“At the time…we were trying to raise $150,000 at a $1.5 million post money valuation. So for $150,000 you could have owned 10% of Airbnb. And the majority of them didn’t even reply to the email.”
That’s Brian Chesky, co-founder and CEO of Airbnb. In the history of Silicon Valley, Chesky may have been rejected more than any other founder.
A Startup Not Even a Mother Could Love
His idea was radical: paying to stay in a stranger’s house. Even his own mother wasn’t buying it, much less investors.
“Joe and I went to University Avenue. We met an investor, who I won’t name. He orders a strawberry smoothie. He then sits down, drinking his smoothie. Never picked his head up.
It was my first interaction with an investor. I thought, ‘Maybe this is what they all do.’
He goes ‘Uh huh, uh huh, uh huh.’ And then within 10 minutes he, like, leaves. And I thought, like, he had to park his car. We haven’t seen him since, though.”
After going through Y Combinator and coming out with serious traction, Airbnb was finally able to raise money. But even then, it could only pull in $615,000 at a $3 million post-money valuation.
Today, Airbnb has over 200 million users. Its market cap is over $90 billion.
How Investors Missed the Opportunity of a Lifetime
When the next Airbnb comes along, I want to be a part of it. So how do I avoid making the same mistakes as those other investors?
Airbnb didn’t look like most successful startups at the time.
The founders weren’t from Stanford. Two out of three were designers, not coders.
My lesson here is that a unique team can have a unique insight. And so long as they can build it, the company can work.
Moreover, the idea this motley team proposed was hard to accept. Who would pay to stay in someone’s house?
We investors have to remember that not everyone is like us! Investors are usually wealthy and would gladly pay up to avoid awkward encounters with a host.
But rich capitalists weren’t Airbnb’s go-to market. Chesky and Gebbia were focused on young travelers on a budget.
Investors also looked at the market too narrowly.
The market for staying with a stranger may not have been that large. But the adjacent hotel market is massive — over $200 billion per year.
Staying in a spare room is a good substitute for a hotel for many travelers, especially those on a budget.
Finding the Next Brian Chesky
Above all, the story of Airbnb tells me to keep an open mind.
Not all successful founding teams look exactly the same. Markets can be bigger than we think.
The return to backing a weird idea that works is massive. So with every startup I see, I ask myself, “What if it works?”
Would you have invested in Airbnb? Why or why not?
Leave a comment and let us know!
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