Deck: $2.1B in revenue by 2011
Reality: $500M in revenue in 2014
Moral: Even the most successful startups don't hit their seed-stage revenue projections :)
Airbnb, My $1B Lesson
31–40 of 149 posts
Re: Airbnb, My $1B Lesson
#32What bugs me is that the founders went back on the deal that was agreed upon in person.
I hear you.
I get that a deal isn't final until it's in writing (i.e. signed), but whatever happened to integrity?
Re: Airbnb, My $1B Lesson
#33If it's bad form for a VC to break a handshake deal, it's equally-bad for a startup too... no? Doesn't that reflect poorly upon the founders? It's so important that YC went through the effort to codify the process: http://www.ycombinator.com/handshake/
The codified "handshake" process, you'll notice, has a written step and includes a core element of contract formation: offer & acceptance. https://en.wikipedia.org/wiki/Offer_and_acceptance IANAL, TINLA.
FTA: "At the end of September, we agreed on terms and I flew up to San Francisco to do a closing dinner at a little café next to Brainwash. We had some good food and wine and I thought things were solid. We shook hands and planned to formally close the investment the next day."
I'm gonna go out on a limb and assume that the investor already possessed emails saying "Let's do this" with numbers in it. Is that different than a signed term sheet? You bet -- it's not legally binding! But it also meets all the requirements of the gentleman's agreement -- aka YC Handshake protocol:
1. The investor says “I’m in for [offer].”
2. The startup says “Ok, you’re in for [offer].”
3. The startup sends the investor an email or text message saying “This is to confirm you’re in for [offer].”
4. The investor replies yes.
Re: Airbnb, My $1B Lesson
#34What bugs me is that the founders went back on the deal that was agreed upon in person.
He was gazumped by a much shinier offer because he had nothing in writing. He concluded that he needs to move faster on the big picture, rather than haggling the correct protocol for picking of nits.
That's not what I get from the story though.
I sense the founders used the VC as leverage. They had a closing dinner the night before and shook on it. The VC was reasonable to expect the paperwork to be finalised the next day.
YC changing their mind at the very next day sounds very convenient...
Re: Airbnb, My $1B Lesson
#35If it's bad form for a VC to break a handshake deal, it's equally-bad for a startup too... no? Doesn't that reflect poorly upon the founders? It's so important that YC went through the effort to codify the process: http://www.ycombinator.com/handshake/
I don't know about Handshake Deals, but everybody says it's bad form to back out once term sheets have been signed- but in the single round of VC funding that I had internal insight into, our VC backed out at the 59th minute after term sheets had been exchanged and agreed to, paperwork signed. On the basis of that, we even went out and brought on our first external board member.
Now, this particular VC has only raised about 800mm, so I don't know if that makes them a Tier-1 VC, but it still made me realize that you don't ever know until the money is in the bank account.
Thankfully, Foundation Capital (an awesome Tier-1 VC), stepped up and kept us running/covered payroll and rent, until we found someone else to get money from.
Re: Airbnb, My $1B Lesson
#36It's very interesting hearing a story from the VC's side. One always reads about the trials and tribulations of startups trying to raise capital, but I've never considered that there might be similar issues and competition on the investors' side.
Sequoia arguably strongarming its way to owning 100% of the Whatsapp series A instead of allowing other funds to join would be a prime example of this is recent history.
Re: Airbnb, My $1B Lesson
#37Earlier quoted context omitted.
The codified "handshake" process, you'll notice, has a written step and includes a core element of contract formation: offer & acceptance. https://en.wikipedia.org/wiki/Offer_and_acceptance IANAL, TINLA.
FTA: "At the end of September, we agreed on terms and I flew up to San Francisco to do a closing dinner at a little café next to Brainwash. We had some good food and wine and I thought things were solid. We shook hands and planned to formally close the investment the next day." I'm gonna go out on a limb and assume that the investor already possessed emails saying "Let's do this" with numbers in it. Is that different…
I'm starting to get out of range of my recollection of law at this point.
On the tangent of the protocol as the protocol, I also note that it is meant to be exclusive. That is, you don't construct it by piecing together the individual events -- it's written as a once off 2-phase transaction with no other intervening steps to prevent shenanigans and mistakes.
Re: Airbnb, My $1B Lesson
#38Earlier quoted context omitted.
He was gazumped by a much shinier offer because he had nothing in writing. He concluded that he needs to move faster on the big picture, rather than haggling the correct protocol for picking of nits.
That's not what I get from the story though. I sense the founders used the VC as leverage. They had a closing dinner the night before and shook on it. The VC was reasonable to expect the paperwork to be finalised the next day. YC changing their mind at the very next day sounds very convenient...
I imagine that everyone's recollections differ. I'd hate to speculate.
Edit: I seem to have touched a nerve, but I don't know what it is. Can someone explain what I said that caused annoyance? I have the usual embarrassing secret obsession with made up internet points.
Re: Airbnb, My $1B Lesson
#39Its an interesting read to hear about other investors who have missed out on deals. I actually tried investing into a startup this year and completely failed due to governmental regulations. Even though i worked my ass off saving for 2 years to have discretionary income in order to invest as i wanted to I did not meet the requirements of being an "accredited investor" and so i missed out on the funding round. I spent…
Why would you want to invest in a startup ?, VCs can pull it off because they are playing with a lot of money and can eat the (completely inevitable) losses. It sounds like you only have enough to invest into one startup, thats an incredible amount of risk to take.
Re: Airbnb, My $1B Lesson
#40Earlier quoted context omitted.
A deal ain't a deal till its signed off. I make deals and negotiate all the time and I've negotiated thousands of times. It's a very good sign when you have a verbal agreement but you're a fool if you think that's a finished deal. It's the quick and the dead - if people are serious about a deal then they need to move quickly, wrap it up and sign it. If you are selling something (yourself, your company, shares in your…
A verbal contract is just as legally binding as a written contract. It's just that most people don't have authorized audio/video recordings of these kinds of interactions.
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