STR Global Unlocked with Simon Lehmann: Unfiltered knowledge for the short term rental industry

027: What Institutional Capital Really Thinks About STR Right Now | Chris Hemmeter, Thayer Ventures

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Venture capital is not ignoring travel tech. It is underwriting to a different standard. And most founders building in hospitality right now do not fully understand what that standard is.

In this episode of STR Global Unlocked, Simon Lehmann sits down with Chris Hemmeter, Managing Director at Thayer Ventures, one of the most active institutional investors across travel and hospitality technology, backed by limited partners including Hyatt, Marriott, Hilton, Capital One, and Host Hotels. Chris and his team have guided capital through the rise, expansion, and reset of the category. Across multiple market cycles, he has seen what it takes to build a venture-scalable business when the rules change.

This is not a conversation about whether the STR category has a future. It is a field-level assessment of why institutional capital moved away from it, what would need to change for it to return, and what every founder building in this space is getting wrong about the capital markets around them.

In this conversation, we discuss:

  • What the massive compression in public SaaS valuations actually signals for travel tech, and why AI is powering up incumbents
  • How the pandemic and AI together delivered a one-two punch that is pushing travel tech (analogy to the post-dot-com era)
  • What the STR industry fundamentally missed that turned the category into a pariah for generalist venture investors
  • Why product is no longer the defensible moat, and what Hemmeter identifies as the only true competitive advantage left
  • Why a $35 million exit is a life-changing outcome for a founder but a failure for a venture capitalist

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Podcast supported by Breezeway

Built around the work that happens behind the scenes, Breezeway coordinates the operational service touchpoints that define guest experience. Their focus on execution and standards aligns with a core insight from this conversation: growth only works when operations can keep up. 👉 Get started with Breezeway here: https://shorturl.at/moW7U 

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SPEAKER_00

2025, 50% of all venture capital went into AI starting. This is unheard of the first thing I'll say is this is why I love being a private asset investor as opposed to a public asset investor because the volatility in the markets today is not for the faint of heart. And I think eventually we will we will see you know booking travel, the way that that's changing with AI is nothing short of utter disruption at the core of the industry. Venture capitalists are looking for$500 million exits, billion dollar exits. So just because we say, oh, that's not a venture investable business, doesn't mean it's a bad business. I still think that this is a great category. It's just it puts a lot of pressure on entrepreneurs to come up with truly sustainable and defendable ideas. The good news is that the hobbyist goes away first. If they get out of the way, there's less noise. The opportunities are gonna have never been greater. It's almost going back to the human roots of just being a great leader and a strategic thinker. Back to business 101. So it comes back to humans.

SPEAKER_01

You are listening to STR Global Unlock, brought to you by AGL today, the show where I speak with the leaders shaping short-term rentals worldwide. I am Simon Lehman, and after two decades buying, selling, advising, and investing, I've built a network that spans continents and categories. This podcast brings that network to you. Real conversations, global insight, no PR fluff. Let's get started. Nearly 300 billion dollars in SaaS market cap evaporated recently. AI is rewriting software economics, exit windows are selective, capital is precautious, and travel tech is no longer a guaranteed growth narrative. So where does that leave the short-term rental industry? And how is institutional capital actually thinking about the space today? Today I'm joined by Chris Hemateur, managing director at Thayer Venture. Thayer has been one of the most active institutional investors across travel and hospitality technology. From early stage to growth investments, Chris and his team have seen the rise, expansion, and reset of travel tech, including short-term rentals. Today's conversation is not about hype, it's about capital discipline, defensibility, and what the next five years might really look like. Chris, it's great to have you here, and I'm really excited.

SPEAKER_00

Great to be back, Simon. I'm looking forward to our conversation, my friend.

SPEAKER_01

I don't know how many drinks you and I had together at the Focus Right Bar uh across the last 20 years, but uh you and I have always been together, and I had the pleasure to be part of your speaker list in terms of investment conferences at Thayer. And and also I had the pleasure to be part of a board of one of your investments as well for several years. And and you and I, we have been always in great uh connection over time, and and it's a great pleasure to have you here tonight and have a rapid fire together. And so I'll give you a statement, and you give me the shortest answer that you possibly can. Are you ready for it? Ready. STR is overbuilt or underbuilt? Overbuilt. The most overrated metric in travel tech.

SPEAKER_00

Logos.

SPEAKER_01

One thing founders should stop doing immediately.

SPEAKER_00

Changing the name of their company to dot AI for no apparent reason.

SPEAKER_01

AI is opportunity or threat?

SPEAKER_00

Opportunity.

SPEAKER_01

The next five years, consolidation or expansion? Expansion. Thank you so much, Chris. So let's start at the macro level. Public SaaS valuations have compressed. I mean, we've seen a wild storm. AI is introducing uncertainty into traditional vertical software models. And is this cyclical correction or as structural repricing? How do you see that as an investor?

SPEAKER_00

The first thing I'll say is I'm this is why I love being a private asset investor as opposed to a public asset investor, because the volatility in the markets today, not for the faint of heart. Look, I understand what the market is saying, but I think it is an incredibly shallow interpretation of the issues at play. It's an I think it's a massive overcorrection. I think it is largely led by the amount of retail concentration in markets today. You've got what I mean by that is individual investors that are moving money in and out of positions. Unfortunately, Gen Z isn't in a position to buy homes uh in the United States, but they're used to taking all their cash and Robin Hood and jumping in and out of stuff and they're in and out of crypto, they're in and out of software. So they create these movements. I think it is fundamentally incorrect that AI is going to undermine SaaS companies. It will change the power dynamic, but I think the argument is far stronger that AI is going to add great power and resources to SaaS companies. So I do not think that this is a structural shift. I think it is, it is just more volatility in the marketplace and it won't change. And the reason I say that is that the most advanced consumers of AI technology are SaaS companies themselves. It's not the naivete is when somebody thinks, oh, this SaaS business is in trouble because they're, you know, old school. Well, do you think they're not going to change, that they're not going to adopt new technologies and tools to advance their businesses and change their value proposition and restructure? Yeah, they're not going to sit there like dinosaurs and wait for the great comet to come down on their head. They're innovating. And the reality is they've mastered go-to-market. They've mastered service and support. Why would an industrial Fortune 5000 company suddenly throw away their software vendors because Anthropic has new tools. It doesn't work that way. It's way too much risk. Those companies are in the business of doing something important and relevant. They have a good relationship. Their vendors are heavily investing in the new tools. And so I think SAS is here to stay. And I frankly think it's powering up and going to be better than ever as a result of these innovations.

SPEAKER_01

You used the word shallow, but I I want to dwell on that. I want to dwell on the underwriting change or the environment of underwriting change for Taylor Venture with what you've just said.

SPEAKER_00

It started with the pandemic. The pandemic caught travel suppliers, many intermediaries, and others utterly flat-footed, lacking agility, lacking the ability to respond to a sudden, absolute catastrophic drop in revenue. Tech went from that cute little thing that you handed off to your CIO and formed cross-functional teams to evaluate for two years and then decide which software you were going to use for housekeeping to something that became mission critical. And as companies got flat, they decided that they never wanted to be in that possession again. They started to test, they started to experiment, they opened up more to trial. That allowed for more companies to get shots on goal. When you have entrepreneurs creating ideas and having opportunities to prove it, the winners come through. And that's when the sprouts begin to grow in the desert. And we, as institutional investors, come in with the capital and back the winners. So that was punch number one coming out of the pandemic. Punch number two is AI, fundamentally changing the way consumers are engaging in travel. And we'll talk about search and discovery and planning and what that means in terms of data orchestration. But suddenly everybody is living in a place of not knowing. And if you talk to any senior executive in any company in travel and ask them what's where are we headed with AI, the good ones will say, I have no idea. Anybody who tells you we know exactly where we're going is not telling the truth. But that's disruption, that's chaos, that's dislocation in the marketplace. Again, more experimentation, more trial, more testing. And this is where companies like Canary and Muse and Light, Lighthouse and others are just accelerating in this environment at stopping.

SPEAKER_01

Love it, Chris. And anybody who saw the STR Global Unlocked episode with Glenn Fogle will confirm your statement because that's exactly the question I asked Glenn. And I said, Glenn, where the hell is it going to this end up? And his answer was, we have no clue. That's a fact. So let's let's take it next layer down, Chris, and talk about STR institutional narrative, right? Our audience at STR Global Unlocked is obviously at far short-term rental prop tech investors within the short-term rental industry. Five years ago, it was one of the hottest categories in travel tech post-COVID because everybody realized, hey, there is something else than a hotel, right? And we always said that's the best thing that could have happened to our industry. So today, supply growth has moderated, consolidation is underway, platform concentration is real, exit multiples are massively under pressure, also in relation to what we just talked about. Has STR lost some of its institutional narrative? And you as Taylor Venture, you made a number of investments within the STR space, number of bets as early investors as well. How would you comment on that?

SPEAKER_00

I mean, it's been a fascinating journey, right? Because the underpinning, the sort of macro logic is so obvious, right? The form factor of a short-term rental for so many leisure travelers in particular is way better than a hotel. You can't rent a three-bedroom hotel room unless, of course, you're, you know, you're buying a massive suite. And but the reality is that that's a that is a structural problem. And so this category makes a lot of sense. We also know that the demographic wave is moving towards a more experiential traveler. So this rising Gen Z and millennial traveler engages with this product, is comfortable with it, technology is enabling, seamless in access, and so forth. So all of the top line stuff sounded great. I think the things that we all sort of fundamentally missed was the enormous, delicate nature of the barriers to entry in this particular category. It's really easy to suddenly have a flood of supply. So coming out of COVID, you had a massive surge of supply. And you know, it could be somebody putting up their second home, it could be somebody buying a house and putting it on the market, it could be somebody moving out of their own condo during a hot time of the year and throwing it on the market. So all of the models that anticipated average daily rate growth that tracked the hotel industry, or even better, close the gap in between STR and hotels, fundamentally missed the mark. And that utterly undermined their economics. The reason that companies like Sonders struggled, if you really pin back to the essence of their economic model, is they didn't get the ADR growth they anticipated. If they had, those models would have achieved cash flow positive much earlier, and there'd be more energy and more capital behind those models to grow. Now, there are great entrepreneurs still building in that category that are addressing these issues and working with the constraints that are there. But the reality is that ADR growth, that barrier to entry created a problem for the entrepreneur who's actually working these assets in the marketplace. So if you think about that dynamic, what does that mean about their mindset? I'm running a business. I have great aspirations for what my business is going to do. Suddenly my revenues are much lower than I thought. My margins are being squeezed. I got to find some places to save money. What can I switch quickly? Oh, software. I was spending$400 a month for this, and this guy just called me and said he could do it for$100. And then I get a call the next month when this guy said he'll do it for$999. You know, and suddenly there's this run to the bottom and churn spikes. Churn in software and SaaS is the kiss of death. You've got high churn. You can't get that classic LTV to CAC formula working, and investors run the other way. And as soon as the capital started to move away from these businesses and they suffered that kind of churn, it became a pariah of investing. It's just that's unfortunately the case. Meanwhile, of course, this shiny new object called AI suddenly shows up in the landscape. And anybody with institutional capital is like, oh, AI, I got to invest there. I mean, 2025, 50% of all venture capital went into AI startups. It's interesting too. If you look year to date at stock performance, Airbnb, down, the intermediaries down, booking, Expedia, year to date. Look at the hotel companies. Hyatt, up, Marriott, up, Hilton, up. So the other thing that we fail to recognize is that the hotel companies, again, aren't just going to sit there and do nothing. They're going to respond. This was an existential threat coming out of COVID. Everybody's saying, oh, SDR is going to become 30% of the global accommodations market. Huge threat to hotels. They respond with new brands, new products, new ways of delivering value for their loyalty programs. And in the case of Marriott, of course, their own huge play in homes and villas in the SDR category. So these markets are highly dynamic. It's very easy to be wrong in retrospect, but the dynamics have changed. I would never tell you that the air is out of the room because the same reason that we couldn't forecast well five years ago about where we're going to go still applies today. So I'm never going to tell you, oh, the magic's gone because there's still something there. It's just the model needs to shift. The consolidation needs to happen. The regulations need to come to play, pressure on supply, better product management, distribution, professionalism in operations. And I think we will see opportunities to innovate and we will see opportunities to invest in the categories. We're never walking away from it, I can assure you of that.

SPEAKER_01

Well, maybe we could just close the conversation now because you've answered so many questions and thoughts that I had, but totally resonates. SCR Global Unlocked is supported by Breezeway. As guest expectations rise, standards tighten, and operational execution has become a key differentiator in short-term rentals, Breezeway provides technology designed to help professional operators deliver consistent property care, safety, and quality at scale. Thank you to Breezeway for supporting the professional evolution of our industry. And now let's continue. And one thing I want to bring in to the conversation, I never forget when I was a keynote speaker at one of your investment conferences in San Francisco, we had the corporate BISDEF guy at Marriott there. And Francis was presenting, and his question was, hey, how can you sleep at night? In terms of his allocated debt that he had on leases to run to run the business. So I don't want to dwell on that, but it's it just shows how far we've come in the different models that we have seen, Bacasa, Sondrum, whatever. And things are evolving. And you as an investor need to be constantly adjusting to that. But if we sort of look back at the last cycle, what has it taught investors, especially like Cathaya, who is extremely well known in the category? Like, is it TAM assumption? Is it platform dependency? Is it exit realism? What has it taught you specifically talking about the short-term rental category?

SPEAKER_00

Yeah, that's a great question. And I think it it fundamentally has taught us to understand the complexity of unit economics. Unit economics sounds like a simple thing. How much am I getting paid for this software? How much does it cost me to provide that software to the person who's paying? That's not true. Unit economics are a complex, multi-layered game of chess that have to incorporate pricing power, uh, churn, cost of delivery, pace of innovation, competitive response. There are so many things that go into truly understanding unit economics, because frankly, that is where technology in the SCR space has come up short, right? It's churn is a component of unit economics. Of course. Pricing pressure because of massive competitive engagement, everybody trying to do the same thing is part of unit economics. And I think that what we've probably should have seen is okay, coming out of COVID, big category, Airbnb is on fire, everybody wants to stay in these kinds of assets, things are moving hard. If we really think about the tasks, the workflows, and the complexity of that space, from distribution all the way through operations, cleaning, turning over, preparing, insurance, all of it. In the end of the day, relatively simple set of workflows. Okay. Logically, entrepreneurs, especially in 2021 when capital was flowing everywhere, angels, seed stage investors, there was so much venture capital flowing to these. Anybody who had an idea to attack that workflow problem was getting funded. Well, what does that mean? Well, it's going to be a hell of a lot of competitive noise. And any entrepreneur who's got five to 10 million on the balance sheet and is trying to build a software company and is running into resistance, what are they going to do? They're going to offer a lot of free trials. They're going to reduce price. Everybody's in a run to get to scale. All of that noise, and everybody's trying to solve the same problem, came banging into that marketplace, and it fundamentally undermined unit economics. So I think in the end of the day, you everything that we do has to come back to understanding from that piece, from that core, and then growing from there. But it is, it's highly complex, and there is absolutely no right answer. Why didn't we see all that back in 2020, 2019? We didn't. The biggest learning, to your point, is as we sit here and we try to forecast the future, remember we don't know anything about what's really going to happen in the future. So we need to be constantly reading the market. We need to be constantly in a state of curiosity and trust that timing, luck, and portfolio theory will prevail.

SPEAKER_01

Yeah, let's let's summarize that in a in a term, Chris, if you're allowed, call it transition. I think that makes sense. As you said, the future is hard to predict, but at the at the same time, we see reality, we see now. So we we call that a transition. I think the STR tech landscape at large is in a massive transition. And many other tech spaces and other like any industry is a massive transition, but we want to focus on the STR industry. So one thing that stands out in STR tech ecosystem today, from where I come from, is concentration. So that it's happening. So you guys are sitting on the sideline and being the devil's advocate, but we'll get to that in a minute. So what does that mean? Is it a handful of PMS players, a handful of revenue tools, a handful of operational platform? Does consolidation ultimately reduce the venture opportunity also for you with everything that you just said that is happening? And that's what we call transition right now.

SPEAKER_00

Yeah, maybe. But it also might produce a whole new layer of acquirers, right? That are that are driving capital into the startup community and augmenting their own positions, which isn't a bad thing. STR, it's too big, it's too global, it's too fragmented to imagine that the ultimate destination is a winner-take most oligopoly of tech suppliers. It doesn't make sense. And there are still complexities of payments, of real estate, um issues of insurance and so forth that that sort of haven't yet been fully addressed in the marketplace. So I don't know if the air is going to be taken out of the room. I do think that we are in a period of time where the major players that have true platform breadth are in a much better position because they can come to an operator and they can say, look, we've got the whole thing end to end. Don't you want one throat to choke if things go bad? Isn't it much easier to have one vendor relationship? And by the way, we're well funded and we're investing in AI technologies that are going to accelerate the quality of our products. And you can just do what you do best, which is manage your property and attract customers and whatever else it might be. So it makes sense that those players are going to be in a strong position and they're going to grow. They're going to have the service and support and the go-to-market muscle to continue to grow. They in and of themselves are becoming large companies and are making acquisitions. And so it may be that that becomes a little bit of the sort of capital engine that then allows local entrepreneurs to produce things that matter and make a difference and they percolate up and they start to do well and then they take out opportunities for some of these bigger guys. So it we'll see.

SPEAKER_01

So would that mean that there's still enough room to create plays for infrastructure, plays within that, within that category still, or is that gone?

SPEAKER_00

Fundamentally, there has to be, right? When you back up and you think about the scale of the space, the dynamics of its fragmentation and consolidation happening at the same time, the tax and regulatory controls that differ around the world, the underdeveloped nature of certain parts of the world that will develop, there's just too much going on. There's too much velocity, too much complexity in the value chain. And we haven't even talked about how these places are being discovered and then ultimately sold and unforeseen issues of opportunities in payments, opportunities in loyalty, things that we haven't even begun to crack open. But I just can't, it's hard for me as a lifelong entrepreneur to imagine a space this dynamic, this large, suddenly being the great desert of entrepreneurship. It makes no sense. We're clearly in a period, a transition period, as you rightly said, where it's really hard. The dynamics are kind of putting a lot of pressure on folks. And that's just part of the typical cycle of any marketplace. So think about the great companies, post dot com bubble pop that were created in 2004, five, six, seven. Many of those companies are worth trillions today. There were a lot of investors back then, and I'm old enough to have been around the hoop back in 2000 or, you know, in early 2000s, who were having these kinds of conversations about the internet.

SPEAKER_01

Yeah, crazy.

SPEAKER_00

Blown, dead, never gonna come back. No one's gonna invest in it. You know, so I I just I I still think that this is a great category. It it's just it is not for the faint of heart right now. And it's going, it puts a lot of pressure on entrepreneurs to come up with truly sustainable and defendable ideas, which I think is a really healthy thing. Because then the the tourists of entrepreneurship are not going to be here. They're not gonna be making noise. Bad ideas aren't gonna get financed that just then destroy the marketplace because they have to be given away for free. We will have a marketplace that where you know value will be paid for so people can monetize. And I think it's a it's a good thing. It's just painful right now.

SPEAKER_01

I love your encouraging words, uh, Chris. And I was just reflecting on what you said, and I don't know how many companies I've pitched to you that I was representing as well, and hear you going through that. And and I think it all makes a ton of sense in what you're saying. And there are encouraging words, and and that just needs to happen. And then you need to be aware of how the investment world is currently looking at the space. And and as you pointed out, at the end of the day, whatever number supports it, STR is 14% of hospitality worldwide. So it's an incredible sector, and and it's maturing, it's professionalizing. But ultimately, the challenges will remain the same. It will remain fragmented, it will remain hyperlocal. The investor, like the owners of the asset, will remain individual homeowners at large, and and that's an environment we need to deal with. And I think there is still value to be created also from a software standpoint and everything else. But one thing I want to touch on with you is obviously defensibility in an AI world as well. So take this to the next level. Let's introduce AI into our conversation. If AI reshapes search, and you already alluded to that, not that we've practiced our conversation today, but it was obvious that we want to lead that towards that and compresses. So that's probably one of the biggest things on top of mind right now when people look at distribution, property managers, dealing with OTAs, direct bookings, and everything else, how is that going to reshape search and even compresses margin further and introduces automation at scale? How do you now define defensibility in travel tech? And you're the travel tech guy, right? I mean, you're obviously not just looking at STR tech, you're looking at many other verticals within travel. How do you define defensibility in travel tech today with this changing phenomena?

SPEAKER_00

It's a it's a huge question. I know. So two things first. First of all, what I would say is that the change in the way leisure consumers are planning, discovering, be inspired. And then I think eventually we we will see booking travel. The way that that's changing with AI is nothing short of utter disruption at the core of the industry, right? So that is multi-trillion dollar dynamic that's in play. It, the ripple effect on infrastructure, it can't be overstated. So everybody who's got skin in the game understands that they have to modernize their tech stack to compete in this new world. You cannot live on an old siloed piece of crap tech stack that has four versions of Simon in the loyalty program and cobbled together crap, and you can't practice the whole idea of personalization is an utter joke because there's no way the pressure to modernize the tech stack and orchestrate data in a more fundamentally appropriate way for this emerging world is massive. And we love nothing more than to invest in the Levi genes, the axes, the picks, and the shovels of what's going on, because we know that work has to be done. How the battle lines form at the consumer engagement level, that's above my pay grade, right? That's that's OpenAI doing its deals now with direct friends, with the intermediaries and so forth. It's perplexity coming out with their value proposition, anthropic with their tools, and Google, of course, looking brilliant as they sit there blowing everybody away with their numbers. But regardless of what happens there, the ripple effects downstream are profound. AI as a tool, and this is almost back to our question about SaaS and to your point of defensibility. What does it mean if we live in a world where product isn't the thing that creates that defensible moat, where anybody can code, any idea can be spun up in a weekend. Suddenly, now my product, my workflow, my ideas isn't really the moat around my business. And frankly, I would argue over my the last 16 years of investing this way, it probably never truly has been. I really think that the defensible moat is go-to-market muscle. It's understanding the core underpinning of unit economics, of driving through that early period of trial and testing and piloting, and then ultimately building that machine, what I've always called the Pachenko machine of go-to-market, where it's selling, supporting, engaging, beachheads, expansion opportunities. And those companies that are great at that, they thrive. And that becomes defensible. And by the way, that is a deeply human go-to-market is about leadership. It's about onboarding the best of the best people, it's about holding people accountable, it's about pricing dynamics and marketing. It's a lot of complex stuff that you got to get right and you have to iterate quickly as you're learning. You look at Canary Technologies, one of the greatest companies that I've invested in in the last 20 years, for sure. Amazing products, some of the best products in the world. That is not why they're winning so big. They're winning so big because they've got the best go-to-market engine I've ever seen in a software company. And they have from the beginning, it's been something they've been focused on and they're good at it. I think in this emerging world of AI and AI tools, that becomes the playbook. And when I'm talking to early stage companies that are developing great products, what do I care about? Well, I care about that they're addressing an interesting market that's large and dynamic, that they've identified a problem, a pain point that they're going to solve that is difficult to solve. But then it gets to unit economics, which incorporates competitive response and pressure on margin and all those things, the chessboard of the game. But then go to market, team and go to market. Like, how are you how are you thinking about it? And those startups now that are like, well, I founder led sales, but I'm going to talk to people and it's going to be done. And then eventually I'll hire somebody to help me think that through. That's not going to cut it. I want to know, like, well, then what do you forecast? How do you, what do you think it'll look like? How might you construct it? Is this going to be an inside sales opportunity? Or do you have to have a field sales force? What do you, what's your plan? What do you foresee? And if if if that results in a blank stare or somebody trying to sort of come up with an off-the-cuff answer, a little bit of a red flag today. Way more than it used to be. If you're just a great leader, you're able to inspire people and persuade people and think things through. And just fundamentally, it's almost going back to the human roots of just being a great leader and a strategic thinker, back to business 101. Now you can win. Now you're in a position to win. All the other things, of course, being equal.

SPEAKER_01

Would you argue that it's becoming more important than ever again, ever before?

SPEAKER_00

Fundamentally. Absolutely. It has to be. I think it, you know, there there probably was a period of time where the products themselves were so complex and the cost to build them so high that those people who who just kind of nailed it on product could fumble around and they'd sell it anyway. It was just, it was virus, every viral. Everybody just had to have it. That's dropped now. And so, yeah, it is about leadership and people. And great teams are going to be better positioned to figure it out and win, where weak teams are going to get passed quickly. So it comes back to humans. So it's a it's a tricky time to be an entrepreneur and be an investor, but it's also probably the most exciting time in history.

SPEAKER_01

I want to talk about capital allocation now going forward, and especially looking at your firm, Thayer Venture. Where is Thayer leaning today with everything that you and I just talked about? Are you more excited about infrastructure, loyalty, asset-backed models, AI native tools, or something completely different? I mean, you've just been shaken up as well. And you've been on the block for so long and you've seen so much, especially in the SDR space, but more in the travel tech space as well.

SPEAKER_00

Yeah. Well, so we feel we feel really good about our position, um, partly because we have always been a sector-focused strategic venture capital firm with industrial players from the market as our limited partners, right? So our investors include the world's largest hotel companies, Hyatt, Marriott, Hilton, enterprise mobility in the mobility space, host hotels in the asset ownership space. So we position ourselves as a source of information and insights for them. But for our entrepreneurs, because of those relationships, we have the ability to help open doors and create opportunities for them in business development sales and strategy. So in a world where go to market is at a premium, we're best positioned for anybody playing in travel to actually meet them at that point of go to market and help. So I feel really good about that. The other thing is that we've constructed an investment approach that we call construct and convict, where we build a large portfolio with relatively moderate checks initially. We engage with entrepreneurs and help them, show them that we actually do have relationships in the industry that help, and that those companies that begin to then rise, and again, we come back to the humans that make it work. It's luck, timing, and talent. When those things start to show up and you start to see a real rise, that's when we come in with conviction and can write much bigger checks and go deeper. That fundamentally in portfolio theory drives returns. Within travel, we're we're very much focused on the disruption happening in distribution. And that's everything happening up and down that value chain. We're super focused on generational shifts which impact loyalty. We have uh Capital One is an LP in our fund, and you're again a major player in travel. How loyalty is affecting the way travel uh is being sold, and how how the rising generation, Gen Z and millennials engage with loyalty and think about it is really fascinating. Um, and then this whole connected trip, connected commerce that incorporates elements of fintech and insure tech and and and supply engagement across categories. That's an area that we think is ever evolving and super interesting. So we're investing there as well. And then probably our most active bucket is my favorite, and that's called opportunistic, which you mean we keep an open mind, we talk to entrepreneurs and we hear what they have to say. Because frankly, it's it's the entrepreneurs, people who have they've left their jobs, they're betting their career, they're putting their lives on the line, they usually have deep expertise in a particular category, they've been spending time doing the research, they have something to say. And any good investor better take the time to hear those stories and be open-minded. Because you get too rigid around, well, here's our roadmap. And if you're if your idea doesn't fit into our roadmap, we're not going to take the call. I think that's ridiculous. That's ivory tower thinking, as if we know everything. And we know we don't. So, opportunistic's my favorite part. I, you know, I've built seven companies across my career. I'd love nothing more than to hear the stories of entrepreneurs. That's what gets me excited.

SPEAKER_01

So, where does that leave the short-term rental industry? What would you need to be true for you to aggressively deploy into STR again? I mean, as I said before, most of the companies that I pitched to you on behalf of others didn't cross the mark. You know, and some potentially did with certain conviction required. So don't get me wrong. And I think we had good outcomes with these companies that I that I'm alluding to. But hey, where does STR need to be for Thayer venture?

SPEAKER_00

I also think it's really important to remember that venture capital is a very particular asset class and has a very particular flavor of ice cream that it likes. That doesn't mean that everything else is a bad business. There is nothing wrong with building a business without venture capital. I mean, I know people who have spent their lives bootstrapping a business, cranking it up, and then they sell it for 35 million bucks and own 85% or 90% business. And are you gonna are is anybody gonna say that's a bad outcome? No, it's a fantastic, it's a life-changing, fantastic outcome. A$35 million sale of a venture-backed company is a dud. So venture capitalists are underwriting to 10x returns. We're looking for$500 million exits, billion-dollar exits. So just because we say that's not a venture-investable business doesn't mean it's a bad business. And I think it's so important for entrepreneurs to know that in their hearts. For us, too, look, the last two years has been tough in STR. We've got some investments in the category. We've been seeing the trials and the challenges, we've been feeling the pain. So it's a little bit of a wait and see. And some of these dynamics that we've talked about stabilize. As a category, absolutely, we're interested in it. And we look at stuff all the time. We're in a very cautious posture, waiting to see some evidence that there is a sustainable opportunity to build a venture-scale business. And again, a venture-scale business is very different. So, no, we're we're certainly not turning away from the space at all. I mean, there's a lot of things to really like about it.

SPEAKER_01

Yeah, I think that was that was a great explanation as well, and give people obviously the conviction to continue what they're doing. And I think that was a great input for them to understand as well where they're coming from. I've raised capital for many different companies around the world, and and I think that's an important message to understand. And it doesn't mean it's not investable, it's just not right for the right investors, and you need to look at that at the same time as well. At the end of the day, we need to cheer the entrepreneurs who take all the risk, then all the ones that have a paid job every month and just do whatever they have to do, right?

SPEAKER_00

Totally. They're the ones that will save the world. The innovators are the ones you have to count on.

SPEAKER_01

So before we were at this up, my friend, Longview. Long view. You've invested through multiple cycles. Um does this moment resemble in terms of dot-com, 2008 subprime crisis, or something entirely new. But we've seen a lot. In your view, what are founders misunderstanding right now about the capital markets? And I think that's a key question where there's a lot of them are lost because it's super hard.

SPEAKER_00

Yeah, it is super hard. Look, I I think that it's a real challenge because right now, like I said, 50% of it of venture capital flowed into AI native startups last year. And the reality is that the uptake by industry of AI tool is not just a fad. We're seeing the integration across functions going up. We're seeing AI tools integrated into the core parts of their businesses. So this isn't a bubble of sort of phony tech that's going to pop. It's totally unlike the dot-com period of time. That doesn't mean that there isn't bad money and crazy valuations and capex issues and all this stuff. But the but the fundamentals are there. As a result, there are so many AI native early stage companies that are posting two, three, four hundred percent growth year over year. And venture investors are just all over that stuff. And it's really hard for a company to come in and say, oh, we're growing at 50% and get attention from venture investors, largely speaking, not true in sector-focused investors like us. So I think it it's just unfortunately for a lot of entrepreneurs, it's really tough. So we live in a world where there's a premium on go to market, there's a premium on ARR growth and revenue. So my coaching to entrepreneurs would be to figure out how to be as capital efficient as possible. And if you can get to profitability, if you can't figure out how to extend your runway and raise money from alternative sources, or it could be existing investors bridging through this complex and challenging period of time. We've seen this before in past cycles where raising money was really hard. The good news is that the hobbyist goes away first. The person who really doesn't want to do the grinding work of starting a business goes back to industry and takes a job. Great. They get out of the way, there's less noise, there's more talent available. So this is a time where grit matters a lot. And I think that that it's also, by far and away, the most exciting time to build a business in my lifetime. There's no question about it. The transformations that are taking place across industry are creating opportunities everywhere. And value chains are being completely reinvented. People are rethinking, there's an opportunity to rethink everything. And the costs to start a business, give it a try, and engage have dropped precipitously. I mean, you could So, so there's so it couldn't be a better time. It's just my strange little asset class called venture capital is sort of caught up in a tizzy and hard to get to. That will change. The pendulum will swing back. It will swing back to real-world vertical applications and solutions, which is our industry where we live in. And by the way, there are a lot of investors that have found conviction in Travel Tech. There are a lot of great institutional, major generalist venture capital firms that like this asset class again, or not again, but for the first time. And a lot of mid-market private equity firms that have been buying companies that have been getting to profitability in the category. So look, when you when you've got a$10 trillion global economic space that employs 11% of the world's population and is growing faster than global GDP, with these kinds of dynamics, it's going to be continue to be a very investable space. So I'm encouraged. I just think that, you know, unfortunately, we got to hang on a little bit.

SPEAKER_01

Thank you, Chris. You have a very diplomatic way in putting it, that at the end of the day, it's a no-brainer. And absolutely super inspiring and supporting that, these arguments, absolutely. So we just need to hang in there a little bit longer to see how things are flushing out as well. Chris, thank you for your candor. Love you for that. Capital market shape industries, more than most operators realize. Understanding how institutional investors think is critical for founders, operators, and strategics alike. I really appreciate having you on the show of STR Global Unlocked. And I hope you had a wonderful vacation in Galapagos. And in our next conversation, we'll hear more about it. Thank you, Chris, for being on the show.

SPEAKER_00

Thank you, Simon. It was a real pleasure.

SPEAKER_01

That was STR Global Unlocked, where we say what others want. If you got value from today's episode, send it to someone who is still playing it safe. Follow the show and get more global insight at ajlartelier.com. The globally recognized STR consultancy, I founded and that proudly brings to you this show. More bold conversations are on the way, so stay tuned.