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Airbnb closes $500M round of funding at a $10B valuation, led By TPG
- sardonicbryan 13y agoIf I were Airbnb, and I had an extra $500M of cash, I'd be looking into getting hotel licenses, and/or using my data about the real estate market to purchase property.
- thefreeman 13y agoWhy? That seems like the opposite of the direction the company would want to go in.
- deleted 13y ago[deleted]
- dylandrop 13y agoJust out of curiosity, what could this possibly be spent on? Assuming it is going to be used to build out in foreign markets, is this mostly advertising/marketing costs? It already seems like they have a pretty good foothold in foreign markets. I can't imagine with $250M/yr in revenue they really need that $500M for hiring people. Also - how much does this leave the founders with in terms of %? One speculation I have that might answer my first question is that they're going to spend this on lobbying and legal battles.
- birken 13y agoYou don't have to spend the money or even have a plan to spend it right away for it to be useful. It has value as: 1. Rainy day fund. When the market is hot, you might as well stow some money away in case bad things happen. 2. Liquidity for existing shareholders at a good price 3. Sets a floor in valuation in case somebody tries to acquire you 4. More flexibility in acquiring other companies (who will probably want some part of it in cash) 5. Good press Though of course maybe they also have plans to spend it. Who knows. But if people are throwing money at you at a good price, you might as well take it.
- melvinmt 13y ago6. Push up the valuation to justify a bigger IPO.
- nevi-me 13y agoI think not (rather, it depends), if they listed the day after say receiving a wire transfer of the amount, their NAV would only be higher by the $500M, so in a sensible world, investors would be buying the cash along with other assets essentially. This wouldn't pump up the fair value, as there would be a dilution (or likely anti-dilution) aspect to the NAV of each share post the transaction. If on the other hand, they were to find immediate use for that amount, they could justify it being put into tangible and intangible assets whose fair value is higher than book value. Though since the grandparent poster states that they already make $250M in revenue, if they are making a net profit, the cash will only be useful in the medium to long-term for expansion.
- x0x0 13y agonever underestimate the value of #1 I think many people agree that's how doubleclick became a $3B acquisition. Doubleclick closed $40m in jun 97 and another $86m in 98. So they (luckily or cannily) raised a ton of money right before the dot com crash, slashed spending, and owe a piece of their success (definitely not all, but a piece) to having the financial reserves to be one of the few companies to weather the crash.
- dec0dedab0de 13y agoMaybe lobbying to get laws changed in their favor
- jpea 13y agoThey won't use it for anything other than to raise the value of their valuation. If they court a buyer, all of that cash in hand just raised their buying price by $500m.
- a2kadet 13y agoWait, what? The $500 million comes with a $10 billion evaluation. Surely, being more liquid doesn't raise their valuation?
- bigdubs 13y ago10 Billion "Pre Money" valuation = 10 Billion + 500 mm "Post Money" valuation. The 10 Billion figure is typically "Pre Money".
- vikramhaer 13y agoenterprise value = market cap + debt - cash; don't think the additional cash would 'raise their buying price'. If they could have sold for $10B currently (assuming the valuation TPG is buying in at is what they would sell for), I'd think it would make sense to not take additional funding at the expense of giving up equity, so don't see how this would raise the value of their valuation. Thoughts?
- pytrin 13y agoYou are correct. Besides, raising x amount of money at y valuation, doesn't mean the company as a whole is worth y. Investors typically get preferred stock, which are worth more. Marc Andreessen had a nice tweet chain about that exact topic yesterday, ending with this one - https://twitter.com/pmarca/status/457017580385873921 https://twitter.com/pmarca/status/457017580385873921
- deleted 13y ago[deleted]
- johnrob 13y agoThis is out of left field, but I'd use it to start a huge home cleaning business. All those homeowners need to clean rooms between guests, why let some other company take that business? As for other ideas - what else do hotels spend money or hire people to do (cleaning was my example)? Those are the natural areas of expansion.
- bigdubs 13y agoI'm not an expert on AirBnB in the slightest but I think that's what you would consider their competitive advantage; you make the homeowners assume the responsibilities normally reserved for the Hotel. That way AirBnB just acts as an intermediary and doesn't need to deal with the fussy details.
- Retric 13y agoAirBnB's advantage is they don't need to invest capital in real estate. But, the fussy details are how company's make money.
- refurb 13y agoInterestingly, most hotels do NOT own the property the offer. Hotel chains like Hilton are hired by property owners to manage the hotel business. Or at least thats what wikipedia says (1). like many hoteliers, Hyatt operates hotels for a fee as a management company, and does not usually own the real estate (1)http://en.m.wikipedia.org/wiki/Hyatt_Regency_walkway_collapse http://en.m.wikipedia.org/wiki/Hyatt_Regency_walkway_collaps...
- lotsofpulp 13y agoTechnically, most hotels do own the property they offer. Hilton, Hyatt, Starwood, Marriott, IHG, Choice, Wyndham are all brands. They sell the reputation, that the owners of a hotel building buy (i.e. franchise) and pay royalties to. Sometimes a hotel brand owns the hotel building, sometimes a hotel brand manages the hotel, and sometimes they do both. But in the vast majority of cases, the hotel brand is in a franchising agreement with the hotel owner, and many times the hotel owner will hire a management company to deal with running the hotel itself.
- wankerrific 13y agoLeft field thought but isn't there a business opportunity to work in the draft of all of AirBnB's legal wrangling. Basically, you just let AirBnB spend all its money dealing with all the legal hassles in each city, and then come in behind them at each of those cities and compete with them.
- paul_f 13y agoLawyers are expensive. And they will be needed for engagements with cities, getting laws changed and even defending themselves in lawsuits.
- return0 13y agoThats's why lawyers will be the last market to be disrupted.
- webwright 13y agoStartups are often about finding money machines. Ideally these guys are constantly asking questions like: 1) What is the lifetime value of a user? 2) What is the lifetime value of a property owner who lists with us? Once you start to be able to define the LTV of various user types, you then look for way to trade money for users/customers. If a property owner statistically averages $1000 in profit for airbnb over 3 years, you'd be willing to buy a user like that for <$999, right? Not so fast, though. $999 is a lot of $ and 3 years is a long time. Funding like this allows Airbnb to "buy users" (thru paid channels, growth teams, etc) at a rate that would be impossible with just organic revenues/profits. In short, imagine businesses as an engine where you put $1, and (hopefully) $1.25 comes out. Young businesses don't often have enough cash to fully take advantage of the engine they've built.
- pbreit 13y agoI suspect they have bigger ambitions in the "sharing economy". Airbnb (and uber) have demonstrated very good execution so makes sense to place $$ with them.
- deleted 13y ago[deleted]
- bsder 13y agoLawyers and lobbying. Airbnb is in for a very rough ride in the near future.
- hnriot 13y agolaw suits.
- 205guy 13y agoI was hoping they'd use it to make their listings compliant with all local taxes and ordinances, since that is likely to be quite complex in the software. But I fear y'all are right about the lawyers and lobbyists to bend the laws to their side. I also wonder if the AirBnB host petition[1] didn't require some astroturf to get started. [1] http://www.businessinsider.com/airbnb-petition-san-francisco-2014-4 http://www.businessinsider.com/airbnb-petition-san-francisco...
- objnotdefined 13y agoI know they are expanding, big time. They've purchased space in Portland and already started hiring. I think they're going to try and grow before they need to. And some backup doesn't hurt.
- ZenPro 13y agoI don't think AirBnB or Uber's execution is good at all. They are essentially cresting a wave that is about to smash into the breakwater of legislation. Soon both services will be either - a. Regulated out of existence b. Forced to comply with regulation making them a de facto hotel-like or taxi-like service eroding their entire competitive advantage. Another example of people stating that "efficiency = deregulated market" without considering the wider reason for societal acceptance of the regulation. I would rather have my housing area protected than have AirBnB. I would rather my daughter use licensed minicabs than unregulated services.
- nostromo 13y ago> revenues in 2013 were about $250 million Does anyone know if that's before or after payouts to hosts?
- a2kadet 13y agoI would imagine their accounting requires it to be before because they are the ones processing the transactions.
- deleted 13y ago[deleted]
- kapkapkap 13y agoI would surely hope thats after payout to hosts...if not that would set their 'actual' revenue at ~$20million
- rtanaka 13y agoit's not. revenue is a top line item before expenses. otherwise it would have to be stated as profit.
- colinbartlett 13y agoI believe you are incorrect. See this report from over a year ago which states $2 billion in bookings: https://www.eduson.tv/blog/airbnb https://www.eduson.tv/blog/airbnb
- rtanaka 13y agoHmm, it appears you're right. I was coming from a proper P&L perspective: http://en.wikipedia.org/wiki/Profit_and_loss_statement#Usefulness_and_limitations_of_income_statement http://en.wikipedia.org/wiki/Profit_and_loss_statement#Usefu...
- 13y ago
- marcomassaro 13y agoThe founders must be so diluted
- benmanns 13y ago500 million of 10 billion is 5%.
- jalonso510 13y agoWhen valuations get this high the dilutive impact on the founders is actually pretty low. $500m at a $10b pre-money valuation, means they only sold 5% of the company, which is a much smaller dilutive impact that even a typical seed financing.
- deleted 13y ago[deleted]
- tptacek 13y agoParroting Andreesen from Twitter last night: The valuation number is misleading. You're looking at the snapshot price of a relative small fraction of Airbnb's equity at a particular moment in time; just as 1,000,000 shares of XYZ will likely trade at a lower price than 1 share, so too might the valuation be lower for the whole company. More importantly, these aren't common shares; they're shares with privileges attached to them, and thus command a higher value. Finally, VC's perspective towards share valuation is different than that of a "value investor"; a VC looks at the shares as if they were options, with a limited (1x investment) downside but an uncapped upside. These aren't my insights; they're taken from a bulleted list Andreesen twerped last night. They sound convincing to me.
- isamuel 13y agoUsually, you pay a premium for large equity stakes, because they come with more practical control. (Witness every tender offer takeover ever.) The other two points are more convincing, however.
- twoodfin 13y agoI don't think pmarca/tptacek mean the price would be lower if someone were buying 1,000,000 shares all at once. Rather, if AirBNB tried to sell 1 share, it would naturally go to the person willing to bid the most for it, and that price would be higher than the average selling price if 1,000,000 shares were released.
- isamuel 13y agoI think you're stating their point accurately. But what I mean is that in the usual case, the value of 1,000,000 shares is actually greater than 1,000,000 x (price of one share), because you're getting something more with those million shares: control. That said, there may be countervailing forces at work in tightly-held startups that don't apply to liquid capital markets.
- twoodfin 13y ago
- xcntktn 13y agoNot bad for someone who started out as a spammer: http://gawker.com/5853754/the-seedy-spammy-past-of-airbnbs-co-founder http://gawker.com/5853754/the-seedy-spammy-past-of-airbnbs-c...
- wmf 13y agoGiven that such "hustle" tactics are endorsed by YC, I would assume almost all successful startups have used them at some point.
- dosh 13y agoAs far as growth hacking goes, airbnb+craigslist is considered to be a genius 'hack' http://www.quora.com/Growth-Hacking/What-are-the-Top-10-Consumer-Internet-Growth-Hacks-that-have-been-A-B-tested http://www.quora.com/Growth-Hacking/What-are-the-Top-10-Cons... which I think is well, something you have to do in the early stages of your startup. :'-(
- pistle 13y ago.5B on a model with grave legal headwinds. Who wants to see the deck for how that gets spun to investors?
- paulbaumgart 13y agoLegal headwinds is par-for-the-course for companies bringing large, established industries into the internet age. See also: Uber, Tesla.
- rosser 13y agoOne of these things: {Uber, Airbnb, Tesla} is not like the others.
- paulbaumgart 13y agoDepends on the level of abstraction at which you view them :) They are all getting into legal troubles by trying to replace the status quo with a more efficient process that happens via the internet.
- colinbartlett 13y agoThey are all attempting to disrupt very established industries.
- pistle 13y ago
- quintinoliver 13y agoIn Belgium, there is political discussion on whether or not AirBnB hosts will have to register in the future. This comes a few weeks after Uber has been made illegal in Brussels (Berlin is said to follow). I see more government interference for such services in the future and on one point they are right: they are not playing by the same rules as their competitors (established channels such as hotels). That's why maybe the valuation of AirBnB will drop in the future.
- bdcravens 13y agoLegal warchest. I've said it before: when your business model requires individuals to serve your customers in such a close personal way, something really bad is going to happen. A fire that takes out an apartment complex, a rape, a murder. The sort of thing requiring tens of millions of dollars to make it go away.
- KB1JWQ 13y agoIt seems somewhat surprising to me that Airbnb, which doesn't own a single property, is somehow worth more than the entire Hyatt chain, which owns more than 500 properties and employs 75,000 people. I guess I just don't understand how valuations work...
- enjo 13y agoI wonder: what does the average number of nightly bookings look like for both Hyatt and AirBnB?
- Tloewald 13y agoHyatt's P/E is over 40 and I suspect its margins and growth potential aren't great.
- lotsofpulp 13y agoValuations are about profits, and sustaining those profits. Tech companies can scale quickly, use fewer employees, all with less liability.
- dundun 13y agoA possible way to look at Airbnb is that they have 200k properties and 200k contractors that get paid a percentage of the revenue they generate. They aren't in the hotel business, they're marketers and matchmakers.
- dosh 13y agosecondary?
- alexvr 13y agoWow. What kind of revenue does Airbnb make?