Paul Graham: “Airbnb happened because its founders could not pay their rent”
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> let’s discuss the “friends and family” round, shall we?
> the whole entire funding round built into the startup narrative that is predicated on the idea that you might have friends/family with enough disposable income to write you checks to fund your startup.
https://twitter.com/EricaJoy/status/1130135288896876549
It's a bit disappointing seeing other VCs in the replies defend Graham's comment.
What's the point of the criticism exactly, when typically even the most basic of accomplishments requires social networking between people? It makes perfect sense that one of the most valuable skills, and most valuable assets you can possess, is networking with other people.
There are a lot of success examples of people that were not born into super valuable social networks. From Marc Andreessen to Jack Dorsey, from Jack Ma to Larry Ellison, from Robert Noyce to Jerry Sanders.
You know how I got my first VC round ever? I built a prototype (wasn't great), I was entirely self-taught in all regards (not a single minute of formal education in my trade), and I emailed a prominent venture capitalist cold.
It was built in a few months, on an old raggedy PC with a shitty monitor, using free software.
I came from nowhere, poorville USA, with not a single connection to anyone in the tech industry. What I had, is something to demonstrate.
The only critical, truly valuable components in all of that, is that I self-educated and I took the initiative to reach out and connect (it costs little other than the willingness to have doors shut in your face until one opens). The US happens to possess the world's greatest public library system. There are in fact few excuses. Email people, connect, start networking, contribute, read some books about how to do it from your nearby public library. How much do you want it? I wanted it pretty bad, it's a choice you make.
>Oh Paul, you know better. I had to borrow money from my mom to pay my taxes when we were starting Cloudflare. But I certainly came from a relatively privileged background, and so did the AirBnB founders. It’s hard to take risks if you don’t have a safety net. #bereal
And Pinboard's take on it.
>This is a masterpiece of the tweeting arts. Two of the founders of AirBnB went to RISD (a prestigious American design school), while the third was a Harvard grad. The conceit that 'rich kid' refers to one's account balance, rather than social class, makes me drop my monocle
https://mobile.twitter.com/Pinboard/status/11302388081408000...
Incidentally, having taken multiple business trips to SF (as well as traveling there for interviews), it's plainly obvious how Airbnb is so successful there. Hotels in SF are terrible.
Preventing direct competition between the long-term rental and hotel markets is supposed to prevent locals, who provide value to the economy in other ways (income taxes, participation in the employment market, etc.), from having to compete with the price-inelastic demand of short-term travelers.
If an apartment can rent for $1000/month in the long-term market, or $200/night in the short-term market, it could provide higher value to its owner on Airbnb while being vacant 83% of the time. But the total value to the community is diminished.
Creating so much rental supply that the nightly price of hotel rooms is effectively driven down to the cost of long-term rental (so that long-term renters aren't 'crowded out') would require a massive amount of excess supply. But who would willingly continue building such supply right as returns were falling off a cliff?
Like any company, Airbnb should be subject to and comply with local laws.
Nightly rooms are always going to have a premium over long-term rentals. In a healthy market, this merely accounts for the increased risk and hassle of having a new guest every couple nights instead of having a single tenant for a year or more. It's not actually cost-effective to repurpose inventory unless you have an even-worse shortage in one market than you have in the other.
Deliberately separating markets by fiat, incidentally, doesn't really work out, and other instances of this behavior (eg zoning) is another root cause of this problem.
100% of the inventory on Airbnb is repurposed from elsewhere. People aren't constructing new buildings to list them on Airbnb.
Re-purposing inventory is far more cost effective than actually building a new hotel because:
- You can't hide a new hotel and would actually need regulatory approval for it, while you can list an existing apartment on Airbnb illegally
- You would need to meet the ongoing requirements for a hotel like paying commercial property taxes, having 24/7 staffing and meeting health and safety standards
- It doesn't require millions of dollars of capital
As a tourist, it's amazing to have the additional options afforded you by Airbnb. It's often cheaper, and even when it isn't it lets you rent types of accommodation that you just won't find from normal hotel businesses. You can stay in parts of town that don't have hotels. I get that. But cities aren't run for tourists, they're run for the people that live in them.
A shortage of hotel rooms, at worst, constrains your tourism economy. A shortage of apartments makes your city unlivable. Allowing inventory to move from one market to the other freely may maximize revenue for landlords, but it doesn't serve public policy goals of affordability.
Many tourist cities (Paris, Barcelona, etc.) have a shortage of hotel rooms during peak season (try searching the price of a hotel room in central Paris in June). With unrestricted Airbnb, that market can gobble up long-term rental capacity, effectively transforming a tourism industry problem into a widespread affordability crisis. Now try searching Airbnb in Paris for June, and look for the listings in Chinese characters, which will be illegal hostels with 8 or 12 bunk beds crammed into a 1 or 2 bedroom flat, things that no sane person would ever certify as safe for occupation - but that do generate additional profit for their owners. You will also find plenty of 'whole apartment' listings that are available 365 days a year.
Of course, introducing more supply for tourists will bring down the cost of tourist accommodation, which will bring more tourists. But does Paris want more tourists? Does Barcelona? Aren't those cities and their voters entitled to decide for themselves? Why won't Airbnb respect the decisions made by the people who live there through their democratically elected governments?
Sure. That also includes people with 2-3 bedroom homes who only use 1 bedroom and other "part-time bed-and-breakfast" use cases. The original concept was to allow "burst capacity" for peak times.
And if all of your existing housing gets consumed by people who list it on Airbnb, then obviously there's a market demand for even more housing, so it will be profitable to construct that housing. Even if people don't construct housing just to list it on Airbnb (are you sure about that?), they might construct housing because there's higher demand for housing. In a healthy market, and in the long run, Airbnb won't actually displace anyone; it'll just lead to the construction of more housing. The problem is that most cities don't allow a sufficient amount of new housing construction.
> Now try searching Airbnb in Paris for June, and look for the listings in Chinese characters, which will be illegal hostels with 8 or 12 bunk beds crammed into a 1 or 2 bedroom flat, things that no sane person would ever certify as safe for occupation....
Well then, we should be grateful to Airbnb that they are providing everyone, including Parisian law enforcement, such an easy-to-use search engine for illegal hostels. This isn't exactly a hard problem to solve.
> Why won't Airbnb respect the decisions made by the people who live there through their democratically elected governments?
I'm not aware of Airbnb, as a company, violating the laws of any of the countries they operate in. If you are, I hope you've told someone.
> The local government in Barcelona is embroiled in an ongoing legal dispute with the company. In 2016 the city council fined Airbnb €600,000 for continuing to advertise unlicensed flats.
From https://www.investopedia.com/articles/investing/083115/top-c...
> New York City is Airbnb's largest market but, according to the city, as many as two-thirds of Airbnb's listings are illegal.
etc.etc.
[edited to correct a mispaste]
Lots of property management companies basically stick a human face on AirBNB and then rent them out for short term for far more cash. Has been happening for the Toronto area for sure.
Then you've got the unruliness of guests, especially those close to the bar districts - https://www.cbc.ca/news/canada/ottawa/ghost-hotel-byward-mar...
And then you have hosts that cancel on you, often the same listing goes back for a higher price, because they know they can ask for more.
pg: It merely says he was an early investor, not that he invested in 2010.
> "First Round ultimately led Uber's $1.58 million seed round, with participation from more than 30 other investors, including Amazon's Jeff Bezos, Ashton Kutcher and Airbnb founder Brian Chesky "
pg: Sure enough, you seem to be right, at least if this article is. By 2010 he may have had some money. I doubt he invested much though.
They are a very poor example of value creation, and I’m stunned that PG considers them a positive example of anything. Show me a business that creates value that didn’t already exist and praise that and I’ll root from the sidelines. Instead, PG chose a skimming racket.
It was this cultural change that created value.
Airbnb solved the trust problem inherent in providing or consuming an illegal service.
AirBnB is a gift to rich out of towners.
There are some 'real' Airbnbs - people renting out a room in their primary residence, or the whole place for a few weeks a year while they're away. I slept on an expat's floor in Yangon for $10 once (via Airbnb). And that is real value creation. Sometimes it's just a good discovery mechanism for legitimate vacation rentals (like beachfront homes in resort developments in Hawaii).
But 90+% of it is illegal hostels and hotels in apartments or homes removed from the long-term rental market where the 'value' is just not having to pay taxes, meet fire code or respect restrictions on where hotels can be built.
Inequality, IMHO, will always exist. But so long as there's a chance to chase an idea, there's hope there will be equality that everyone will find equally just.
Except some people are starting within arm's length of the rabbit and some people are not only starting the next state over, they're chained to a concrete block. "everyone has a chance" is bollocks when those chances range from "virtually certain" to "virtually certainly zero".
Also, people there are conflating the terms "rich" and "privileged." You can have everything Airbnb's founders have and still be poor.
Paul should be more careful with wording, though.
Almost every successful entrepreneur have multiple failed startups in the baggage. But you are already privileged if you are able to fail multiple times and still bounce back.
Having said that, there are some people on this planet who are truly underprivileged and can't afford not even a device with internet connection but the very idea that startups could be built by individuals. That's scary.
And free time.
Otherwise, yes, money is crucial to building a startup. As well as the oxygen you will be breathing while building it.