List all the funding sources that are required for the sustainability of this solution
First off we need an injection of working capital to complete pilot work and work on the TDB. This would ideally be via an equity stake in the TDB. In relation to the business operations in the most challenged “frontier” markets a large contribution from the public sector / development institutions will be needed to get the TDB established. We estimate we will need support for as much as 80% of set-up costs and will also need zero (or very low) interest loans to the TDB for up to 5 years to get the market working. On a per destination basis this may amount to around US$60,000 in set-up costs and loans of around US$100,000. For more developed markets, we will be looking for a mix of patient capital and loans from the private sector to fund the TDB (using rooms as collateral).
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
It really depends on the region. In some of the emerging markets we are working in we believe we are not far off having a model which can be fully funded by the private sector. In our early pilots in these markets we have found both a large enough pool of marketable accommodations and service providers to create a market. This combined with a reasonable volume of tourists will ensure the TDB can turn over inventory quickly and reduce borrowing needs. For these markets (perhaps 50% of all markets we are working in) we see a 1-2 year time horizon to get to a point of being fully private sector financed.
The next category of markets where tourism numbers are low (e.g. post conflict countries) and / or where they are isolated and lack access to service providers (e.g. many island nations and remote or rural areas), the need for public sector financing support will likely extend to 3-5 years ….i.e. until such time as the markets have grown (in the case of conflict affected regions) or service provision has bedded down and ongoing funding is most maintenance related. This is probably another 30% of the markets we service.
Finally for truly Frontier and Fragile States, the reality is that we probably will always require some level of public support. Some of these markets are deficient in so many areas (policy, tourism infrastructure, skills, access to service industries to support etc.) that we would only undertake work which is publicly funded and ideally part of a larger tourism development plan.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
Given that we are not hostage to any one source of funds, we are not concerned about the long term viability of the TDB. Our main concern in the short term is the capital (equity or debt) needed to complete work on the TDB system and the pilots in the energy sector etc. Our work so far has convinced us there is a market for this facility in both the developed world and in a number of emerging markets which can be fully funded from the private sector. We can however also see the huge impact this service could have in the developing world and this is why we are looking to secure some short to medium term public sector funding to help push into these markets.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
There are three main categories of partner. First, we are seeking partners in areas we have found to be areas of systemic need for SME accommodation providers. These are in market access (…. improving sales and distribution, where we work with partners such as whl.travel, 360Cities, SiteMinder and others); in energy efficiency and renewable energy (energy represents up to 50% of operating costs for many SME accommodation providers in the developing world and hence we have started discussions here with groups such as E+Co and Acumen); and in training services.
Second is partners who can work in the set-up area doing SME market readiness audits, service provider audits etc. The systems are built for this but we have yet started pushing out to third party consultants.
Finally we are also seeking relationships with public sector partners / financiers to move into developing, frontier and fragile Markets.
Are there non-financial issues that could threaten the sustainability of your proposed solution?
The main non-financial threat to this business is any severe global drops in tourism (such as were experienced post Sept 11 and the Asian Bird flu crisis etc.) which might compromise our ability to sell the room inventory in a timely manner. However, we have tried to minimize this risk by setting up a caveat that the TDB has 3 years in which we can sell the inventory. This was really a measure to ensure that we can work in conflict prone areas and to mitigate against any truly global event.
Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically
Our proposed solution is specific to the SME accommodation sector and is looking to scale geographically. We have begun early pilots in South Africa, Brazil and Mexico to build the business model, business processes and collateral. All components of the model have been built to allow rapid scaling and templated licensing agreements have been developed to allow a wide range of service providers ranging from tourism consultants to energy service companies to work with the TDB.
Added to this, the TDB is a subsidiary of the WHL Group which is the largest local-travel company in the world. The WHL Group has regional offices in Africa, Eastern Europe, Asia / Pacific, South/Central America and the Caribbean and a network of local partners on the ground in over 200 destinations in 100 countries. The Group already supports the online sales of rooms for over 8000 SME accommodation providers. This will allow the TDB to scale geographically very quickly.