After 10 years of steady growth, Vancouver-based ToursByLocals has had an injection of $33 million CAD ($25M USD) in private equity in part to fund further expansion. Funding came from Austin-based Tritium Partners LLC. Kornfeld LLP acted for the local company to secure financing.
The tour “platform,” which matches private tour guides with travelers, sold 79 tours in its first year, coordinated from a small office in New Westminster. They’ve grown to multiple global offices and 150,000 tours expected to be given this year around the world.
To supply the kind of demand they’ve seen from customers, the company now has around 4,100 tour guides in 160 countries.
In the early years, the focus was on building a critical mass of tour guides on the website, and not necessarily on sales or internal operations.
“I don’t apologize for not worrying about all the accounting or customer support; we didn’t know if the company would be successful,” said ToursByLocals CEO Paul Melhus. “In the Internet age, you learn very quickly if you have a viable business or not.”
Last year, the company reported $75 million CAD in annual revenue. To keep that momentum going, focus will be on investing in backend systems and taking their marketing to the next level.
Travel tours and activities is the third-largest segment of the travel sector after hotels and airlines. Most of the competition for tour guides is local, Paul says.
The tours and activities sector is a laggard in moving online, creating an investment opportunity for a relatively untapped market. Forecasters expect this market to reach around $183 billion USD this year, as tourists place more value on unique experiences when they travel and are able to book online.
“The value in ToursByLocals is because of our growth. But every dollar we’ve earned has been reinvested into the company—a good strategy but one that comes with risk if we were to put money in the wrong place,” Paul said. Year over year, sales have increased by about 40 per cent.
Before signing with Tritium Partners, 25 different venture capital firms had contacted the company, according to Paul. He said Kornfeld LLP’s guidance was critical from the very start, as they started to negotiate and draft a letter of intent.
Working with venture capitalists was completely new territory for Paul and his business partners.
“It boggles the mind to think about all the stuff you have to do for due diligence on both our company and the venture capitalist.”
The fact that Tritium is a US-based investor complicated matters as the deal had to take into consideration both Canadian and US legal systems, but that did not slow the process. A letter of intent was signed September 4, 2019 and the first monies were received on December 24, 2019.
“I’m not a big fan of paying legal bills, but in this whole process, it would be impossible to do without proper legal advice, and with Kornfeld it felt so natural—I can hardly describe it properly but having them on my side gave me a lot of confidence. That we could go forward and not stress.”
Now, the three founders of ToursByLocals will be able to “de-risk” a little bit and benefit from outside expertise generated by Tritium through their contacts in the industry.