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Towards the end of March, the world’s leading provider of vacation rental data & analytics, AirDNA, tweeted about rising Airbnb host cancellation rates. With a foreseeable spike towards mid-April, the new update on April 16 was an average length of stay increase in global bookings of 133%. Airbnb’s newsroom claimed hosts were playing a critical role in longer-term stays, as well. Yet, super hosts also had a word or two to say on the matter. While the need for quarantine seems to be stimulating people to get away for lockdown as Airbnb users book longer stays, there’s much more to consider on this matter. How’s Airbnb as a startup company facing this COVID business? Here’s a look at Airbnb’s IPO and history for the new businesses that will come up from this crisis.
From accepting guests to make rent money during the fall of 2007 to the last PitchBook report of private valuation at $31 billion precisely 10 years later, Airbedandbreakfast.com, Airbnb’s preceding company name, has a compelling startup story for any founder and new business. What started on inflatable air mattresses and Pop-Tart breakfasts to feed off a sold-out convention in SanFran has now turned into 50K+ experiences over 1K+ cities worldwide. And what’s the founders’ publicly affirmed primary source of growth? Word of mouth.
This startup’s user data now includes 7M+ listings worldwide, 750M+ all-time guest arrivals, and 2M+ as an average figure of guests per night. It’s no wonder Amazon’s own 17-year VP Dave Stephenson would take the company on as their Chief Financial Officer (CFO) as early as November 2018. Stephenson’s asset, according to the company’s officially released statement then, was acting as their “quarterback for long-term growth, driving us to be even more efficient and leverage what makes Airbnb unique to create new businesses and continue to expand.” By the second quarter of 2019, Airbnb was already reporting $1 billion in revenue.
Airbnb’s unique advantage for continued growth over the decades to come is, in the startup’s vision, based mainly on a powerful global network effect. Topped with high qualities to a brand that’s spread through 100K+ cities, its exclusive travel offerings are also part of the startup’s gained strength over the years.
Last year’s third quarter, Airbnb announced an interest in an IPO (Internal Public Offering.) Yet, that wasn’t the first time that year that the company blew IPO airs around. Cofounder Nathan Blecharczyk declared the company was taking the necessary steps to be ready for an IPO as early as March of 2019.
Just to give you an idea, the White House named Airbnb’s CEO the Presidential Ambassador for Global Entrepreneurship back in May 2015. He’s also one of Time’s “100 Most Influential People” for that same year.
We’re talking about a 38-year-old former bodybuilder who started this company with his roommate on Rausch Street in San Francisco so they could meet their rent. Known to date on Tinder, Forbes now reports this American tech entrepreneur as worth an estimated $4.2 billion.
So let’s keep on to see what’s happened.
A contest idea by this startup in the Great Wall of China hoped to make guest stays in a UNESCO World Heritage site an option. And their “Aibiying” company name change in the Asian region sought to speak of “welcoming each other with love.” This startup has played with innovation as part of its Chinese market insertion.
Local feedback ended up canceling the sleepover at the Great Wall, yet the number of listings for that country still grew over 125% per single year in 2018. And guests weren’t far behind with a 100% growth year over year, which influenced tourism market development in China as of its launch.
For those trying to make startups grow, these cases work like light on a tunnel. In Airbnb’s specifics, the teachings come from a great combination of business decisions, unique aspects, opportunity, and timing. But also out of proven hard work and a lot of innovative approaches at scaling a business. That was, at least, the company’s most solid and common reputation prior to this pandemic.
Obama O’s and Cap’n McCain’s, for example, were the startup founders’ unique creation of politically-themed cereal boxes during political campaign times. These came out as a limited collector’s edition. Accompanied by two jingles and a voting webpage per each new cereal, this marketing strategy helped the founders clear more than $25K off their credit card debt during critical times. We’re talking about the company’s start times when they were still running as Airbedandbreakfast, by the way.
As we mentioned in our 7 great tips for startup funding, credit card debt is a valid part of a startup’s investment options before anyone is willing to invest in it, even angel investors. Yet, Chesky and Gebbia were already stacked full in debt to consider running those up some more. So these Rhode Island School of Design graduates turned to hand glue and manual work on 1K cereal boxes to feed the “breakfast” part of their business. Their hands were the ones to put the boxes together to sell them at $40 a pop. The items sold out for a final $30K lift.
As we said, it hasn’t always been bursts of sunshine and butterflies for this tech startup. Their first year kicked off right during the middle of the recession. All three founders were temporarily broke and finished a version of their online setup by summer 2008, a time when eight angel investors rejected them, and seven more simply ignored them. It wasn’t until April 2009 that Sequoia Capital’s $600K seed investment came to change the startup’s trajectory.
The rounds of funding are not insignificant, by any means. By 2011, a $112 million raise included Jeff Bezos’ VC group on a valuation of $1.3 billion. Four years later, that valuation figure plus a few more million came in from a VC with another billion sliding in by 2017. The total raised number sums up to around $4 billion.
A break-out mobile app award at SXSW in 2011 meant more positive news than prior participation in the conference to no such luck a few years earlier. And the thriving company also saw cities reject Airbnb rentals as a powerful political and social counterforce to their business proposition.
New York’s threat to ban Airbnb included talk of fining hosts and short term rental owners in 2014. Illegality quickly settled as a potent threat that would cost the company more than $8 million by fall 2015 in San Francisco alone, trying to fight citizen initiatives to put a cap on Airbnb rental locations. By 2016, even Senator Elizabeth Warren was going up against the Federal Trade Commission to limit rentals such as Airbnb’s in the hopes of improving housing availability.
Yet, the first three months of 2009 also saw Airbnb’s co-founders working hard at Y Combinator. This tech incubator is known to invest in the most successful tech companies, like Dropbox and Reddit. In conversation with Paul Graham as a now-retired co-founder of the accelerator program, the team was able to improve listing profitability with their first run at non-scalable measures. And there are several tech startup lessons to take from that.
First, let’s take their New York City listings test as an example. Running these by Graham let the team define a pattern of similarity in low-quality user images being at the forefront of their startup’s website. While the founders were battling how to get more room bookings, users were relying on cellphone cameras and classifieds to publish their homes.
So Graham suggested the team fly cross-country and take high-resolution photos themselves. What seemed like no data-driven solution to a problem in scaling was fixed within a week by the improved image quality. Weekly revenue doubled after eight months of tackling coding to no financial movement.
The founders’ declarations admit this first no-scalable attempt to have changed the company’s history. Since then, the habit of meeting customers first-hand stands for them as the best way to tackle problems with innovative solutions.
So, now, taking non-scalable actions is part of their company culture. Airbnb encourages employees to go after new thoughts and gives them the name of pirates. That’s how they’ve come up with simple changes. A staff suggestion of turning star ratings to heart ones resulted in an engagement increase above 30%.
Yet, Graham inspired conflict around Airbnb, as well. With a simple two-liner, Paul’s tweet back in May of 2019 read: “The next time someone claims that starting startups is for rich kids, remind them that Airbnb happened because its founders literally could not pay their rent.” Of course, enormous debate even amongst Silicon Valley CEOs unraveled, which sought to clarify the difference between being temporarily broke when born in privileged financial backgrounds and trying to do business while being financially weak.
The hard truth of privilege as a supportive way of scaling a business came to light. From family and friends’ cash support in pre-seeding stages to academic backgrounds that call VC interest more to simply being better able to connect with VCs makes the co-founders’ privileged backgrounds a conflictive argument.
Angled as graduates from a private college in Rhode Island with tuition fees above $50K, the couple of co-founders that met at Rhode Island’s School of Design (RISD) teamed with a third co-founder who went to Harvard. The uproar went as far as reporters digging up their native towns, their parents’ multimillion-dollar businesses, and one of their dad’s public political positions as a mayor of a city.
But Graham didn’t leave them just all of that. The founding team at Airbnb honors Paul as also teaching them how 100 people who love a startup is better than a million of them who “sort of like you.” The company’s CEO took this as a lesson for any starting business. “All great products start with a core base of people,” replied Chesky during an interview. He was then trying to get to the value of taking non-scalable measures, which is also something big corporations can’t do.
With a 41% year over year increase rate for Q1 2019, HotelTonight was a logically attractive acquisition for Airbnb on several fronts.
This acquisition strategy allows for product diversification. Bringing the newly bought company’s co-founder and CEO, Sam Shank, under Airbnb’s team flag means having the perfect leader for their new boutique side.
Offer expansion topped by a business partnership with a hotel-booking service that’s focused on last-minute trips also brings Airbnb’s last-minute bookings to growth. HotelTonight is a millennial brand that does mobile as a priority and also relates to traditional hotels as a product, as some have observed. That company was tackling independent hotels easier than Airbnb could do alone.
For what’s genuinely a hearsay amount of $400 million, Airbnb brought on another San Francisco tourism company valued at $463 of those same millions. HotelTonight’s acquisition history is worth revising, in case you’d like to look further into those on the side.
Yet, this one isn’t Airbnb’s only acquisition of this nature. They also have a partnership with SiteMinder, which simplified hotel listings on Airbnb. The startup had already acquired a Danish booking website, Gaest, too, which helped with bookings for meetings and other events in off-site places.
LuxuryRetreats is also part of Airbnb’s most significant acquisition history, having paid between $200 to $300 million for it back in February 2017. All this shows how little you can lay back when going against a giant like Booking.com. That competitor is a site that has recorded around five times as many more private accommodation listings than the Belo logo company we now address.
As we’re looking at Airbnb’s IPO and history for the new businesses that will come up from this crisis, we’ll now move on to how Airbnb has tackled COVID head-on from day 1. Probably geared by added pressure on the user side as cancellations rolled in, the company is also taking measurable steps to level user needs on several fronts.
With offices in 34 cities worldwide, the expectation around the globe for Airbnb’s IPO this year was high. Their employee equity especially so. With an expiration date on the latter for this November, the pressure was internal as much as external.
Yet, the travel industry is taking an enormous toll as airlines park their planes, airports close, whole countries close borders, and hotels seem a more reliable cleaning option than household owners’ abilities in that sense. Travel picks up, though, which is what Chesky just pointed out. He’s furthermore trusting travel will switch to a “more intimate and local” experience. And so, uncertainty over this IPO continues. The idea, the CEO notes, is to “be in the strongest possible position as travel rebounds.”
This point in Airbnb history is where Silver Lake and Sixth Street Partners, a global multi-asset class leader in technology investing, come in. Airbnb’s newsroom tells of a $1 billion investment in what they term “a combination of debt and equity securities.” Aimed at supporting hosts and stakeholders long-term, Chesky expresses the company is relying on the universal endurance of this “desire to explore, connect, have new experiences, and have a comfortable place to call home.” Silver Lake and Sixth Street Partners’ CEO confirms this notion when he notes that “while the current environment is a difficult one for the hospitality industry, the desire to travel and have authentic experiences is fundamental and enduring.”
The company will focus some of these new funds on experiences, and longer-term stays, which includes students who need housing and those on long work assignments. The overall benefits that come from Airbnb stays over others is a big piece of the puzzle. It constitutes an advantage for better days to come.
And Airbnb again claims to think of its stakeholders in bulk. $5 million out of this investment will go to a new Superhost Relief Fund. That initiative is one that will combine a total of $15 million to “Superhosts who rent out their own home and need help paying their rent or mortgage, as well as long-tenured Experience hosts trying to make ends meet.” That’s solidarity in the making.
As we said at the beginning of this article, Airbnb’s measures to help Superhosts don’t seem to be getting a wholly positive response, either. Airbnb’s market positioning led hosts to become mortgage and property owners, to invest in new properties, and to make Airbnb hosting their primary source of income. As such, the rise in cancellations with this pandemic is putting many at considerable financial struggles. For many, Airbnb’s new cancellation policy as of COVID-19 is an added risk in their situation, one they haven’t failed to voice as much as possible.
On the other hand, Chesky also shared a global announcement that would impact 25% of his company with the news of unemployment. Airbnb, let go of 1,900 team members by May 5th of this year. The culprit is, in part, a “more focused business strategy” coupled with the uncertainty of when travel will return, and how it will readapt.
It’s not all dead, however. Just on April 24, Renaissance Capital, a company with a slogan as “the IPO expert,” stated that “the IPO market is showing some early signs of opening up.” They even list a few companies with visibility towards IPOs as early as May. According to the mentioned research and investment firm, “SPAC pricings, amendments, and new filings have all picked up” as it reads in their latest statement cited above.
The biotech industry is leading with movement in an otherwise empty IPO calendar. The activity comes especially from Moderna, a company that’s working on the development of a potential COVID-19 vaccine.
Part of Renaissance Capital’s IPO news section also shows a note on a Swiss Phase 2 biotech company titled ADC Therapeutics. They are focused on the next-generation antibody-drug to tackle difficult cancers. This last company just “filed on Friday with the SEC to raise up to $100 million in an initial public offering.”
And, moving on to Chinese waters, an online education platform from that side of the world, Skillful Craftsman, filed and set terms for a $15 million US IPO, as well.
So there you have it! A bit of Airbnb’s IPO and history for the new businesses that will come up from this crisis.
All in all, we hope this case study helps to prove how a company that started amid the Great Recession in 2008 is not likely to let a new recession over coronavirus send it to bust. From innovation to non-scalable measures, we’ve learned from them to innovate during crises in a way that allows for product diversification, and the high value of relevant business partnerships, to say the very least.
The only other factor about which to learn more in detail now is the one pitch deck that helped this company raise its initial $600K from Sequoia Capital and Y Ventures. Luckily, of course, we tore it down and redesigned it, made it infinitely better, and then released it for free for you to use.
Take a look at our newest version of Airbnb’s pitch deck if you want to follow in those steps to make your upcoming pitch the most capable material out there for your ventures.
