
Subject: Airbnb - anateus
http://paulgraham.com/airbnb.html
======
quickpost
Fascinating conversation. Thanks for giving insight into how these deals
work...

>ABNB reminds me of Etsy in that it facilitates real commerce in a marketplace
model directly between two people.

Interestingly enough, I still tend to side with Fred's assessment of AirBnB's
future. All my experiences with it as a user have been too unreliable to
expect that it can scale to truly massive usability. Selling your old guitar
online is a lot different than renting a room to someone. Renting a room has
so much more of a personal aspect to it.

There are so many more subtleties to actually having a stranger come and stay
in your house than there are to sending a stranger a book, guitar, etc via
USPS.

Regardless, I still think there's a massive market out there for this type of
thing, I just don't see it swallowing up the whole Hotel industry.

~~~
randall
I just did my first AirBNB experience (actually am still in the middle of it)
and I can say that it's actually been surprisingly smooth. It's almost like a
paid way to make friends. The hosts who I'm staying with are so cool, and
since I'm pretty public online, it was easy for them to feel comfortable with
me staying at their pad. They've set it up as much like a hotel as I could ask
for. It's really great, and it's paying half their rent (they have about 100%
occupancy, believe it or not).

~~~
joshcrews
I like Airbnb. I've hosted 8ish times and stayed with people once.

Why I think the people on Airbnb are 'cool' is that its a small population
that has a lot in common (young or young-at-heart, singles and couples without
kids, internet natives, own a macbook, would love to hitchhike Europe while
submitting correspond reports for the NYTimes). As it grows, I'm worried that
everyone's not going to find everyone else 'cool' on Airbnb.

I wasn't around for the early days of Craigslist, but I imagine it was easy to
like people you found on Craigslist because they were probably very similar
people to be on Craigslist so early. But now, after scale and popularity,
that's gone.

I wonder if Airbnb might lose the 'cool' people edge after scaling.

~~~
Eliezer
What Airbnb would need to do is allow renters to rate rentees. Two-way system
like eBay used to be.

~~~
brianchesky
We do.

------
cloudbrain
Interesting that completely missing from this conversation is:

\-- Their website design \-- Their code (Rails? Jquery?) \-- Their hosting /
scalability / "cloud" strategy \-- Source control methods, dev environment,
tools \-- APIs, "ecosystem", social media, "viral rate" etc. \-- And more...

Basically, all the things that most of us here spend most of our time
discussing.

Instead: 1) Idea / Team 2) Execute 3) Talk to people with money 4) Go to #2

~~~
webwright
MARKET.

[http://pmarca-archive.posterous.com/the-pmarca-guide-to-
star...](http://pmarca-archive.posterous.com/the-pmarca-guide-to-startups-
part-4-the-only)

That's all Fred is looking at in that phase-- because even an awesome team
won't build a venture-sized business in a tiny or low-growth market.

At our Demo Day, there was two teams that had a veritable investor feeding
frenzy around them-- and they were both attacking markets that were either
huge/rich or markets that were growing like gangbusters (and they had the good
sense to talk as much about the market opportunity as they did about their
product).

~~~
JoachimSchipper
To be fair, anyone who makes it through YC and gets pg's recommendation should
be pretty competent.

------
siddhant
I think _this_ is the post that best gives an idea of "Why should you do YC".

~~~
andrewljohnson
And this is the post that tells you why you should read HN too.

~~~
swampplanet
Absolutely there is a lot of meat there. And hope for all of us!

------
chr15
I've told this story before on HN, but it's worth telling again.

I rented a room in L.A. using Airbnb. The owner of the room said he made $4000
in 3 months on two rooms that would have otherwise been vacant. If you're
making this much money for people you've tapped into one helluva market.

~~~
yef
I can cover the rent of a 2-bedroom apartment in Manhattan by renting out one
of the bedrooms on Airbnb. I don't expect the situation to last forever, but
for now it's great.

------
edw519
Nice, pg.

Have you ever given a similar vote of confidence to founders who didn't live
up to your expectations?

~~~
pg
Maybe not quite that persistent, but I've definitely tried to sell investors
on startups that didn't end up doing very well. Even by the end of the 3
months we are far from perfect at predicting who the big winners will be.

------
charlief
Fred Wilson tweeted: _Reading the email discussion between paul graham and me
with 20/20 hindsght is both useful and painful_

<http://twitter.com/fredwilson/status/48456993614200832>

------
marcamillion
So this post has done two things in my estimation.

1) Improved the perceived standing of PG among the entrepreneur-class. It
proves that he really adds value the way he says he does - hawking, what can
easily be seen as a very weird idea at a time when not many people see it.

2) Improved my perception of Fred. Even though he passed on the deal, he is
stand-up enough to not only admit it - but allow PG to post this email
exchange that shows that he was "one of the old guys" that were skeptical. It
also shows that he wasn't just pulling PG's chain, but was really debating it
internally.

------
seiji
Great examples of VCs never saying no directly and of a strange insider be-
terse-and-get-out-of-my-way writing style.

~~~
NickPollard
Is it terse or is it just concise?

So many 'business' people think that long waffling sentences seem clever and
impressive. Nothing is further from the truth.

~~~
jrockway
This is neither terse nor concise. Terse and concise means you write what you
mean. When the VC writes, "we are still in the data-gathering phase", he
really means "I see what you are saying, but my gut says no right now. I may
contact you in the future when I know more."

This is longer, but it actually means something. Instead of saying that he
needs more data in order to make a decision, he's said that he needs more time
to make a decision. The data comes natrually.

A "data-gathering-phase" is the phase that everyone is always in about
everything. I am currently in a "data-gathering-phase" with respect to whether
or not I should make another cup of coffee. My current cup is cold, but still
contains liquid. So it's not a sure thing that I should make myself another
cup of coffee. On the other hand, hot coffee is nice. I can't decide, so I
will continue to gather temperature and flavor data until I make a decision or
I spill my coffee.

See how meaningless that is?

~~~
joshu
I was in data-gathering about coffee until I read that you wanted coffee too.
I have asked an associate to bring in some coffee for discussion.

~~~
staunch
I've completed my data-gathering-phase and need coffee too!

This has gone viral!

~~~
joshu
Inveeeeeeeeest

------
nopassrecover
In my experience, Airbnb's biggest competitor is HostelHero and I found this
much more convenient than Airbnb while traveling (if only because hostels
nearly always have space, unlike the many rooms we encountered on Airbnb
advertised as free but suddenly not when you book them).

Arriving in a new city without internet it was great to have HH and be able to
find 10 hostels and know they are going to be open. I guess McDonalds wifi
etc. means Airbnb could have been a competitor, but the ease of finding
accommodation reliably, of a reliable standard, and at more affordable prices
meant we used HH far more than Airbnb.

Having said that, the times we could manage to find a room that was genuinely
free, and appeared to be genuine people with a spare room, were some of the
highlights of our travels. The people and the rooms were both fantastic, and
it's this "home away from home" and social aspect I think Airbnb should be
pushing. I think at the same time they should be working hard to remove the
listings that I could best describe as dodgy guys trying to run a hotel out of
an apartment building without adhering to local hotelier laws as we found
these far too prevalent in some cities.

------
danielha
What an incredible post. Thanks for sharing, pg.

YC absolutely does hustle for you like this, and it's the best kind --
genuine.

------
zck
>(Fred Wilson): I am also talking to my friend Mark Pincus who had an idea
like this a few years ago.

Mark Pincus is better known as the founder of Zynga, unless this is another
Mark Pincus.

~~~
fredwilson
same mark. he has hundreds of ideas for businesses to start and has pitched me
on many of them over the years

------
jedc
Wow, thanks PG (and Fred and AirBnB team). This is an _awesome_ insight into
angel/VC investment decisions. It's hugely valuable.

------
ivankirigin

      It just seemed a very good sign to me that these guys were actually
      on the ground in NYC hunting down (and understanding) their users.
    

That's a funny comment from paul because he was the one to tell them to go to
NYC. That they went is to their credit, but still. I think of this sometimes
with the pitch coaching for demo day. How many investors think "that's a great
way to phrase that" when watching a presentation and what they are actually
hearing is PG? When you've seen a few of them, it is quite stunning.

I don't mean this in a negative way. It actually is just evidence that paul
graham is a badass.

~~~
brianchesky
We were already meeting our users over the previous year, including at the DNC
and Inauguration. We had ambivalence to continue to do so city-by-city
because, as we were warned by others, it didn't scale. PG gave us permission
to continue these efforts, and to "do things that don't scale." It was one of
the greatest pieces of advice we ever received.

~~~
bumbledraven
I talked with one of the founders of Hackruiter (YC S10) last weekend and he
told me Paul gave them the same advice! The two founders (or "the Hackruiters"
as PG would say) are scheduling days completely full of half-hour 1-on-1 in-
person meetings in different cities with people who might be interested in
joining a startup. This is one of the most un-scalable processes I can
imagine.

By the by, I was very impressed with the founder I talked to (Nick), and I
would suggest that if you are a superb developer who is itching to join an
existing startup, get in touch with Hackruiter. If they think you are a good
fit, they may very well be able to either make the right connections on your
behalf or at least point you in the right direction.

------
pclark
It's interesting that in the end Airbnb raised from Sequoia, I wonder if lots
of other VCs passed.

It possibly shows why Sequoia are the best.

~~~
dr_
True that is. +1 for the suburban golf loving VC's - at the end of the day,
they are successful for a reason.

~~~
joshu
Have you met the Sequoia guys?

------
DevX101
You won me over PG. I'm applying to YC tomorrow.

------
neebz
the most amazing thing is that it took them only 2 years to come to a stage
that a VC had to write a blog regretting missing them out.

------
nupark
This exchange cements my concerns about AirBNB only being huge if they can
end-run the hotel regulatory system.

pg: _Did they explain the long-term goal of being the market in accommodation
the way eBay is in stuff? That seems like it would be huge. Hotels now are
like airlines in the 1970s before they figured out how to increase their load
factors._

fw: _So I think it can scale all the way to the bed and breakfast market. But
I am not sure they can take on the hotel market._

The problem is, the regulatory system (not to mention the neighbors) do not
want unlicensed, widespread "crowd-sourced" illegal hotel rooms, and are
working hard to block them:

<http://www.frommers.com/articles/6912.html>

Paul Graham talks about the 'eBay' of accommodation -- but a huge percentage
of eBay's revenue comes from professional sellers, which is exactly what will
run afoul of regulation in the rental/hotel market.

~~~
borism
not only regulation.

hotel chains won't be sitting idly while few geeks eat their market.

oh and btw, isn't eBay kinda dead thanks to Craigslist?

------
luckystrike
If someone still has any doubts about the value of YC, they should read this
email exchange. PG is pushing for the startup as if it was his own. He
_genuinely_ wanted them (and also the VC firm) to succeed.

Great stuff.

~~~
thesis
What? He was invested in them. Do you think he wants to see them crash and
burn?

~~~
luckystrike
You still really think he did _all of_ that only because of YC's ~6% stake in
them?

~~~
jfager
I'm not trying to take anything away from pg here, but " _all of_ that" refers
in this case to 7 emails with one VC.

AirBnB has raised $7.8M (at, what, around a ~$40M valuation at the time? 6% of
which would be over $2m). Is it really that incredible that someone would send
a few emails for a shot at that kind of money?

~~~
mentat
He's risking his reputation if he's pushing a company that he's not confident
in. The reputation is worth a lot too, probably mostly in reciprocal
connections.

~~~
jfager
That's true, but he's also risking his reputation (and his paycheck) if he
_doesn't_ shop around for later stage investors for his companies. This kind
of thing is his job, it's what Y Combinator exists to do. When one of his
companies looks like it's going to be successful, he _has to_ do this kind of
stuff to actually get a return out of it.

Which, again, isn't to denigrate him at all. He's obviously very good at what
he does and deserves a lot of respect for it.

------
dr_
This is great stuff. You can't blame any VC for being cautious at that early a
stage though, and although the idea of hotels using airbnb to list their
vacancies hasn't happened yet, as far as I can tell, it may not even matter. I
have just started trying them to rent my apt in NYC, lets see how it goes.
Personally as a "landlord" I feel like I do a great job accomodating my
tenant, but on a site like craigslist, which is where I'd been posting my
listings, this never gets reflected as there are no opinions/ratings, etc. As
a result, I can't "stand out" from other landlords. It's not hard to get
tenants in NYC, but I can imagine in some other parts of the country or world
this may be a bigger issue. This is where I hope airbnb comes in handy.

------
zaidf
Lesson: _even_ pg can be rejected.

It's not the end of the world.

------
ShabbyDoo
Unrelated to start-up investment, just a random thought about ABNB:

I was thinking about the impact of hotel chains' business traveler kick-back
schemes (euphemistically known as "rewards" programs) on the independent room
providers (a phrase I just coined to run the gamut between someone renting out
his spare room and a boutique hotel) ability to attract business travelers.
How, as a business renting out 40 rooms in a single city, do you compete with
Marriott who can offer some guy and his wife a free weekend stay anywhere in
exchange for funneling his company's (or even his company's client's) dollars
toward their brands? What if ABNB offered up to these independent operators a
rewards program similar to those offered by the big chains? They would move
beyond be a transaction facilitator toward being closer to a consumer brand. I
believe that lower-end hotel chains basically follow this model -- independent
owners become franchisees of the brand as a way to get bookings, have a
recognizable brand, etc. While I doubt that too many of today's ABNB bookings
are business-related, that number will surely increase. I love playing
armchair QB :)

~~~
Duff
You can also hook into the kickback schemes by partnering with major reward
programs like Amex Membership Rewards. Or work with state governments to have
a voucher program like what Ireland has for BnBs.

It's a great business.

------
joshbert
Was I the only one that kind of smiled when reading the emails from PG to Fred
pitching these guys? I loved that!

------
wensing
Very encouraging to see that AirBnB struggled to prove market size. I know the
pain.

------
Hovertruck
I have to say, it's pretty inspiring to see that PG went to bat that hard for
the Airbnb guys.

------
ajaimk
Is it just me or just Brian Chesky reply 2 minutes before PG sends the intro?
Time differences won't account for it since NYC is ahead of SF

------
evanjacobs
VCs often say they invest in team first and idea second but USV decided not to
invest in AirBnb despite having no (obvious) reservations about the team or
their ability to execute.

Does this mean that ideas are more important than investors really let on?

~~~
alain94040
Markets are the most important. Great team in a small market: no hope. Bad
team anywhere: no hope. Great team in a great market, bad idea: there is hope
(changing the idea is easy, just pour more money - changing the team is close
to impossible)

------
bluekite2000
Airbnb is a good startup but the founders struggled so much at first without
gaining any significant traction. And even with PG's endorsement they still
had trouble getting funding from a progressive-minded VC. I wonder if they
(Airbnb's founders) could make it to this point without YC.

------
danvoell
Thanks for sharing PG, this is fascinating! We as entrepreneurs are generally
busy trying to sell you and we rarely get to see your approach when "pitching"
one of your companies. Your point by point break down of a market and how a
company can grow into it is very insightful. I am taking note of your use of
character validation (cereal story), peer validation (YC poll),
market/community focus validation (out talking to users) and master vision for
my own future investment communications. So short, subtle, and to the point,
love it!

------
startupcomment
Airbnb has definitely tapped into a latent market, but I wonder how such
"rentals" may square with terms in lease agreements or condo association
provisions. States and / or municipalities may quickly try to capture taxes,
as Zipcar has discovered, or they may try to prevent or regulate such
"rentals" on the basis of licensing, public health and safety, or other laws
or ordinances. I wonder if the typical renter is properly reporting the income
to the appropriate tax authorities.

------
andrewparker
Note that there is zero mention of VRBO or Homeaway in this entire email
thread. That's the real opportunity (not hotels or bed and breakfasts) and
neither Fred nor Paul saw it.

------
alienreborn
It seems PG has utmost belief in AirBnB guys from the beginning by the way he
repeatedly tries to convince Fred to invest it.

Thanks for sharing the inside story. :)

------
jiffylu
This seems right up USV's alley too. Marketplaces and platforms.

If I remember correctly, USV didn't exactly pass, but made a play around the
time Sequoia did.

~~~
fredwilson
yup. right up our alley. in our wheelhouse. which is why i'm kicking myself
for missing this one. this is our kind of deal.

------
olivercameron
Not that I doubted it, but this shows that YC are really prepared to fight and
defend your corner to help you advance. Great to read.

------
Lucadg
We tried to use airbnb here in Bali to search for a house but we had to give
up as there were too many kinds of accommodations. Houses dubbed as villas,
rooms dubbed as houses, one floor dubbed as a full house and even a gazebo
where we were supposed to stay 2 months. All this is fine but I wonder how
usable it will become once you throw the hotels in.

------
sportsTAKES
Fascinating -

I could be wrong but I don't imagine too many people push back so hard on
@paulg like that.

I have great respect for @fredwilson for pushing back and then admitting in a
very public way that he felt he made a big mistake.

The best line of the email is @paulg describing @fredwilson: "He is the least
suburban-golf-playing VC I know."

Glad this story was shared and glad there is continued mutual respect there -

~~~
seiji
How long have you had twitter disease? We're working towards a cure as fast as
we can.

------
jscore
pg seemed a bit direct in terms of what he wanted in his email, which I found
refreshing. On the other hand, Fred seemed to 'beat around the bush' as when
he said 'we are in data gathering phase'.

Just curious what the norm is around the vc/angel circles. Are most people
pretty direct/candid? or do they mostly hide behind business speak?

~~~
fredwilson
maybe i knew this email was going to get published someday and was careful
about what i said. it's kind of amazing that pg only was asked to redact one
small thing in the entire thread

------
gacba
Here's what I appreciated:

Both Fred and PG are willing to a) admit mistakes and b) be totally
transparent about it and c) publish that transaction for others to learn from
put them BOTH in a class above and beyond traditional VCs.

Are you "other" guys listening out there? This is why YC is eating your lunch
with new startups...

------
adrianwaj
Fred: "I'm just not sure how big it's going to be"

\- had he seen couchsurfing at the time?

<http://www.couchsurfing.org> (launched as beta in 2003)

<http://en.wikipedia.org/wiki/CouchSurfing>

Are Airbnb copycats?

~~~
fooandbarify
One huge difference is that couchsurfing is free... do some chores around the
place maybe to be nice, but the whole point is sharing and using each other's
space for free. I think Airbnb is aiming for a different market, actually -
for example, my parents would feel "weird" about crashing on a stranger's
couch but booking a quaint and unique little bed and breakfast over the
internet makes them feel cool. Conversely, I would feel bad about charging
somebody to stay in my disgusting apartment but I'll happily host somebody
just passing through.

------
mikeleeorg
I love the term "cereal entrepreneurs" from one of the commenters on Fred
Wilson's post:

[http://www.avc.com/a_vc/2011/03/airbnb.html#comment-16689887...](http://www.avc.com/a_vc/2011/03/airbnb.html#comment-166898872)

(The Disqus link doesn't quite work all the time tho...)

------
_pius
Could there possibly be a better pitch for YC than this? Awesome read!

------
lurker19
Wow. I did not get the pun in AirBnB until I saw it spellers out widhelm he
lowercase b in airbed.

The capital B is either a branding miss or an intentional branding effort to
look more upscale than Airbed.

~~~
bconway
Based on previous discussions, I think it's done intentionally to reflect a
pivot (away from airbeds).

------
jmm
I wonder if missed investments like this have the senior guys listening to the
junior members a bit more, or whether the young guys are wrong enough to keep
it biz as usual.

------
vessenes
Hey PG,

Thanks for publishing this exchange. I've never known you to be anything but
exceedingly polite and thoughtful; now I learn you're doing good work behind
the scenes too. Inspiring!

------
ajaimk
The content is wonderful to read through but the time frame that this
conversation takes place over (a month) has a lot to say in itself.

------
dutchrapley
I love the succinctness of the email exchange.

------
atrevisan
All other important factors aside, everything comes back to scalability. This
helps further drill that point.

------
zby
I am surprised couchsurfing.org is nowhere mentioned - it was a working
example already 5 years ago.

~~~
andrewparker
Yes but couchsurfing wasn't a business... it was more of a "movement". that
was the concern: could couchsurfing be commercialized.

------
chriseidhof
What could YC/Airbnb have done to prevent this? Anything you guys would do
differently in hindsight?

~~~
zyfo
Prevent what exactly?

------
vaksel
interesting stuff

I was under the impression that YC introductions were pretty much the
equivalent of "hey, here are some guys...invest in them"...but here you can
see that there is a lot more pressure....bordering on begging

~~~
picasso81
We earned PG's recommendation by working really, really hard.

------
jasonmcalacanis
awesome

------
d0m
I wish PG could back up my idea like that. What if.. I simply signed Paul
Graham? : )

~~~
jonpaul
I realize that you're joking, but I think it's really important to point out
that Paul was backing the team more than the idea. At least that's how I read
it.

Team > Idea.

~~~
d0m
Of course.

