
Airbnb, My $1B Lesson - rvcamo
https://arenavc.com/2015/07/airbnb-my-1-billion-lesson/
======
pitchups
It is interesting and a bit ironic that AirBnb accepted funding from YC - who
did not believe in their idea [1], and rejected the only investor that not
only believed in their crazy idea, but actively sought them out and tried to
woo them. Did they go with YC because of its brand, name recognition, or
because it offered them better terms?

Of course, it is all counterfactual, but could Airbnb have been as successful
had they _not_ joined YC? Recall that PG told them to do things that do not
scale - by taking professional photos of rentals in NY - which may have been
critical to their early success.

And although PG was initially skeptical of their idea, he quickly changed his
thinking about how big Airbnb could become. Revealed in another interesting
trail of emails exchanged between PG and Fred Wilson (who also passed on
Airbnb). [2]

[1] _" In fact, when we funded Airbnb, we thought it was too crazy. We
couldn't believe large numbers of people would want to stay in other people's
places"_

[http://www.paulgraham.com/founders.html](http://www.paulgraham.com/founders.html)

[2]
[http://www.paulgraham.com/airbnb.html](http://www.paulgraham.com/airbnb.html)

[http://avc.com/2011/03/airbnb/](http://avc.com/2011/03/airbnb/)

Edit: spelling

~~~
forgetsusername
> _" but could Airbnb have been as successful had they not joined YC?"_

These guys had a good idea, some luck, and were able to execute. I doubt that
the "brand" of their money or broad aphorisms from VCs had much to do with any
of it.

For all intents and purposes, money is money. There's an element of "tech
celebrity" in the Valley, and big-name VCs are part of that. In reality,
successful businesses around the country are built, every day, by hard-working
entrepreneurs who bootstrap it (because their business is making money) or get
funding my more traditional means. I don't think VCs have any "secret sauce"
for success.

~~~
eonw
frbo.com had been up and operating for many years before airbnb came around.
"good idea" in this case wasn't original, so that would leave luck or
connections. maybe it wasnt the YC money that helped as much as YC's
connections.

in the end we will never really know, but it wasnt the "good idea" part that
made them successful.

~~~
dear
It's not the idea. It's the execution.

The world is more than just about idea, luck, and connections.

Just by looking at the websites of airbnb and frbo will tell you a ton.

------
beambot
If it's bad form for a VC to break a handshake deal, it's equally-bad for a
startup too... no? Doesn't that reflect poorly upon the founders?

It's so important that YC went through the effort to codify the process:
[http://www.ycombinator.com/handshake/](http://www.ycombinator.com/handshake/)

~~~
paigecraig0231
You guys are missing the point. AirBnB didn't screw me over - this wa any
first deal and I screwed around debating stupid points. I was disappointed
they didn't do the deal but this whole post is about lessons learned. And one
of the biggest ones was move fast once you have conviction. At the time of
this Airbnb event I was just learning. I thought an investor had to worry
about all these little details, negotiate tons of clauses, etc. but post
Airbnb I realized all that detail was stupid. After that event I learned to
move fast.

Example: When I met Peter (Contextlogic now known as Wish) I wrote him a
physical check within a day (pretty sure it was his first) as I planned to
take whatever terms he ended up negotiating. And then I immediately started
brining in other investors, introductions to engineers, etc

So don't take this post as a "Brian screwed me" / the screwing was all self
inflicted and a very important lesson

~~~
jsprogrammer
Well, if it did fall apart at the literal last hour and you were going to sign
the formal paper work (which only reiterates the terms already negotiated and
agreed to at dinner) the next day, but didn't because YC came in overnight and
took the entire round...then it does sound like you got screwed.

~~~
Beltiras
His general approach does indicate that belief in the product is paramount,
his trust in the team second. The takeaway is not to yank the chain too hard
negotiating when these two criteria are met. He could have closed a week
before.

~~~
gargarplex
Those who aren't willing to walk away make bad deals.

~~~
frogpelt
This is generally true. "Today and today only" is usually a red flag.

But those who aren't willing to pull the trigger quick enough miss the great
deals.

~~~
AnimalMuppet
It seems to boil down to "How fast can you be mostly right?"

~~~
jsprogrammer
Pretty close to what was found here:
[http://arxiv.org/abs/1201.3798](http://arxiv.org/abs/1201.3798)

It also sounds fairly intuitive when you verbalize it: the faster you can
update your (presumably sound) strategy to new information, the "better" you
are likely to do compared to someone who responds to changing information at a
slower rate.

~~~
AnimalMuppet
Even if your initial strategy is less sound, if you can (and are willing to)
update it faster, you can still win (so long as your initial strategy wasn't
too horrible).

~~~
gargarplex
Thats why comments on Hacker News are editable :)

~~~
jsprogrammer
Happened to my OP :) Pushed down to -1 early, made some edits and now +10

------
napoleond
Let me get this straight: in June 2008, Airbnb got intro'd to a bunch of
investors, who all said no [1]. In September of 2008, Airbnb had a $250k round
on the table that valued them at 2.5M[2]. And then, also in September 2008
(before YC usually does interviews) they rejected that offer for YC, who ended
up giving them $20k[3], with a valuation presumably around $250k?? (Although
Brian Chesky says that didn't happen until November, it sounds like they got
some kind of verbal confirmation earlier?)

The timeline is weird.

1\.
[https://medium.com/@bchesky/7-rejections-7d894cbaa084](https://medium.com/@bchesky/7-rejections-7d894cbaa084)

2\. [https://arenavc.com/2015/07/airbnb-my-1-billion-
lesson/](https://arenavc.com/2015/07/airbnb-my-1-billion-lesson/)

3\. [http://www.quora.com/How-much-money-did-Airbnb-raise-What-
is...](http://www.quora.com/How-much-money-did-Airbnb-raise-What-is-the-
companys-financing-history)

~~~
paigecraig0231
It's not weird at all. Brian talked to a ton of people over many months. He
was raising many months before I met him. And then I came in. I then spent too
long negotiating but then we finally worked out a deal end of Sep and then my
lawyers and their lawyers negotiated the agreement Sep 26th and then we did
our dinner. But then YC smartly moved in after this closing dinner and booted
me out. Funny enough Justin Kan and I ended up in Vegas a few years later at a
tech party at Caesars hotel and had a good laugh about it. He remembered me as
the crazy Marine who was writing a huge check into Airbnb before they elbowed
me out. This isn't unusual - they probably googled me at the time (back then
all of the results would have been stories about iraq, Syria, afghanistan,
Pakistan operations; black operations and crazy shit). They probably thought
they were protecting Airbnb and keeping dumb money out of the cap table. It's
quite common for good investors to strongly advise you not to take dumb money
and I agree with the practice.

And that goes back to one of the lessons from my post. I realized that for
founders and investors to take me seriously and not lose deals I had to prove
myself, build a positive brand by helping founders and getting smarter about
this new world I was operating in.

~~~
jackgavigan
_> ..YC smartly moved in after this closing dinner and booted me out._

Do you think YC told AirBnB "We won't accept you on our programme if you take
investment from Paige", or do you reckon it was AirBnB's decision to join the
YC programme instead of taking your investment?

~~~
paigecraig0231
Pure speculation here: But objectively I think my money was perceived as "dumb
money" and YC had a great rep even back then. When you compare the offers the
YC money is clearly the best deal and smarter move.

------
therealarmen
Deck: $2.1B in revenue by 2011

Reality: $500M in revenue in 2014

Moral: Even the most successful startups don't hit their seed-stage revenue
projections :)

------
pjy04
What bugs me is that the founders went back on the deal that was agreed upon
in person.

~~~
sjtgraham
Docs were finished, a "closing dinner" was had, a handshake was made on the
deal, and then AirBnb backed out. If an investor pulled that on a YC company
I'm sure they would be blackballed rather quickly.

~~~
harryjo
AirBnB has never been one to follow the rules, from the earliest days of
Craigslist spamming and flouting lease agreements and hotel regulations.

You don't do handshake deals with people whose fundamental business model is
"cutting corners wherever you can sneak away with it"

~~~
philwelch
One thing we can all learn from AirBnB: if any group of people you hire for
any reason, even on a contract basis, do one bad thing on the Internet one
time, haters on the Internet will never let you live it down. Hire carefully.

~~~
j_s
Yes, because no one ever passes the buck entirely. I believe this
accountability is a good thing; see for example this discussion:

 _This is how Visa works_
[https://news.ycombinator.com/item?id=4396414](https://news.ycombinator.com/item?id=4396414)
_(900+ points 3 years ago)_

------
Leszek
It's very interesting hearing a story from the VC's side. One always reads
about the trials and tribulations of startups trying to raise capital, but
I've never considered that there might be similar issues and competition on
the investors' side.

~~~
hkmurakami
Sequoia arguably strongarming its way to owning 100% of the Whatsapp series A
instead of allowing other funds to join would be a prime example of this is
recent history.

~~~
wooderson
How on Earth did they strongarm anybody? Whatsapp didn't want to meet with any
investors. Sequoia put in a lot of effort to be allowed to invest at all.

------
mangeletti
The most interesting takeaway for me is the spreadsheet of stats. I find it
highly motivating to see how meager their start was. You hear all the time
from startups, "We weren't an overnight success. We worked hard for years...",
but seeing stats like these in hindsight really sends that message.

------
martin_
If there's one thing I've learned since working at startups and rounds of
funding it's definitely:

The deal isn't done until the money is in the bank

------
sokoloff
Does it strike anyone else as unseemly to share the pitch deck? I get that
it's 7 years ago, but still seems like something a little out of bounds to me.

~~~
presty
[http://www.businessinsider.com/airbnb-a-13-billion-dollar-
st...](http://www.businessinsider.com/airbnb-a-13-billion-dollar-startups-
first-ever-pitch-deck-2011-9?op=1)

edit: actually arenavc posted the deck [https://arenavc.com/wp-
content/uploads/2015/07/airbnb-origin...](https://arenavc.com/wp-
content/uploads/2015/07/airbnb-original-deck-2008.pdf) and much more
[https://arenavc.com/wp-
content/uploads/2015/07/AirbnbEventSc...](https://arenavc.com/wp-
content/uploads/2015/07/AirbnbEventScheduleFinal.doc.pdf)
[https://arenavc.com/wp-content/uploads/2015/07/Airbnb-
Events...](https://arenavc.com/wp-content/uploads/2015/07/Airbnb-Events-and-
Growth-Projections.jpg)

------
ashleyblackmore
"Over the last seven years, I’ve discovered and invested very early in a
handful of highly valuable companies (Wish, Lyft, Zenpayroll, Postmates,
AngelList, Plated, Styleseat, Klout, etc.) as well as plenty of disasters."

Any middle ground between "highly valuable" and "disaster"?

~~~
infinite8s
I think in most VCs minds, there is no middle ground (ie everything not highly
valuable is effectively written off as a disaster).

------
loahou04
Its an interesting read to hear about other investors who have missed out on
deals. I actually tried investing into a startup this year and completely
failed due to governmental regulations. Even though i worked my ass off saving
for 2 years to have discretionary income in order to invest as i wanted to I
did not meet the requirements of being an "accredited investor" and so i
missed out on the funding round. I spent at least a month getting everything
ready and going back and forth with the founders meeting with them emailing
them back and forth to find out from a newsletter that they had closed without
me. I guess until the SEC opens it up i'm shit out of luck and am better off
going to a roulette table at a casino...

~~~
quadrature
Why would you want to invest in a startup ?, VCs can pull it off because they
are playing with a lot of money and can eat the (completely inevitable)
losses. It sounds like you only have enough to invest into one startup, thats
an incredible amount of risk to take.

~~~
jkarneges
People also start companies, which is even riskier. Angeling into one startup
may be better than never trying anything at all.

~~~
quadrature
Yes but picking between investment opportunities is a bit different than
starting a company. If you have enough money to buy a significant chunk in an
angel round then you also have enough money to open yourself up to other less
risky investment opportunities.

~~~
jkarneges
Some people like living on the edge. Angels are a certain kind of crazy.

Also high risk -> high reward, right? 10x in 7 years can be game changing.

~~~
ska
That's lottery style thinking, and will get you the predictable results -
almost certainly.

Maybe turning this around will help you see how ineffectual this is:

If you are a naive investor desperate to put all of your small stake into one
company and I am an early stage startup, why would I want your money if I can
have smart money with a good network instead?

And if I can't have that, if I'm desperate for the investment, well your odds
just got much, much worse.

------
free2rhyme214
I'm not sure what the big fuss is over this.

Here's the story in one sentence: an angel recognized Airbnb's potential but
never got the deal in writing so they used it as leverage for a better offer.

Paige invested in Lyft, Twitter and Postmates. He's doing fine and learned
from this.

------
jmtame
I think the fundamental lesson here is speed. What took Paige 3 weeks or more
to accomplish took YC 10 minutes, and then they said yes and signed the
paperwork. Remember, this was unheard of before YC came along (granted,
there's more money involved in Paige's side of things, but even that doesn't
matter). Founders recognize this and respect it, and it's going to be what
distinguishes the good future dealmakers from the bad ones.

Thanks for sharing this Paige. Excellent write up and valuable lessons
learned.

------
arasmussen
Thanks so much for writing this, I love learning about cases where seemingly
concrete rules can be bent. Take a look at Uber who is constantly being told
that what they're doing is illegal and their response is essentially "but it's
better so the laws need to be fixed". I think that's the same attitude you
want when doing everything you can to get back in the deal. Always be
optimistic and don't give up to soon.

------
damonpace
If I remember correctly, Airbnb struggled to raise after YC as well. Sequoia
came in and gave them $600k quietly after Greg McAdoo synthesized and reframed
the Airbnb vision (See Nathan's Startup school speech from 2013). Why didn't
Paige participate in funding after demo day?

------
andreasklinger
Why are those metrics considered to be bad? I am obviously judging with
hindsight and without daily deal noise here but if i look at them:

* Within the first weeks first revenue

* Within 4 months numbers that by themselves each look promising (40-60% response rate although crap product, good revenue per night, good nights booked, etc)

Personally i dont expect any of those metrics nowadays to be further away than
1.5-2x better

The "only" big q's left is:

* is the market big enough it's worth scaling the quantity

* is that team capable of doing it

I feel like i am missing something here (obviously i judge from hindsight) but
what about this numbers is "bad metrics"?

------
taylorhou
This happens the other way around as well for founders. Cheers to Paige for
the insight and thoughtful conversations we've had. He's most likely got a
nice investment in a few future unicorns.

------
codeshaman
> After 6 weeks of work, I didn’t get to invest.

That's supposed to be considered a bummer :).

Hey, at least you still have your money !

In fact, who knows, maybe with your investment, Airbnb wouldn't have turned
out that great after all.

Maybe you would have lost your money, which would have reduced your reputation
and you would have ruminated over it, got depressed, separated, started using
drugs and drinking, get arrested for a drunk mishap, resisting arrest and
attacking an officer with a tennis ball, then jail time... the wheel of
misfortune once set in motion is hard to stop :).

------
jongraehl
Some grist for Silicon Valley (Mike Judge's show):

> On a tactical level, I repeat this creative destruction almost weekly as I
> analyze an individual deal; on an operational level I do it every few months
> (re-evaluating my deal flow, co-investor network, deal structures, etc.); at
> a strategic level I sit down almost every year and question my overall
> philosophy on founders, theses, markets, etc.

[shorter: I don't only regret my mistakes but also try to learn from them.]

Otherwise a well-told story. Thanks.

------
late2part
Hey Paige - If I negotiate a potential financing with Arena, and it doesn't
work out, will you take all of my emails and publish them as well?

~~~
paigecraig0231
If your emails had anything hurtful, embarrassing, proprietary or damaging to
yourself or your company I wouldn't publish them.

In this case these emails and documents make ME look like a novice investor
and speak highly of the Airbnb founders. I have no problem exposing my own
failures and mistakes but I'd never expose yours unless you were cool with it.

This event was a very important lesson for me and made me a better investor.
Most people commenting here are thinking short-term; but the consequence of
this Airbnb deal was critical to my development. I learned to move fast and
invested a great deal of time and energy into becoming a better investor.

~~~
sown
I think it's actually makes you look secure in your self, maybe even a bit
gutsy. I'm not sure what the right word would be here, but it I like it.

Someday, I hope to join the ranks of VCs but I figure I need to figure things
out first.

------
jondubois
If YC hadn't invested, nobody would have ever heard of AirBnb. This is a case
where the investor added a great deal of value to the business.

YC is at the center of a large network of investors, startups and bloggers and
somehow its investment decisions ultimately influence the habits of technology
consumers in general.

I think it was a lose-lose situation for the author.

~~~
jsprogrammer
Is every successful company from YC?

Is every YC company successful?

You must answer yes to both to believe:

>If YC hadn't invested, nobody would have ever heard of AirBnb.

~~~
jondubois
I'm exaggerating of course. But I'm sure it did make a massive difference.

------
ARolek
Time kills all deals.

------
philliphaydon
Interesting to know you look for startups to invest in. I've always wounded
how start ups find investors and approach them. I'm working on a personal
project that I would love to do full time but with no savings and living in
Singapore so have to have a job to stay here. Also scared to look for
investors because I don't want them to try change my ideas since I believe in
what I'm building.

------
AndrewKemendo
Jesus. I didn't know any VC/Angels worked that hard to get into a deal. Hell,
in my experience it's like they actively try NOT to fund companies.

