Moscow-based startup Travelata.ru has just raised $5 million in a Series A round from Polish private equity fund MCI Management. The capital injection went through Invia.cz, one of MCI’s portfolio companies, which sells package tours online in the Czech Republic and four other Eastern and Central European countries.

The funding will be used to further strengthen Travelata’s position in the Russian online tour bookings market.

The market in Russia for package tours is huge, Travelata’s CEO Alex Zaretsky told East-West Digital News, citing estimates of $12 billion to $15 billion per year, with an up to 8% yearly growth rate and good margins (10-15% commissions from tour operators).

According to the government agency Rostourism, Russians travelled abroad 47.8 million times in 2012, including 15 million times for touristic purposes, with Egypt and Turkey being the most popular destinations. The average price for package tours reached $1,800-$2,000.

Red sea or red ocean?

However, competition is fierce. Not only does Travalata compete with offline travel agencies, which are ubiquitous in Russia, and, in a certain sense, with tour operators themselves, but online tour offers have also developed dramatically over the past few years.

“New startups have been springing up like mushrooms, but to be honest, we all are still too small relative to the overall size of the market, so we don’t really feel the competition for the customer yet. But we do compete with other startups for funding and strategic partnerships,” Zaretsky said, presenting MCI’s backing and Invia’s 10-year experience as important competitive advantages.

However, simply raising investment funds is not enough to guarantee success in this fast-moving market. One of the main players, Travelmenu, which had raised important funding from venture funds in 2011, shut down two months ago. Ostrovok.ru, a startup specializing in online hotel booking, recently laid off one third of its staff, just a few months after raising $25 million.

From weekend escapes to mass-market tours

When it launched in late 2011, Travelata focused on last minute offers. “We were looking for an overlooked niche, something to differentiate us from our competitors, and we decided to concentrate on weekend tours,” Alex Zaretsky told travel news site Tnooz a few months ago.

“However, we quickly understood that focusing on this kind of business would not fly.” Zaretsky explained to EWDN. “Package tours turned out to be little available on the market, and expensive, while tour operators explained that departure times could usually not be guaranteed if charter flights were being used.”

“So we began to sell all sorts of tours – the most popular and most demanded by Russian tourists – as early as February 2012, even though the site was not completely ready for such a mass market approach,” Zaretsky recalled.

Travelata initially raised $50,000 from Bas Godska, a Western e-marketing expert and angel investor living in Moscow. In November last year, the startup secured a $500,000 investment from Igor Ryabenkiy’s Altair and Invia.

Travelata is MCI’s second investment in Russia after KupiVip, the fund’s partner and board member Sylwester Janik told EWDN. Its further investment strategy in this country focuses on the consumer Internet, targeting market leaders with high-growth potential.

  • RUSSIAN E-COMMERCE REPORT – The total volume of Russian online retail reached approximately $13 billion in 2012, up 27% from the previous year, not including cross border sales. EWDN, in partnership with leading universities and consultancies, has published an in-depth research on this industry. To receive free insights or to order the full version (2013 edition), please contact us at report@ewdn.com.