29 | Sunday Sift
Airbnb: from Maxed-Out Credit Cards and Humble Beginnings to a Resilient, Global Phenomenon
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A New Chapter for Airbnb
Four days ago, Airbnb unveiled big changes to its platform - ushering in a new era for travel discovery and flexibility.
Today, we will explore how Airbnb grew to the global phenomenon we know today from humble beginnings - launching during the Great Recession with a vision, $0 in revenue, and a binder full of maxed-out credit cards.
Before we dive in, here's the CEO of Airbnb, Brian Chesky (@bchesky) ushering in the new era I mentioned earlier.
The video is clean and simple. It reminds me of vintage Apple product announcements with a modern, lighthearted undertone.
The story is relatable, the product is easy to understand, the viewer learns how to use each feature, and leaves with an emotional tug to open Airbnb and book a new adventure.
Airbnb is leading the innovation effort to provide a better traveler experience in an evolving global landscape.
Rewind the clock 14-years - Airbnb is little more than an idea the founders were almost forced to give up on.
Airbnb - A Recession Company
The time was late 2008. The economy is in shambles. Real estate is getting crushed. Consumers are losing jobs, savings, and hope.
Meanwhile, Airbnb is born.
Paul Graham (@paulg), one of the co-founders of Y Combinator, wrote the following piece in December 2020 reflecting on his initial interactions with Airbnb's founders and their humble beginnings.
What we didn’t realize when we first met [Airbnb co-founders] Brian and Joe and Nate was that Airbnb was on its last legs. After working on the company for a year and getting no growth, they’d agree to give it one last shot. They’d try this Y Combinator ["YC"] thing, and if the company still didn’t take off, they’d give up.
Any normal person would have given up already. They’d been funding the company with credit cards. They had a binder full of credit cards they’d maxed out.
Airbnb’s goal during YC was to reach what we call ramen profitability, which means making enough money that the company can pay the founders’ living expenses if they live on ramen noodles.
Brian sent me an email on February 22, 2009, announcing that they were ramen profitable given the last three weeks’ numbers . . . Paul Responded: “I assume you know what you’ve now set yourself up for next week.” . . . Brian’s response: “We are not going to slow down.”
Well, they haven’t.
Oh, and their “Ramen Profitability” number... $4,000.
Airbnb Highlights Through The Years
Full timeline detail found in the Zippia link below:
- Shortly after moving to San Francisco in October 2007, roommates and former schoolmates Brian Chesky and Joe Gebbia come up with an idea to put an air mattress in their living room and turn it into a bed and breakfast.
- In February Nathan Blencharczyk, Brian's former roommate, joined as Chief Technology Officer and the third co-founder of the new venture, which they named AirBed & Breakfast.
- First customers book their room in Summer 2008 while visiting for a conference.
- The site Airbedandbreakfast.com launches in August 2008 as an alternative to the saturated hotel market in the days leading up to the Democratic National Convention in held Denver (20,000 total visitors with zero hotel availability).
- Paul Graham invites the founders to the January 2009 winter session of his startup incubator, Y Combinator (Airbedandbreakast receives $20,000 in venture funding).
- The name of the company is shortened to Airbnb and the site's content expands from air beds and shared spaces to a variety of properties including entire homes and apartments. (2,500 listings / 10,000 registered users).
- Receive $600,000 in seed funding from Sequoia Capital with participation from Youniversity Ventures.
- Focus on expansion of property offerings, geographies, and customers. Capital raising efforts are in full swing.
- Raise $7.2 million Series A round with funding from Greylock Partners and Sequoia Capital.
- 700,000 nights booked since inception (80% booked in the last six months).
- Receive the "app" award at the South by Southwest conference.
- Raise $112 million led by Andreessen Horowitz (other investors include Digital Sky Technologies, General Catalyst Partners, Ashton Kutcher, and Guy Oseary).
- Open first international office in London.
- Listings are now available in 89 different countries.
- Announce 10,000,000th night booked in June, doubling business in the previous five months.
- Open offices in Sydney, Singapore, Paris, Milan, Barcelona, Copenhagen, Moscow, and São Paulo (in addition to existing offices in San Francisco, London, Hamburg, and Berlin).
- Announce establishment of European HQ in Dublin.
- Make a series of acquisitions to expand listings, resources, and capabilities.
- Announces the company has served 9,000,000 guests since inception.
- Add ~250,000 properties throughout the year.
- Receive $450 million investment from TPG Capital ($10 billion implied valuation). Additional funding by Andreessen Horowitz, Sequoia Capital, Dragoneer Investment Group, T. Rowe Price, Sean Grusd, and Sherpa Capital.
- Airbnb reveals design revisions to the website and mobile app; introduces a new company logo.
- Following the Obama administration's easing of U.S./Cuban business operations restrictions, Airbnb expands to Cuba (one of the first U.S. companies to do so).
- Raise $1.5 billion Series E funding led by General Atlantic (joined by Hillhouse Capital Group, Tiger Management, Kleiner Perkins Caufield & Byers, GGV Capital, China Broadband Capital, and Horizons Ventures).
- At the request of members of the U.S. Senate, the Federal Trade Commission begins investigating how Airbnb affects housing costs. In October, New York Governor Andrew Cuomo signs a bill charging Airbnb fines for violations of local housing laws.
- Raise $555.5 million in funding from Google Capital and Technology Crossover Ventures ($30 billion implied valuation).
- Ends the year with profitable financial results during the second half of the year (revenue grew 80% from 2015 to 2016).
- Acquire Luxury Retreats International, a Canadian-based villa rental company for ~$300 million.
- Raise $1 billion in funding, bringing total funding above $3 billion since inception ($31 billion implied valuation).
- Also acquire Tilt.com (social payment startup), as well as Accomable (travel accessibility startup).
- Announce Airbnb Plus, a collection of homes that have been vetted for quality of services, comfort, and design, as well as Beyond by Airbnb, which offers luxury vacation rentals.
- Post $200 million profit.
- By October, two million people stay in Airbnbs every night.
- Acquire HotelTonight for over $400 million.
- Also, acquire Urbandoor (a global online marketplace offering extended stays to corporate clients).
- Post ($322 million) loss.
- During the COVID-19 pandemic, bookings drop as much as 96% in some cities (bookings in many rural areas increase).
- In March, Brian Chesky issues a letter to hosts, pledging $250 million in payouts to compensate for guest cancellations resulting from the pandemic.
- In April, Airbnb raises $1 billion in equity from Silver Lake and Sixth Street Partners ($18 billion implied valuation) with an additional $1 billion in debt to sustain operations throughout the pandemic.
- In May, Brian Chesky sends a memo to employees announcing layoffs (~1,900 total; 25% of Airbnb workforce) in the Americas, Europe, and Asia due to the pandemic.
- In December, Airbnb IPOs at $68 per share, raising $3.5 billion ($47 billion implied valuation).
- The following day, Airbnb [ABNB] shares open at $146 (a ~115% increase from the day the company initially listed on the Nasdaq).
- ABNB shares climb to an all-time high of $216.84 on February 11, 2021, before entering a period of extended price volatility throughout 2021.
- Q1 financial results are encouraging (a significant improvement from Q1 2021).
- Announce new platform additions - categories, split stays, and AirCover travel protection.
- Friday (5/13/2022) ABNB closes at $121.45 / share, tracking the broader technology selloff since the beginning of 2022.
A World Without Travel - Surviving COVID-19
Airbnb's CEO, Brian (@bchesky), is one of my favorite follows on Twitter.
He utilizes his platform seamlessly to promote the Airbnb story, relay insights, and reflect on lessons learned.
Recently, Brian shared the Q1 2022 (3-month) performance and reflected on Airbnb's navigation through the COVID-19 pandemic.
Q1 2022 results
- 102 million nights booked
- $1.5 billion revenue (70% growth year-over-year)
- $229 million Adjusted EBITDA [vs. ($58.6 million) EBITDA loss in Q1 2021]
- ($19 million) net loss [vs. ($1.17 billion) net loss in Q1 2021]
Here’s the thread from Brian, outlining how Airbnb pivoted and successfully navigated the pandemic.
From humble beginnings - maxing out credit cards with minimal investor interest and muted consumer traction - Airbnb is now a global phenomenon.
Brian’s seven-word email to Paul continues to ring true. Despite macroeconomic pressures, Airbnb doesn’t appear to be slowing down.
Bonus: Paul Graham on “Cockroach” Startups
When stepping back to survey the current macroeconomic environment, well... it's not great.
Continuing with Paul Graham, he wrote the following piece one month prior to his investment in Airbnb.
Addressing the “grim economic situation” in late 2008, Paul shares his thoughts surrounding timing as it relates to successful startups and investments.
What matters is who you are, not when you do it. If you’re the right sort of person, you’ll win even in a bad economy. And if you’re not, a good economy won’t save you.
Startups often make things cheaper, so in that respect, they’re better positioned to prosper in a recession than big companies.
Investors are more of a problem . . . [they] tend to be less willing to invest in bad times . . . what makes investing so counterintuitive is that in equity markets, good times are defined as everyone thinking it’s time to buy . . . So just as investors in 1999 were tripping over one another trying to buy into lousy startups, investors in 2009 will presumably be reluctant to invest even in good ones.
[For founders] the truest route to success is to be like the cockroaches of the corporate world. The immediate cause of death in a startup is always running out of money. So the cheaper your company is to operate, the harder it is to kill.
The prior few years have been characterized by mass amounts of funding for hundreds of startups, buoyed by an ever-expanding macroeconomic backdrop.
Well, that dynamic appears to be shifting and it could be nuclear for many startups.
The cockroaches won’t care. They will still be here when it is all said and done.
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