How a Toronto travel startup grew during the pandemic - and raised US$85-million

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Hussein Fazal initially panicked when the pandemic hit last year, as business for his online travel agency startup Snapcommerce Technologies Inc. fell by 80 per cent. “I honestly expected we would find some way out of this,” the serial entrepreneur says. “The question was how long it would take.”

The answer is: barely any time at all. Within four months his company, previously known as Snaptravel, was generating record monthly revenues. Americans hit the holiday circuit again, albeit by road, not plane, and used Snapcommerce in increasing numbers to book accommodations. While other online travel agencies sustained steep drops, Snapcommerce saw volumes in the second half grow by 60 per cent over 2019 levels, while revenues surpassed US$40-million. Efforts to rapidly cut costs – including laying off 30 per cent of staff – paid off as Snapcommerce turned its first monthly profit in May.

Snapcommerce’s ability to thrive in historically calamitous times caught the eye of investors. On Thursday, the company announced it had raised US$65-million in equity financing co-led by Montreal’s Inovia Capital and British-American private capital firm Lion Capital, plus $20-million in debt from Silicon Valley Bank. Other investors include Acrew DCF, Thayer Ventures, Full In Partners and past backers Telstra Ventures and Bee Partners.

They are betting the company, which runs a personalized e-commerce marketplace through mobile instant-messaging apps, will not only reap greater gains as people travel more postpandemic but also expand the platform into other categories such as consumer goods.

“At the beginning of the pandemic, we thought, this is probably not the right time to invest in a business like this,” said Sherif Guirgis, a partner with Lion Capital, which has backed consumer brands American Apparel, Jimmy Choo and Canada’s La Senza and Spence Diamonds. “But when we dug in … it became clear to us these guys are on to something deeper than a travel business.”

Snapcommerce is a North American take on an established trend in Asia – conducting commerce through mobile instant messengers. It hasn’t caught on as much in North America but “will disrupt the West in the same way it has become ubiquitous” among users of Asian IM services WeChat and KakaoTalk, said Telstra general partner Yash Patel.

Its offering is like an artificial intelligence-powered concierge. Users communicate with Snapcommerce through such services as Facebook Messenger, iMessage or SMS as they would with friends. It automatically scours the web for hotel and flight deals and offers inventory through negotiated partnerships with distributors and third-party aggregators that the algorithm deems a customer is likeliest to respond to. The process happens through back-and-forth messages, supported by live service agents in the Philippines. The company estimates that 10 million consumers have used Snapcommerce.

Snapcommerce already had buzz before its mettle-testing 2020. Mr. Fazal’s previous startup, AdParlor, which ran advertising campaigns on Facebook for brands such as Starbucks, reached US$100-million in revenue before he sold it in 2011. Co-founder and chief technology officer Henry Shi was on the team at Google that launched YouTube Music Insights. The pair raised more than US$20-million in their first two years from Canadian and U.S. venture funds, Expedia chief executive officer Peter Kern and basketball star Stephen Curry.

Mr. Fazal said the idea came from his own experience of trying to book travel on the go, a process he found cumbersome on mobile phones as it typically involved toggling between webpages and coupon codes to find deals. He wanted to make travel planning “as easy as sending a message to a trusted friend.” The platform also sends weather updates, links to maps, Uber and attraction suggestions to travellers. Its algorithm learns from customer preferences to provide more relevant suggestions, Mr. Fazal said. Once the pandemic hit, the company started offering targeted drivable-destination offers, such as Napa Valley packages for San Francisco residents, which helped win over customers.

The company touts the benefit for accommodation providers of saving a portion of the 35 per cent of revenues they spend on online marketing by using its platform, and to differentiate discounts that are sent to individuals, not broadcast on websites. “They are rewriting the future of commerce over mobile,” said Inovia managing partner Chris Arsenault.

Mr. Fazal said 40 per cent of Snapcommerce’s business last year came from repeat customers. Its average cut of gross transaction volumes – which are expected to hit US$1-billion cumulatively this year – is around 20 per cent, he said.

The company plans to triple its staff to 200 people by 2022 and double the complement of its outsourced Philippines team to 200, Mr. Fazal said.

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