concerns.)

On its own, Travefy has grown to serve 15,000 active users, who have planned over 1,000 trips. Chait says the site monetizes roughly 10% of trips, through commissions.

Convincing someone to sign up, he says, is all about "the emotional heartstrings, not the features. It's about making them feel that pain that we’ve all felt—when that friend stiffs them on the money they owe for the bachelorette party, for example." Other popular use cases include sports tournaments, school trips, and family reunions.

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Looking ahead, Chait and his team are focused on growth. He says that 4% of users have already completed a second trip, and hopes to see that number rise along with the size of his user base. In addition, a patent is pending for Travefy’s expense management software; payment transfer fees also contribute to the company’s bottom line.

As for Travefy’s unusual growth hack, Chait declines to disclose the price he paid for Tripeese, but the self-professed "data nut" contends that the acquisition makes perfect sense. "We’re keenly aware of our cost structures, and part of our strategy is to think about every distribution channel that we can," he says. "If you think about the competitive landscape, the one value that your peers have is that they’ve tapped into [a customer base of] like-minded individuals."

Tripeese cofounder Boscolo concurs. "The more we moved into our product development, the more we learned the needs of our customers, we felt like we were moving in the same direction they were already in," he says. "We realized, these guys are building the kind of product we want to build. Being humble, I think they were ahead."

With startups easier than ever to launch but harder than ever to grow and scale, that kind of attitude could go a long way toward introducing some efficiencies at the cluttered early stages. Startup culture has managed to destigmatize failure, but incentivizing humility might be too much to ask.

[Photo courtesy of Travefy]



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