Airbnb closes $500M round of funding at a $10B valuation, led By TPG
techcrunch.com
techcrunch.com
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.
You'd be crazy to pay more than a few cents more than the market price for 1 share of AAPL, because that price represents the value the most marginal AAPL investor places on the stock: Offer him a penny more and he'll sell it to you. But there are investors standing behind him who think AAPL is worth more than the current price. As you need to buy out less marginal investors, the price to get them to hand over their AAPL shares will rise. Thus 1,000,000 shares will cost you more on average than one regardless of the value of control.
The same works in reverse with AirBNB: If they sell one share, it will go to the most enthusiastic investor who thinks they're a future $1T company. If they try to sell 1,000,000, they have to work their way down into those investors who believe AirBNB is a more marginal opportunity, and the average price will decline.
It would be interesting to probe into further, but the most directly applicable data is probably fairly hard to get ahold of, given that it's investment/acquisition offers not taken in lieu of the other.
Supply vs Demand is tricky....
In one case of selling shares you are inflating supply and thus dropping price, and when you are buying shares you are inflating demand thus raising the price.
Speaking of Twitter last night:
https://storify.com/ramcha/danielle-s-truthstorm-tips-on-sta...
The naive extrapolated "post-money valuation" number is still significant under many scenarios, and perhaps even the 'modal' (most-likely) or median scenario envisioned by the business insiders who are selling the shares.
After all, it's the exact price that, assuming a 1X liquidation preference, the venture would have to appreciate beyond for the VC to make any positive return – which is after all the whole point. It's the exit value at which the insiders take exactly the negotiated dilution, not extra dilution to protect the investors. (If the insiders' own reserve value was less, they'd likely be selling larger stakes, or the whole company.)
Generally, also, minority stakes like this have a discount to the full-company value because they're at the mercy of the majority/control stakes. (Though, preferences affecting governance also affect this.)
At such a large valuation, and such a small (5%) stake, I wonder what preferences were really offered. It looks like a raise from strength, like Facebook's pre-IPO raises – another time when armchair skeptics scoffed at the implied valuations (which in hindsight were bargains). Maybe the preferences aren't that big in such a case.
It is obviously possible for Andreeson to simultaneously be chief among "bubble deniers" and also correct about private company valuations.
This is definitely ad-hominem, yourself.
> It is obviously possible for Andreeson to simultaneously be chief among "bubble deniers" and also correct about private company valuations.
Whatever, dude. Marc's point may be relevant for small slices of small firms, but no one has ever spent $500M on what are effectively equity call options outside of a bubble. As such, I posit in the case of AirBnB his logic is not applicable. So he's only just a bubble denier and not correct about private company valuations.
No one has ever seen a black swan outside of their dreams. If you see a black swan, you must be dreaming.
You'll have to actually address the points themselves, sorry.
That means there's a chance of personal bias in his opinions, not that he's automatically wrong.
It does illustrate how these don't mean anyone actually has $10 billion cash[1], but that wasn't the point here.
[1]: which does still confuse many as shown and explained here: http://money.stackexchange.com/questions/11368/how-are-start...
The difference between the private and public equity markets is scarcity of stock. Liquid dollars from wealthy investors chasing a small supply of transferable stock plumps valuations. Large rounds mitigate the risk that the company is selecting obscene price points.
> a 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
Value investors don't invest in IPOs - growth investors do. IPOs are marketed and bought on the basis of their asymmetric upside potential. VCs have no exclusive claim to optionality (originally a PE term).
> these aren't common shares; they're shares with privileges attached to them
VC preferred shares generally convert to common upon IPO. Valuations which make sense for privileged shares must thus make sense for the common past the IPO.
http://www.nytimes.com/2007/10/25/technology/25facebook.html...
One speculation I have that might answer my first question is that they're going to spend this on lobbying and legal battles.
The 10 Billion figure is typically "Pre Money".
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.
That way AirBnB just acts as an intermediary and doesn't need to deal with the fussy details.
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_collaps...
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.
I'd also like some way of organising the key drop-off.
A couple of companies are already doing this as a standalone service:
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.
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.
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.
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.
Airbnb is in for a very rough ride in the near future.
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...
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.
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.
Does anyone know if that's before or after payouts to hosts?
- a payment processor doesn't label all money flowing through the system as revenue, just their cut of it.
- a marketplace like Etsy has gross merchandise sales that tracks how much has been bought on their platform, and revenue just accounts for what they took in
An example: 1) An advertising agency buys media for a client to place ads in, but their contract with the media company says they will only pay for the media if they are paid by their client. In this case they can only recognize their commissions and fees as revenue, not the cost of the media itself. 2) An ad network buys media for a client but has to pay the media company for it whether or not the advertiser pays them. They can generally recognize the cost of the media as revenue, along with their commissions and fees.
AirBnb does not take risk on the portion of the customers' payments that go to the host: if AirBnb is not paid then the host is not paid, so this part of the payment is not recognized as revenue.
Still seems crazy high, but seemingly not out of line with other recent tech valuation multipliers. There are some other insights in these comments that seek to better explain the valuation.
[0] http://www.wired.com/2013/10/twitter-files-for-ipo-2/ [1] http://mashable.com/2014/04/16/weibo-ipo/
They are all getting into legal troubles by trying to replace the status quo with a more efficient process that happens via the internet.
The places most likely to reinforce the established industry are exactly the places airbnb needs to be most prevalent. I'm not saying there isn't a path through the thicket, just that I'd love to see how they are saying they can get there. .5B only buys so many politicians in so many markets. Guerilla resistance by entrenched interests with force applied by upset neighbors could easily swamp cash reserves.
Tesla only has to fight each state due to sales channels and they have a product which doesn't offend people driving in the car next to them.
Airbnb might be fighting city to city and their service providers would really annoy plenty of neighbors. With the small surge in speculative buyers who never owner-occupy, their success would come in a zero-sum game with neighbors. Your condo is worth less if there is a stream of tourists stumbling through the commons all the time.
I can definitely see space for a company to move in and claim to follow all laws (and actually do it), and for the rest just copy AirBnB exactly. Users would just feel better knowing they are complying with laws and not annoying neighbors. They could even start now and take the high road, for example advocate for reasonable reform (allow only owner-occupiers and only 30-60 days hosting max per year). Yes, they're limiting their market, but they gain huge mindshare and free media, and they're also avoiding the (admittedly small but non-zero) risk of going down in flames.
Also, local copies of AirBnB can spring up very easily. It would be very easy to add just enough local knowledge to a product that makes it better than AirBnB. For example, you could add local attractions on the maps, local restaurants, local partners offering discounts (in a way you can't do with targeted ads). Hosts might prefer the specialized website since they won't be competing with so many nearby areas.
They aren't in the hotel business, they're marketers and matchmakers.
http://gawker.com/5853754/the-seedy-spammy-past-of-airbnbs-c...
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. :'-(