
Paul Graham: “Airbnb happened because its founders could not pay their rent” - minimaxir
https://twitter.com/paulg/status/1129897694984646657
======
minimaxir
The tweet is very justifiably getting criticized.

> let’s discuss the “friends and family” round, shall we?

> the whole entire funding round built into the startup narrative that is
> predicated on the idea that you might have friends/family with enough
> disposable income to write you checks to fund your startup.

[https://twitter.com/EricaJoy/status/1130135288896876549](https://twitter.com/EricaJoy/status/1130135288896876549)

It's a bit disappointing seeing other VCs in the replies defend Graham's
comment.

~~~
adventured
To accomplish almost anything on this planet you have to network with other
people. That includes feeding yourself consistently day to day, holding a job
and acquiring any amount of formal education. Speaking in strict terms, humans
are nearly useless without other humans.

What's the point of the criticism exactly, when typically even the most basic
of accomplishments requires social networking between people? It makes perfect
sense that one of the most valuable skills, and most valuable assets you can
possess, is networking with other people.

There are a lot of success examples of people that were not born into super
valuable social networks. From Marc Andreessen to Jack Dorsey, from Jack Ma to
Larry Ellison, from Robert Noyce to Jerry Sanders.

You know how I got my first VC round ever? I built a prototype (wasn't great),
I was entirely self-taught in all regards (not a single minute of formal
education in my trade), and I emailed a prominent venture capitalist cold.

It was built in a few months, on an old raggedy PC with a shitty monitor,
using free software.

I came from nowhere, poorville USA, with not a single connection to anyone in
the tech industry. What I had, is something to demonstrate.

The only critical, truly valuable components in all of that, is that I self-
educated and I took the initiative to reach out and connect (it costs little
other than the willingness to have doors shut in your face until one opens).
The US happens to possess the world's greatest public library system. There
are in fact few excuses. Email people, connect, start networking, contribute,
read some books about how to do it from your nearby public library. How much
do you want it? I wanted it pretty bad, it's a choice you make.

------
ksec
I think Matthew Prince, Founder of CloudFlare has an interesting reply.

>Oh Paul, you know better. I had to borrow money from my mom to pay my taxes
when we were starting Cloudflare. But I certainly came from a relatively
privileged background, and so did the AirBnB founders. It’s hard to take risks
if you don’t have a safety net. #bereal

And Pinboard's take on it.

>This is a masterpiece of the tweeting arts. Two of the founders of AirBnB
went to RISD (a prestigious American design school), while the third was a
Harvard grad. The conceit that 'rich kid' refers to one's account balance,
rather than social class, makes me drop my monocle

[https://mobile.twitter.com/Pinboard/status/11302388081408000...](https://mobile.twitter.com/Pinboard/status/1130238808140800000)

------
wilg
Tangent: Is Airbnb even something worth celebrating? Doesn't it suck up the
housing stock and hurt lots of communities?

~~~
philwelch
Not really. Airbnb dynamically allocates (on a nightly basis) the supply of
bedrooms within a given community. If there were enough bedrooms, it wouldn't
have as large of a net effect. Since there aren't enough bedrooms in many
communities, Airbnb seems to "suck up the housing stock".

Incidentally, having taken multiple business trips to SF (as well as traveling
there for interviews), it's plainly obvious how Airbnb is so successful there.
Hotels in SF are _terrible_.

~~~
eigenvector
Some local governments seem to think that residents shouldn't be competing in
the same market for bedrooms as business travelers (or travelers generally)
that are willing to spend $200+ per night.

Preventing direct competition between the long-term rental and hotel markets
is supposed to prevent locals, who provide value to the economy in other ways
(income taxes, participation in the employment market, etc.), from having to
compete with the price-inelastic demand of short-term travelers.

If an apartment can rent for $1000/month in the long-term market, or
$200/night in the short-term market, it could provide higher value to its
owner on Airbnb while being vacant 83% of the time. But the total value to the
community is diminished.

Creating so much rental supply that the nightly price of hotel rooms is
effectively driven down to the cost of long-term rental (so that long-term
renters aren't 'crowded out') would require a massive amount of excess supply.
But who would willingly continue building such supply right as returns were
falling off a cliff?

Like any company, Airbnb should be subject to and comply with local laws.

~~~
philwelch
> Creating so much rental supply that the nightly price of hotel rooms is
> effectively driven down to the cost of long-term rental (so that long-term
> renters aren't 'crowded out') would require a massive amount of excess
> supply. But who would willingly continue building such supply right as
> returns were falling off a cliff?

Nightly rooms are always going to have a premium over long-term rentals. In a
healthy market, this merely accounts for the increased risk and hassle of
having a new guest every couple nights instead of having a single tenant for a
year or more. It's not actually cost-effective to repurpose inventory unless
you have an even-worse shortage in one market than you have in the other.

Deliberately separating markets by fiat, incidentally, doesn't really work
out, and other instances of this behavior (eg zoning) is another root cause of
this problem.

~~~
eigenvector
> It's not actually cost-effective to repurpose inventory unless you have an
> even-worse shortage in one market than you have in the other.

100% of the inventory on Airbnb is repurposed from elsewhere. People aren't
constructing new buildings to list them on Airbnb.

Re-purposing inventory is far more cost effective than actually building a new
hotel because:

\- You can't hide a new hotel and would actually need regulatory approval for
it, while you can list an existing apartment on Airbnb illegally

\- You would need to meet the ongoing requirements for a hotel like paying
commercial property taxes, having 24/7 staffing and meeting health and safety
standards

\- It doesn't require millions of dollars of capital

As a tourist, it's amazing to have the additional options afforded you by
Airbnb. It's often cheaper, and even when it isn't it lets you rent types of
accommodation that you just won't find from normal hotel businesses. You can
stay in parts of town that don't have hotels. I get that. But cities aren't
run for tourists, they're run for the people that live in them.

A shortage of hotel rooms, at worst, constrains your tourism economy. A
shortage of apartments makes your city unlivable. Allowing inventory to move
from one market to the other freely may maximize revenue for landlords, but it
doesn't serve public policy goals of affordability.

Many tourist cities (Paris, Barcelona, etc.) have a shortage of hotel rooms
during peak season (try searching the price of a hotel room in central Paris
in June). With unrestricted Airbnb, that market can gobble up long-term rental
capacity, effectively transforming a tourism industry problem into a
widespread affordability crisis. Now try searching Airbnb in Paris for June,
and look for the listings in Chinese characters, which will be illegal hostels
with 8 or 12 bunk beds crammed into a 1 or 2 bedroom flat, things that no sane
person would ever certify as safe for occupation - but that do generate
additional profit for their owners. You will also find plenty of 'whole
apartment' listings that are available 365 days a year.

Of course, introducing more supply for tourists will bring down the cost of
tourist accommodation, which will bring more tourists. But does Paris want
more tourists? Does Barcelona? Aren't those cities and their voters entitled
to decide for themselves? Why won't Airbnb respect the decisions made by the
people who live there through their democratically elected governments?

~~~
philwelch
> 100% of the inventory on Airbnb is repurposed from elsewhere. People aren't
> constructing new buildings to list them on Airbnb.

Sure. That also includes people with 2-3 bedroom homes who only use 1 bedroom
and other "part-time bed-and-breakfast" use cases. The original concept was to
allow "burst capacity" for peak times.

And if all of your existing housing gets consumed by people who list it on
Airbnb, then obviously there's a market demand for even more housing, so it
will be profitable to construct that housing. Even if people don't construct
housing just to list it on Airbnb (are you sure about that?), they might
construct housing because there's higher demand for housing. In a healthy
market, and in the long run, Airbnb won't actually displace anyone; it'll just
lead to the construction of more housing. The problem is that most cities _don
't allow a sufficient amount of new housing construction_.

> Now try searching Airbnb in Paris for June, and look for the listings in
> Chinese characters, which will be illegal hostels with 8 or 12 bunk beds
> crammed into a 1 or 2 bedroom flat, things that no sane person would ever
> certify as safe for occupation....

Well then, we should be grateful to Airbnb that they are providing everyone,
_including Parisian law enforcement_ , such an easy-to-use search engine for
illegal hostels. This isn't exactly a hard problem to solve.

> Why won't Airbnb respect the decisions made by the people who live there
> through their democratically elected governments?

I'm not aware of Airbnb, as a company, violating the laws of any of the
countries they operate in. If you are, I hope you've told someone.

~~~
zimpenfish
From [https://www.telegraph.co.uk/travel/news/where-is-airbnb-
bann...](https://www.telegraph.co.uk/travel/news/where-is-airbnb-banned-
illegal/)

> The local government in Barcelona is embroiled in an ongoing legal dispute
> with the company. In 2016 the city council fined Airbnb €600,000 for
> continuing to advertise unlicensed flats.

From
[https://www.investopedia.com/articles/investing/083115/top-c...](https://www.investopedia.com/articles/investing/083115/top-
cities-where-airbnb-legal-or-illegal.asp)

> New York City is Airbnb's largest market but, according to the city, as many
> as two-thirds of Airbnb's listings are illegal.

etc.etc.

[edited to correct a mispaste]

------
perfmode
> One thing I found interesting is Brian Chesky was in Uber's seed round in
> 2010. I tried doing the math to see how that was possible if he hadn't been
> rich (seems a stretch)

pg: It merely says he was an early investor, not that he invested in 2010.

> "First Round ultimately led Uber's $1.58 million seed round, with
> participation from more than 30 other investors, including Amazon's Jeff
> Bezos, Ashton Kutcher and Airbnb founder Brian Chesky "

pg: Sure enough, you seem to be right, at least if this article is. By 2010 he
may have had some money. I doubt he invested much though.

~~~
perfmode
how did cheeky become an accredited investor by 2010?

------
floatingatoll
AirBnB happened because the founders found a way to skim off short-term rental
property taxes, labor taxes, and room taxes into their own pockets as revenue.
If AirBnB property listings were taxed appropriately as short-term rentals in
all jurisdictions, with time sheets filled in and paid out to each property
operator, their business would have collapsed within a year.

They are a very poor example of value creation, and I’m stunned that PG
considers them a positive example of anything. Show me a business that creates
value that didn’t _already_ exist and praise _that_ and I’ll root from the
sidelines. Instead, PG chose a skimming racket.

~~~
jdsully
The founders found a way to utilize otherwise vacant housing. After they got
big people started buying specifically to lease on AirBnB but that would have
been considered crazy before they effectively changed the culture around this.

It was this cultural change that created value.

~~~
new_realist
Vacant housing existed because of a conscious choice by society to preserve
the residential character of non-tourist districts. Tourists are generally
well off, because travel is discretionary or paid for by big business. Now
that these wealthy travellers are permitted to parachute in anywhere, rents
rise and residents lives are made harder. Like your den? Too bad, you'll have
to share it with strangers now in order to afford your house.

AirBnB is a gift to rich out of towners.

~~~
jdsully
Just because the value creation goes to the well off does not mean value
wasn’t created.

------
new_realist
YC specializes in exploiting poor entrepreneurs. They've taken the traditional
VC model and turned it into a high volume sweatshop.

------
Simulacra
Background does count for something, and I can see the point about it being a
safety net, but I think this is splitting hairs. Someone had a problem, and
they came up with a solution, something we've been doing forever. No one is
guaranteed an equal upbringing, an equal safety net, or wealth, but we can
guarantee that everyone has a chance to chase what they want.

Inequality, IMHO, will always exist. But so long as there's a chance to chase
an idea, there's hope there will be equality that everyone will find equally
just.

~~~
zimpenfish
> but we can guarantee that everyone has a chance to chase what they want.

Except some people are starting within arm's length of the rabbit and some
people are not only starting the next state over, they're chained to a
concrete block. "everyone has a chance" is bollocks when those chances range
from "virtually certain" to "virtually certainly zero".

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mskvsk
Yes, Airbnb founders _are_ privileged, but the mob attacking Paul is missing
the message. If you are underprivileged, well... tough luck, you're not gonna
build a unicorn. However, you _can_ build a $1000, $10000, or $100k startup.

Also, people there are conflating the terms "rich" and "privileged." You can
have everything Airbnb's founders have and still be poor.

Paul should be more careful with wording, though.

~~~
theoh
I don't think the message that it's just "tough luck" if you happen not to be
born into privilege would fare any better. Graham just doesn't have a nuanced,
progressive and sensitive understanding of this issue (among many other
issues). He's shooting from the hip, but it wouldn't be any better if he aimed
carefully.

~~~
mskvsk
He might not have a nuanced understanding of this issue (although, we can't be
sure, can we?), but it doesn't make his tweet inaccurate. He literally was
talking about "starting startups" and "rich kids". You can be poor and still
start a successful startup.

