7 Rejections
medium.com
medium.com
Based on a collection of screenshots I put together of Airbnb's homepage over time (using content from the Internet Archive) I wouldn't have invested either in early versions of Airbnb:
http://www.startuptimelines.org/startup-timelines/airbnb/
Fred Wilson got his email from PG, I believe, in January 2009 and if you look at the Airbnb homepage then - the site is no where near as promising as it is now.
As someone who spent more than a few years in sales, I was trained to take rejection as a positive. The more rejections you get, the closer you get to a sale. The only time you don't is when you stop looking for more clients.
It's all a numbers game. If you look at rejection as something that gets you closer to success, you'll be encouraged, instead of discouraged when you get these types of letters.
I had never understood how "air" fit with B&B. It wasn't until I saw the original screenshot that I understood that it's "AirB & B" rather than "Air B&B".
The fundamental business model of Airbnb didn't change through all those homepage iterations—those were just redesigns of the exact same concept. In fact, for the time I think Airbnb's original designs were quite current.
its not like they pivoted... maybe the homepage pitch changes...
All this episode should highlight is that founders should not think that VC's have some sort of wisdom when they reject...
They follow only one wisdom and that is traction... if you got that and in huge spades, then everything can be explained in a wise manner.. and we will marvel at their wisdom.
I disagree somewhat. I think that is hindsight bias to relate the website's 2008 designs to cause&effect of VC decisions.
The April 2015 website designs looks "prettier" but as far as communicating to unknowing customers (and uninformed VCs) what Airbnb actually does, the "uglier" 2008 designs are actually better.
Notice that the 2008 designs have icons/pictures of an actual "bed" and a "breakfast". It's concrete visual communication. But the 2015 photos instead, show "people" in what I call "aspirational lifestyle" poses. It's abstract visual communication. (And I just took another quick look at airbnb.com today July 13 2015 and now the home page shows photos of "destinations" overlayed with city names in prominent white font. So now the page design taps into the romanticisms of the Condé Nast Traveler. The visual abstractions continue.)
I think it's fascinating the lifecycle of companies's visual style that transition from The Concrete --> The Abstract. The visuals including marketing, advertisements, and home webpage designs.
The concrete approach has to show the actual product. The abstract does not.
At this point, I think Airbnb can get away with abstract visuals because they are well-known enough now to not have to waste landing page pixels on an actual "bed" or "eggs & toast". That's what 7 years of penetrating the public consciousness allows you to do. These days, I would guess that the majority of visitors already know (by way of friends & family) what Airbnb does before they visit airbnb.com.
Therefore, if the company is a startup nobody knows, they must use concrete visuals. If a company is established and successful, they have the luxury of being abstract. I don't think tomorrow's YC2016 unknown company should base their website's information design based on airbnb's 2015 website. Instead, look at their 2008 designs even though they are uglier.
Other examples of companies doing abstract visuals:
Nike's "Just Do It" commercials often do not highlight any shoes in obvious ways and instead show sweaty people running or playing.[1] (If one didn't know Nike was a shoe and sports apparel company, one might think that commercial was about karate lessons.)
Viagra commercial don't show the actual pills but instead shows older couples holding hands walking the beach or a guy sailing a boat.[2] This is unlike many Tylenol pills commercials showing the actual pills.[3]
Even in the tech world has examples. Anyone remember the old IBM OS/2 Warp commercials in 1990s? The entire commercial was showing people's faces looking at a computer screen (presumably of OS/2). The camera didn't show what they were looking at -- therefore you saw no GUI demostrations. The camera also didn't show the software box. It was just a bunch of reaction shots of people's faces showing astonishment ("wow!", "cool!", etc). [4]
The abstract commmercials from Nike & IBM are not suitable for convincing investors who don't understand athletic shoes or operating system software. Likewise, the 2015 versions of airbnb.com showing abstract lifestyle photos are not useful for potential investors either.
[1]https://www.youtube.com/watch?v=Pp5dZZBKTXQ
[2]https://www.youtube.com/watch?v=y1ZqQ55T25c
The thing I took away from your timeline of airbnb was the same thing I think successful people try to explain time and time again, and it's the same lesson that makes the investors passing up airbnb seem more like a minor, unavoidable incident. The lesson is that a business or idea isn't a success until a team works mega hard at making it a success, and even then it has a huge chance of failing.
This lesson is made clear to me in part by the reminder that airbnb has been around since the first year after I learned to program, and that feels like an eternity ago. If I spent 3 years working on a brand with a good team and with VC backing, I'd expect to see some resemblance of success also, as long as the idea wasn't terrible. Hard work pays off, but it's easy to look back at these success stories as some sort of lottery winners.
That list of rejections was very, very unlike my experience trying to raise VC, which was more like 7-10 VC firms giving meaningless "yes, soon!" responses until we gave up.
I've heard the same happen to friends attempting to seek investment in 'music' and 'gaming' businesses - clear rejections based upon their 'category'.
To be fair, I guess making huge returns is not their prime policy or maybe their investors have a policy against certain investments due to moral or some esoteric reasons.
You cite esoterica, but perhaps investors just feel more comfortable with certain areas - or ones they have the in-house experience to evaluate properly - or that are easier for junior partners to sell to the folks higher-up?
I'd understand if this was Ontario Teachers Pension Fund or something like that where a large amount of capital had to move around to generate some sizable returns. Even these money managers are scrutinized for bad decisions.
The whole 'not our area of focus' seems to be the same line mutual fund managers use during report card season by writing off bad picks and claiming they beat the market.
Having said that, there's perhaps something to be said for picking one's battles?
Indiscriminately attempting to capitalise on any lucrative opportunity seems like a common road to ruin (feature creep, startups that put everything in scope, https://xkcd.com/793/).
For example, make 1% stake bets stretched across 100 startups vs 20% stake bets stretched across only 5 startups I "understand" or feel comfortable with. Isn't the risk inherently bigger if you chose the latter? If one of those 100 startups end up producing low to mid 5 digit ROI, shouldn't that cover for the 99 other bad bets? The probability increases since you are not introducing any personal biases and exposed to more upside potentials.
This advice comes straight from the oracle of Omaha himself, "Never invest in a business you can't understand."
My guess as to what made us different than Airbnb circa 2008--maybe some of these apply to you, too:
1) Founder with previous exit/acquisition in the tech space
2) Product had some traction (paying customers, including a F500 company)
3) Product was in a domain that most VC's/angels didn't have experience with (in my case, software designed for marketing teams) -- some were nice enough to outright reject us based on the fact that they had never been in marketing; the people who had previously been in marketing almost immediately saw the need and said "YES" right away; many of them saw that we had traction but felt like they needed to understand the market better to see what we were seeing, so to speak.
So far, angel investors have been much easier to work with, although admittedly we chose to focus on customer growth once we had that first round of disappointing VC results.
I think, per the other comments, your background makes a difference (assuming you're talking post-Matasano) in how the message was delivered.
I think a lot of VCs explicitly (or at least implicitly) prescribe to Warren Buffet's advice of only investing in things they understand. So if you talk to a VC focused on security, they're much more likely to invest than a VC who is kind of interested in security but has never invested in it. That VC, in turn, is more likely to invest than someone who is not particularly interested in security. If an investor really likes marketplaces or security companies or B2B SaaS or whatever, there are enough great companies in each of those segments to make it okay to ignore the other segments.
It's also valuable to remember that partners at larger VC firms often lead 1-2 investments per year. Their performance is determined by the 3-5 decisions they make during a VC fund's life. It's hard to stake 20% of your performance on something you feel like you don't fully understand.
Angels and smaller seed funds are sometimes easier to work with because the former are motivated by more than financial returns and don't have their salaries/jobs at stake with each decision, while the latter make a lot more investments per partner.
I'd subscribe to Taleb's black swan model, except the complete opposite of what he did which was making small bets that market would crash.
Capture unexpected, phenomenal returns without introducing any personal beliefs or bias and making equally sized small bets across as many startups as possible. If you can get like 60,000% ROI then the model becomes sustainable, unlimited upward potential with a limited and tiny risk.
I think I've heard of a VC firm that does that. Trying to remember the name... wait... Y-Calculator, something like that, maybe?
For clarity's sake, I've sat on tremendously effective boards at the companies I have either run or had a senior role at, and I think there's incredible value to be had from a good VC relationship. The economic realities of raising can be frustrating, but it's a reflection on the industry rather than the individuals, I believe.
Early stage investment is just plain hard, and I think your point about the quantity of deals led is key.
> to Warren Buffet's advice of only investing in things they
> understand.
This is very very true.
And entrepreneurs MUST not take money from VCs who do not understand the market. Sadly sometimes VCs think they do know but they actually don't know what they don't know.
The worst marriage is when both entrepreneur and investor don't know what they don't know.
Maybe it's a goof thing angels are doing bigger rounds taking your place.
Also, investors typically invest in areas that they're familiar with, but that can be a pretty inclusive criterion. For example, I've personally worked on payment fraud detection before (as an engineer), so that makes me feel comfortable investing in fraud detection, but also credit assessment (similar algorithms), a large number of startups that involve lending or payments, and so on. For another example, my fund invested in Flexport (a recent YC company that handles shipping logistics for companies). My partners and I didn't have any personal logistics experience, BUT one of my partners worked at a company that struggled with imports and shipping, so he appreciated the pain point. Also, Flexport's CEO, Ryan, is a force of nature and had been working in the import/export space for 15 years, so he was very credible. That was enough for us to invest despite not having logistics experiences ourselves.
In the Airbnb example -- and I wasn't an investor 6 years ago so I don't know what their pitch was like -- I'm guessing if the founders had a bunch of lodging-related experience, or if they had previously built great companies, or if they had a few more data points that showed the viability of their model, that could've helped.
Finally, here's the challenge from an investor's point of view: you see 1500 pitches per year. The majority of the pitches mention something like "we're going to be a billion dollar company" or "we're going to create an entire new market." One or two of those 1500 companies will do just that, ten or twenty companies will get kind of close, and the other 99% won't be close at all. In hindsight, it's easy to look at Airbnb or Uber and think that investors were short-sighted. Maybe they were. But a lot of early stage companies look simultaneously promising and risky in their early days, and most of them fail, so investors understandable err on the side of pessimism.
I really dislike the escalation of pitches. As you said, almost everyone says that 'we will become a billion dollar company' or similar claptrap - but that just means that people have to make more and more extraordinary claims to pierce the cynicism (fully justified!) of investors.
I'm not opposed to VCs on abstract, and I'm happy to see people trying to do good work on the area. Your area is hard, and if you can improve it, everybody wins.
I also got widely off-topic, because I was complaining that todays VC wouldn't have created the Silicon Valley, not that they couldn't see Air B&B. That said, I'm still not convinced you are liberal enough to do this. (Not that you should.)
In theory by doing that they were raising the potential price for those that would end up investing. Their competitors. If you felt you had "plan b's" you'd be less likely to lower your expectations on value than you would be if you had 7 firm rejections. 7 firm rejection might mean "take what we can get".
Here is an example using car buying.
If a car is sitting on the lot and has nobody expressing any interest the dealer may possibly want to unload the car and take whatever he can get. Otoh if the dealer feels that he has 2 or 3 people interested in the same car he will then be less likely to take a "short" deal from the 4th person who walks into the dealership. He will feel there is potential and it is worth the gamble to wait feeling he has a few plan b's.
(Forget for a second whether this actually happens with car dealers I am only trying to illustrate the theory of what I call "feeling fat" which I have seen many times in business).
Of course as a group it's hard to explain why all participants would act this way or that this even happens. However I don't feel individually they are disadvantaged by this behavior at all. While there might be a reputation disadvantage to stringing someone along unless they are absolutely sure they will not invest why not string someone along?
I was one of the angels who simply didn't respond, in part because I was busy with my own startup, but also because the idea of a marketplace for renting out air mattresses just didn't sound very appealing...
"How would I go about presenting my company in such a way that it'd seem so unpromising that only smart investors would give me the time of day?"
It feels like maybe there's an "uncanny valley" between "no plausible way this team is getting funded speculatively" and "no-brainer straight- to- partner- meeting".
I mentioned to you in a reply, below, that my marketing software company got immediate YESes from angels who had been leaders of marketing teams and intuitively understood the need for our software. I think my record time to close an angel was under 2 minutes. For those who had never led or been part of a marketing team, it was an uphill battle the entire way.
Once I learned that filter, I was able to raise money more quickly, with much higher close ratio.
"You could easily have made this point without degrading men."
In his story he generalizes men as playing the fool and makes no generalization about women.
There was no generalization made at all. He never made reference to gender of the person walking into the bar. It could have been a woman walking into a gay bar.
My apologies.
The degradation that I saw was that, in the analogy, women are sexually objectified. Women appear in the story exclusively in a sexual context, where there is no good reason for that. The context makes it clear that this is normal and expected within the (male) OP's world.
"No one would dare miss out hitting on the blonde". There is a clear generalization here, that everyone should find blonde women most attractive, or at least be socially required to act as though they do. Perhaps women are also expected to find the blonde woman most attractive, or perhaps women's opinions aren't really worth considering.
You might re-examine your own gender and sexuality biases in this context.
I'm actually being sardonic. The political correctness police are a bit tiresome. My point is that, if one wishes, they can analyze any statement to be as sexist, racist, homophobic, etc... Including yours.
>The degradation that I saw was that, in the analogy, women are sexually objectified
If women are 'sexually objectified' by other women is it a problem?
Why did you overlook the completely racist message in his analogy? Assuming most men prefer blonds assumes white culture, which is racist since I doubt black and asian men feel the same. I don't know, maybe I'm racist for doubting that assumption?
Also if a character's gender isn't identified in a story, is it sexist to assume that character's gender is the same as the storyteller? I was guilty of that one too.
This where the P.C. police trip over their own logic and fall into the pile of B.S. they've created.
On Dec 13th, 2012, I wrote the following email to you, after having applied for a “Head of Community” position at AirBnB. I didn’t get any reply either. Note that I cannot claim I became the big success that AirBnB has after these “rejections”, but it still surprises me that you or your org didn’t even wanted to talk to a Technology Evangelist from AWS. I guess you did a similar type of mistake with me.
"Hi Brian, I know you’re busy, therefore I’ll keep it short.
My name is Simone, I work in San Francisco for Amazon Web Services, and I’m interested in becoming the Global Head of Community at Airbnb.
I think I have what it takes to be successful in that role, and I’m a big fan of Airbnb.
Let me know if we can discuss, or if you want more details.
Have a great day,"
You were sorta putting your situation on a par with investors missing out on investing in the early stages of a company now worth $24bn. That is to say, them not paying attention to you is equivalent to missing out on an absolutely mind boggling amazing opportunity (in hindsight).
Now, you might truly be as awesome as that but people tend to vote down comments where people are blowing their own trumpets, for better or worse.
So, you've got some hurt feelings (this is understandable, nobody likes being ignored), your post sounds a bit like sour grapes, it's only tangentially related to the article, and that's probably why people downvoted you. What's the point of trying to embarrass the guy here? It just looks bad for you, I would just delete everything honestly.
They said "I'm honestly curious on why [the comment was downvoted]". I conjectured the original heavily downvoted comment may have been interpreted as boastful through comparison of a personal situation to AirBnB's and that's why people may have voted it down. I received 17 upvotes for this speculation which may (or may not) support my hunch.
May Simone, and everyone, do "something awesome." But not merely, as you, passive aggressively (and quite needlessly) conclude, to "show" anything up.
I don't know Simone either, but I'd say there's a fair chance he can contribute more than some illegal hotel scheme. I was pretty disgusted that you value this hype above a human being, and I don't care what 17 other similarly amoral individuals may have said.
No, I didn't.
The nature of being "vague" or "indirect" means it's impossible to accurately determine an objective meaning. Thus, any conclusion is conjecture.
There was no value proposition in this email. For an email like this to be worth responding to, you have to provide a brief, no BS, explanation as to what compelling value you're bringing to the table. The only exception to this rule is if you're famous for your accomplishments in that specific role (in which case, they're probably pitching you already anyway).
Finally, nobody owes anyone a response to a cold-call email. Especially not people that get hundreds if not thousands of emails a day. Don't take it personally.
The winner of a lottery could go around telling people not give up buying lottery tickets...
The reason this is the exact opposite of winning the lottery, is that the lottery is the equivalent of saying, "Please, a higher power, change my life by granting me all that I want.", whereas someone getting their company funded is more akin to saying, "I want to take full responsibility for the failures and successes of my own life, and to even become responsible for the livelihood of others.".
In short, they are worlds apart as far as mentality goes. Regardless of the success of the company after the funding, going forward with a company in the face of such utter rejection by those who the author viewed as "smart people" takes a mentality that is shared by pretty much all of those who have achieved similar success.
In clearer words, it's confirmation bias: there are thousands of ideas and startups pursuing them. Most fail, some succeed, a rare few become AirBnB gorillas.
Pitching for VC or angel investment is not a fixed game with a set of pre-determned rules, and also does involve skill. So I would say that it's not really the same as buying lottery tickets. Also unlike a lottery where you have an even playing field there are people who do have advantages (friends with wealth, a good network, track record, etc.)
Now are the odds against you? Of course! In fact you can still raise VC or angel money and still go under, and in fact most will. But in a broader sense the same rules apply to starting any sort of business if you think about it.
(Becoming a very successful startup founder can be better compared to becoming a famous actor or athlete. A successful athlete may also tell students "don't give up, I succeeded", but that doesn't make it good career advice for most people.)
Like Guy Kawasaki once said, "Don´t Let The Bozos Grind You Down".
Explaining why something that is small today could some day be huge is so hard.
- People having strangers stay on air beds in your homes, while you were there, and then serving them breakfast in the morning - It was ONLY targeted at conferences where people would become so desperate for space that they'd stay anywhere (that's how the company got started - big design conference in SF. Here you can see they were focusing on the DNC and RNC).
This is a really implausible idea for one, a really small market (constrained by hosts but also conferences that fit the criteria) for two, etc.
What the story became when they broke through was about turning the excess living inventory hundreds of millions of people have into a place for people to stay. This has benefits for both sides it turns out and is widely applicable and massively scalable.
Those are really, really different stories. Like, startling different. But if you can't not only tell the second one but also show some evidence that it could be so, your stuck with the shitty first story. When they started seeing the behavior during YC that pointed them to the second story, they focused the company on it which caused it to grow, investors better understood the potential, and slowly over time it became trivially easy for them to raise money.
Actually, seems to be very easy to some people. And quite funny, often those people are not very good at executing business so it will never be actually huge. But they are good at explaining.
To really compress (and make assumptions) I think they went from a sort of "coach surfing for fun and profit" to "holiday rentals" as their central point. They still do the full spectrum, but I think the Air mattress end is pretty small now.
I think the take aways for trying to pick winners are:
(1) Execution and steering the ship are everything. They were not the first startup to try this sort of thing. The idea itself was a dime a dozen, like many others. App for calling taxis. Classifieds. Restaurant reviews. Online profile. Video sharing site. These are all pretty banal ideas. Lots of attempts were made at all of them. Picking winners is about picking a winner, not picking the race.
(2) Try to see "markets" as their full spectrum. High end, low end. Business, consumer. Freaks, mainstream. Coach surfing is a different place on the same spectrum as Hilton. Startups often move up and down spectrums much more easily than mature companies. Tesla could make a budget car next. Jaguar can't. AirBnB can handle mansion rentals for billionaires. Grindr could probably pivot to over 50s Catholic matchmaking easier than one might think.
The problem is, and the reason VC's need to consider the quality of storyteller you are, is for a business that plans to be capitalized over several rounds, it's a fundamental risk not to have somebody on your team that can tell that story. Secondly, you're going to have to tell stories to your TEAM (internally) and the world (externally/marketing) that will have a huge impact on the future of your company as well. So it matters.
It turns out, Brian especially at Airbnb is a natural story teller, he basically can not stop telling stories when he speaks publicly and they're all good. They just didn't know what story to tell yet :)
I'd immediately pull out my funds as an investor out if I found out the names of the people writing these rejection letters. It would also be bad for street cred. "hey these guys missed out on the deal of the century, who else did they reject?"
150k is like peanuts to these firms with millions of dollars to throw. Hell, I'd bought out of the money put options near expiry if it meant there was a slight chance it would have potentially unlimited returns.
And like that guy who said he's going to see nd me a business plan in an hour, I've yet to hear from. One clear distinction is that I am also investing in the person, and if they can't hold up their end or if they think it's an easy way to swindle a years salary they are fucked in the head. I'm here to make bets not run a fucking charity, excuse ma francais.
A smaller fund might invest across a series of funds, but not have deep enough pockets to follow the money even if they have pro rata rights. In comes the larger investment firm with lower risk tolerance (potentially) for the series A. Win win win.
When you figure out how to determine that before the fact I'm sure there are plenty of VC firms who would love to hire you.
> who else did they reject?
They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
My email is in my profile (if anyone wants to hire me). I've described a strategy that involves making small bets across large number of startups and not focusing on making judgements or even attempting to figure out how much this startup is going to be worth (as you say VC are human, why introduce that inherent bias to a numbers game?) because like we witnessed with the guys who rejected Airbnb, their own bias towards safety incurred a huge opportunity cost.
> They rejected countless startups that have since failed (and surely some other that have succeeded). VCs are human, you can't expect them to have the clairvoyance required to only invest in eventually successful companies and only turn down eventual failures.
Exactly, which is why I feel like they should ignore their own instincts and thought processes. Even if they were able to land a few successful ones, how can we be certain that it was not the work of dice rolling? Studies show that most money managers perform no better than buying the index or throwing darts, what makes you think VC's suddenly have improved odds?
Give me an hour to come up with a business plan, and I'll shoot you an e-mail :P
Secondly, for tech hiring, a few bad hires can ruin a company. But, angel investors and small funds generally invest in a wide range of startups knowing full-well that most of them won't succeed. But, one success is all that's needed to 10x the value of the fund. Given the payout probability and payout value of startups, it's a pretty different game from tech hiring.
Because they've typically been able to slow this curve, waiting until the next round usually hasn't caused them to lose nearly as much upside loss as it would, were the market more efficient.
With IPOs being pushed back, and more sophisticated IB investors moving into much earlier rounds now though, this is finally starting to change.
Keep this in mind whenever you hear VCs shouting "bubble", just because some top startups aren't following the smooth exponential curve in valuations, that any competent trader or economist could tell you should never exist in an efficient market.
I don't really see that applying in the sense of obtaining venture capital, as it is well known that you aren't going to immediately walk in to an office and hand them a check for the valuation you asked for. It's going to take a bunch of both hard and soft rejections, but a person isn't usually going to be in that room pitching to these VCs if they don't already strongly believe that their startup is fundable.
This pertains to the conclusion (and thus the premise) of the blog post:
"Next time you have an idea and it gets rejected, I want you to think of these emails."
The message in my comment is, don't allow yourself to fall pray to the backfire effect when people reject your ideas (whether VC, colleagues, etc.). If people reject your idea, it might mean it's not a very valuable idea, as opposed to being an indication that you're on to something that's so radically new and different, etc.
This ranks just below my favorite answer:
"We love that you have 1M users, but we need to see 10M before an A round. (Month passes). Oh, really 10M users that's great but we like to see 50m before doing A rounds now. Come back later!"
Of course, you won't need this chump change fund's money when you reach that point.
So, this is just gambling. I'm not sure of what interest that would be here, but that is of course a personal opinion.
I think that's quite the understatement. But then, one could easily say this about most big brands, no? Brand happens to be really really important.
Many people have, and some (Roomorama, FlipKey) are reasonably successful. Heck, there's entire sub-sector of vacation home rentals (HomeAway, VayCayHero) that has publicly traded companies operating in it.
The problem with two-side marketplace is the trust. Bait-and-switch and similar scams have plagued marketplaces like CraigsList. You arrive at a place, and it's not what the photos look like. You make a reservation, and are told at the last minute that it got "flooded" a night before, and now the host gives you an option to switch to an inferior place or pay up more for a better-looking option. You arrive and find out the place is not for rent, and the photos have been taken by some scammer who thrives on taking small deposits and just repurposes same photos across multiple sites. Then it degrades into horrors like this one http://www.dailymail.co.uk/news/article-1205794/Rape-horror-...
Building a trust network and keeping a reasonably clean two-side marketplace is very hard, and is a major asset.
The most valuable thing about AirBnb is the market capture. You can no longer easily compete with them because of the network effect that is now in place. Brand is irrelevant by comparison.
The competitive game is over, because they've taken the market. They were able to build from the ground up. To do what they did, now you have to take listings away from them, which you won't be able to do because of the reinforcing network effects, such as the listings, ratings, users, trust, etc.
They could change their name tomorrow morning, and it will not matter. They have captured 1.5 million listings, the owners, the user accounts, the ratings, etc. The only way to lose that, is to screw up the operational business (primarily either by really upsetting owners, or by missing a huge technology shift).
However, a few counter-points:
1) Brand value is critical. Look at Coke and Pepsi. Anyone can create a cola competitor, but no one can conceivably do better than these two. On internet properties, brand value is still important. Look at Priceline.com and Expedia. They still worth billions.
2) AirBnB has operational expertise that no one else has, in large part because they've been solving this problem w/ more funds and more man-hours than all of their competitors combined. More operational expertise = better service = beats out competition.
3) AirBnB is capitalized enough to buy out start-up competitors. Right now, most investors doubt someone can take on AirBnB. As such, most investors will push founders to go for an exit whenever possible.
So is Coca-Cola. In most cases, a companys brand is way more important than it's technology.
This is completely off-topic but since the $150,000 is going back to the business, wouldn't that mean that the valuation becomes $1.65M? The word "bought" makes it sound like someone is taking the money and selling their share.
(ergo the pre/post money valuation thing linked above)
The company's equity was worth $1500K before the investment.
After the investment, the company had $1350K of equity left because it sold 10% of itself, and it no longer owned that chunk of equity.
However, it had $150K of cash that its equity investor paid for 10% of the company's equity. So $1350K of remaining equity + $150K cash = $1500K company value. Same as pre-investment valuation.
It looks like the company's total value didn't change, it just traded 10% of its value for cash. Which is the point of selling equity - cash allows a company to pay for people and things. Equity doesn't.
A "company" can't lose equity it never owned any to begin with. The equity was transferred from one party (usually the founders) to another entity in exchange for cash.
After the investment, the company had $1350K of equity left because it sold 10% of itself, and it no longer owned that chunk of equity.
This is completely wrong.
>for $150,000 you could have bought 10% of Airbnb.
Does that mean for $150K I can buy as many shares as constitute 10% of the current outstanding number? Or that after I pay $150K, I will own 10%?
Since new shares are issued, in the former case I end up with 9.0909...% (1/11th) of the company. That gives us a post-money valuation of... $1.65M! (and $1.5M pre-money) But in the more probable reading of the phrase, I own 10% of the post-money $1.5M company, giving us $1.35M pre-money.
So, your choice. Someone more in the VC loop might be able to say that the phrasing definitely means one or the other; I've just got the math.
It is but, on the other hand, it would be equally sloppy to decide to fund an idea that you think seems pretty ridiculous and couldn't imagine using in a million years on the grounds that someone will find it appealing. With AirBnB, the real trick was that there was apparently (though still to be proven long-term) a business opportunity in the interstices of couch-surfing, hotels, B&Bs, and traditional vacation rentals that has mostly managed to skirt regulatory/legal/contract issues.
It's nice to think that you could put yourself in someone else's shoes well enough to make stock purchases based on what you think they will want, but investors learn very quickly that that doesn't actually work. "Buy what you know."
It means there are great opportunities for people who are a minority in the investment world -- like ladies.
Look at ETSY stock right now. It's insanely cheap I believe (at 1.771B valuation). Despite being cultishly popular with 20-something women, who will soon be entering the demographic that spends the most, it's been crashing through the floor. A male-led investment world is not putting their money there. Ask any young lady what they think of Etsy and you'll see why that's dumb.
In 2008, when Starbucks was priced at $3.42 a share, asking any woman what business they think will grow in popularity would have elicited the reply of "Starbucks, duh", but investors didn't see the opportunity. In 2009, Lululemon was priced at $2.25 a share.
It's a good thing for minority investors. They just need to get in the buying market, and take some risks.
I think given these kinds of statistics I can't understand why there's not some public fund where average citizens can invest toward. That fund would run a lottery every year and accept 'x' # of companies depending on how much was invested the previous year. Each of those companies would (depending on current cash flow) provide a % of ownership to the fund.
Noone tells them how to use the money. No investor has authority to interfere whatsoever.
Of course I imagine there would be reporting requirements, and require certain levels of transparency into their books and such in order to create at least some hurdles to prevent people who are just out to scam the system from applying.
Maintaining the status quo just perpetuates the "rich get richer" paradigm.
https://medium.com/@sungmoon/the-next-big-thing-53ae218c4b6d
I have no idea how to start the process of asking VCs for a small sum in return for a share of the company.
I would really appreciate and answer.
Thank you.
Have a clear, clean pitch deck. Know your unique value proposition, understand your competition, be able to demonstrate that there's a market and that it's significant. Show traction, team, and ability to execute.
This one had gains and missed opportunity. No one lost anything except time reading a post that appears to be 'prodding the losers' when there weren't any. In fact, some of the investors probably made more elsewhere in something closer to their realm, so it can't readily be said that an opportunity was missed.
They simply cannot invest in all ideas, just because Brian got lucky doesn't makes it applies to all startups
OT, but I applied to be a contract photographer for AirBnB a month ago and did not get a response either -- not "no", not "maybe later", not anything.
I did get an automated email thanking me "for pressing send"; after that, zilch.
So I guess it goes both ways.
Pushes all the right buttons, but keep in mind that those investors also rejected vastly more ideas that most likely never went anywhere. That was their take on airbnb at the time.
With respects to Airbnb, Fred Wilson of USV passed on the opportunity as well and posted emails showing where Paul Graham personally spent quite a bit of time trying to convince him otherwise.
Investors and VCs are not smart/do not have enough information/experience to make smart decisions generally
The only way to escape working for non-smart people (bosses, VCs) is to bootstrap
Also to this day ABB to me looks like Couch-surfing for money, unless you get full apartment. And usually only advantage you get versus hotel is that you have a kitchen and/or washing machine. IMHO, there are lucky people who own apartments near city center, and are collect month's worth of rent from 4-7 night stays. That's how ABB looks to me after I tried it.
> On June 26, 2008, our friend Michael Seibel introduced us to 7 prominent investors in Silicon Valley.
Therefore, the answer to your question is: in this particular encounter they talked to 7 VCs, got 5 NOs and 2 no-answer's.
Ouch. Ego can get very expensive. Consider this, had they invested, Airbnb might not be where it is today.
I'll never forget the day I went out exclusively to meet a girl. I was rejected by maybe a hundred girls I approached. The worst one's were the ones that just stared at their phone, like I wasn't even human.
I was tired. It was 8PM... around that. I go up and approach girl inside of a clothing store. Please God speak english. She opens up with perfect english, smiling. We went on a date right there. Huge confidence booster.
Frankly, people are a complicated bunch. You don't understand their learned behaviors, position and internal politics. There's no way you could understand the whether a girl is grumpy, just broke up, open to meeting someone new until you come up to her.
We need more posts like this. Not just for VC's, I'd like to see comeback stories for freelancers scoring gigs / job interviews.
Good job OP