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Airbnb, My $1B Lesson

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Re: Airbnb, My $1B Lesson

#61

Post by jsprogrammer »

paigecraig0231 wrote: post #59
beambot wrote: post #21

If 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/

You guys are missing the point. AirBnB didn't screw me over - this wa any first deal and I screwed around debating stupid points. I was disappointed they didn't do the deal but this whole post is about lessons learned. And one of the biggest ones was move fast once you have conviction. At the time of this Airbnb event I was just learning. I thought an investor had to worry about all these little details, negotiate to…

Well, if it did fall apart at the literal last hour and you were going to sign the formal paper work (which only reiterates the terms already negotiated and agreed to at dinner) the next day, but didn't because YC came in overnight and took the entire round...then it does sound like you got screwed.

Re: Airbnb, My $1B Lesson

#62

Post by joshmn »

beambot wrote: post #21

If 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 guess Mark Cuban forgot to explain this correctly.

If you follow sports at all, you know what I'm talking about.

Re: Airbnb, My $1B Lesson

#63

Post by jkarneges »

quadrature wrote: post #53
jkarneges wrote: post #51

Earlier quoted context omitted.

People also start companies, which is even riskier. Angeling into one startup may be better than never trying anything at all.

Yes but picking between investment opportunities is a bit different than starting a company. If you have enough money to buy a significant chunk in an angel round then you also have enough money to open yourself up to other less risky investment opportunities.

Some people like living on the edge. Angels are a certain kind of crazy.

Also high risk -> high reward, right? 10x in 7 years can be game changing.

Re: Airbnb, My $1B Lesson

#64

Post by jsprogrammer »

beambot wrote: post #33
jacques_chester wrote: post #30

Earlier 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…

Sorry, but this protocol should be improved: "in" is ambiguous.

All the startup has done is repeat verbatim what the investor said. In this situation the startup has signaled receipt of the investor's offer and has not signaled intent to ratify or otherwise accept.

Re: Airbnb, My $1B Lesson

#65

Post by philwelch »

loahou04 wrote: post #29

Its 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…

The easiest criteria for becoming an accredited investor is to be a millionaire. So I'm assuming from your post that you are not a millionaire. Startup investing is very high risk, and if you can buy a meaningful stake in one startup, your odds are actually worse than the roulette table. So you need to invest in multiple startups without going broke, and for that you probably should be at least a millionaire. Regulations stopped you from doing something foolish.

If you take that money you've been saving and invest it in something more conventional, it won't explode 100x overnight but you'll definitely get somewhere.

Re: Airbnb, My $1B Lesson

#66

Post by philwelch »

jsprogrammer wrote: post #64
beambot wrote: post #33

Earlier quoted context omitted.

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…

Sorry, but this protocol should be improved: "in" is ambiguous. All the startup has done is repeat verbatim what the investor said. In this situation the startup has signaled receipt of the investor's offer and has not signaled intent to ratify or otherwise accept.

"You're in for [number]" is meant to be interpreted as acceptance.

Re: Airbnb, My $1B Lesson

#67

Post by wooderson »

hkmurakami wrote: post #36
Leszek wrote: post #5

It'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.

How on Earth did they strongarm anybody? Whatsapp didn't want to meet with any investors. Sequoia put in a lot of effort to be allowed to invest at all.

Re: Airbnb, My $1B Lesson

#68

Post by philwelch »

jkarneges wrote: post #51
quadrature wrote: post #39

Earlier quoted context omitted.

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.

People also start companies, which is even riskier. Angeling into one startup may be better than never trying anything at all.

Starting a company is like building an airplane and trying to fly it straight off a cliff. You might crash, it might be a foolish use of your time, and you might die, but you have a lot of control over whether or not that happens.

Investing in a startup, with the bulk of your savings, is like being a passenger on that airplane.

Re: Airbnb, My $1B Lesson

#69

Post by paigecraig0231 »

[deleted] wrote: post #45
napoleond wrote: post #41

Let me get this straight: in June 2008, Airbnb got intro'd to a bunch of investors, who all said no [1]. In September of 2008, Airbnb had a $250k round on the table that valued them at 2.5M[2]. And then, also in September 2008 (before YC usually does interviews) they rejected that offer for YC, who ended up giving them $20k[3], with a valuation presumably around $250k?? (Although Brian Chesky says that didn't happen…

[deleted]

See my reply to beambot below. TLDR : my fault not Airbnb

As to posting details of the deal I've held off on this for years as I never wanted to hurt them and I don't see any way these early numbers are going to impact Airbnb. The specific point was to (1) demonstrate that the metrics many investors look for at this stage are meaningless and reinforce that founders working in the right Cardinal direction is what's important (at least to me).

The other details (events, feature list, budget) are documents we were brainstorming on and I wanted to see (1) how they think and (2) how fast they think. The point about the bugs, intros, etc isn't to demonstrate that I added meaningful value. Instead these docs demonstrate tte quality of the founders and their focus and planning.

As for "bossing" people around you're missing the context of this interaction. If you and I are sitting down figuring out your budget, user acquisition and product am I bossing you around when I ask to see results? I'll admit I'm demanding but i certainly don't believe in bossing founders around. If I have to boss you around then I'm walking away from the deal - I like to back founders who's own internal demands and expectations are higher than my own.

Either way appreciate all the thoughts here. I've waited seven years to start discussing startups / funding etc and you'll find that this and future posts will often focus on founder qualities.

Re: Airbnb, My $1B Lesson

#70

Post by paigecraig0231 »

staunch wrote: post #42
beambot wrote: post #21

If 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/

They probably shook hands after a meeting, as one always does. That is not a "handshake deal". Airbnb probably had similarly positive meetings with dozens of investors. All of them probably talked about doing the deal soon. He's known for being bold and writing checks on a first meeting. Why didn't he write a check to Airbnb after months of haggling? YC, or any other investor, was free to come along and close the dea…

exactly! I spent three weeks haggling - I should have figures out terms in 24 hours or less or simply given them a check and let it ride into future terms.
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