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Rent in San Francisco is steep and painful.

So painful in fact, that it led Joe and Brian to set up a few air mattresses in their apartment and rented them out to design students to help pay the bills.

The year was 2007… 

And the website was airbedandbreakfast.

Fast-forward a decade and some change.

They now have 7M+ listings worldwide and have hosted 750M+ guests. 

Joe and Brian are on the verge of taking their $18 billion short-term rental company (read: behemoth) public.

In one of the wildest years for IPOs ever seen, Airbnb’s IPO (expected by the end of the year) is arguably the most anticipated and talked about.

And the news that they’ll be listing on the Nasdaq has created even more chatter.

See what it’s all about and what can be learned from Airbnb in my latest post. 

Airbnb: The Most Anticipated IPO of the Year

Things have been rough for Airbnb over the past year. The company was soaring with a $31 billion valuation, billions in cash, and a planned direct listing in the works, but was hit hard by the pandemic. 

Airbnb recently laid off 25% of its workforce, cut nearly $1 billion in marketing costs, and slash executives’ salaries in half to survive. The three founders even went without their salaries completely.

Luckily, the company’s recovery came faster than expected. A surge of listings came as many people in urban areas turned to long-term Airbnb rentals to escape COVID-19 hotspots and work remotely. And by shifting focus to local travel, the company has managed to stay afloat.

So, why is Airbnb choosing to go public now? 

There are a few reasons. Its last round of financing came with high-interest rates that need to be paid off, early-investors are eager to get their returns after over a decade of waiting, and right now the public markets are trading at record highs. 

The IPO will free up employees and investors and give the company some much-needed capital.

At the end of this year, Airbnb will list on the NASDAQ. Its last round of funding put it at a valuation of $18 billion. 

This Marks NASDAQ’s Biggest IPO Since Facebook

This will be the NASDAQ’s biggest offering since Facebook’s $16 billion one in 2012. NASDAQ made critical errors in the Facebook IPO that hurt the market’s reputation. 

Since then, it has landed high-profile listings like Zoom and Lyft but has often lost out to the New York Stock Exchange on mega-IPOs like Airbnb.

Airbnb’s choice means a lot for the NASDAQ going forward. It shows that the Facebook debacle is behind them and faith in the market is incredibly high.

Through the IPO, Airbnb seeks to raise as much as $3 billion before the end of the year.

Airbnb’s IPO is the Highlight of Y Combinator’s Incredible Year

Y Combinator gave Airbnb its first sizable investment, pulling the struggling founders out of the gutter and getting the ball rolling for further investment. Since 2005, the startup accelerator has made a name for itself, launching over 2,000 companies. Around 300 of these have exited, and only three have had IPOs so far.  

Now, in 2020, three of its startups are likely to go public in one year, Momentous, DoorDash, and of course, Airbnb.

Airbnb will be the firm’s most high-profile exit ever, and with this impressive year, YC further solidifies itself as a startup-accelerating titan.

What Airbnb Did Right and What Investors Can Learn From It

Even though Airbnb may seem like a one-in-a-billion success story, at the end of the day it all came down to the basics. They faced many of the same challenges that other startups face, challenges that you as an investor need to be able to identify. Here is what Airbnb did right.

Airbnb is a solution to a real problem.

A good idea isn’t enough. Novelty isn’t enough. There needs to be an established consumer base that wants a solution to their problems. 

Living in cramped San Francisco, the founders saw a solution to high rent prices and low availability first hand. They solved this problem and created an entirely new model that disrupted the hospitality industry.

The founders went all-in and persevered.

The founders struggled financially, even maxing out their credit card to keep the company afloat. They pushed through tough times until they landed a deal with Y Combinator. Even then, during the recession, they had to be resourceful and show grit, going far without much funding. 

Airbnb did what the other guys did, but better.

In the early days, Craigslist was Airbnb’s biggest competitor. It offered people an alternative to hotels and apartments just like Airbnb but already had a large user base. 

What Craigslist lacked, were high-quality photos, in-depth property descriptions, and a personal and modern vibe. Airbnb made it a goal to do what Craigslist was doing but ten times better.

Airbnb also competed with Priceline but beat it by creating a more usable and modern website to accomplish the same tasks. 

Takeaway

Airbnb’s story is an incredible one, and its high-profile IPO is big news for anyone in the startup or investing space. 

As the company moves into its next chapter as a publicly-traded giant, don’t forget where it came from. It started as a tiny struggling startup with three employees and almost no revenue.

Many angel investors turned them down before they managed to get the funding they needed to grow into the massive company you know today. Now, ten years later, those early investors are going to have the exit of a lifetime.

 

Author:
Chris Graebe

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