Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Airbnb, My $1B Lesson

arenavc.com

Post reply on HN
Print view View original

121–130 of 149 posts

Re: Airbnb, My $1B Lesson

#121

Post by rlucas »

PopeOfNope wrote: post #111
ghshephard wrote: post #35

Earlier quoted context omitted.

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 raise…

> VC backed out at the 59th minute after term sheets had been exchanged and agreed to, paperwork signed. I'm curious how this works, legally. If they make the offer and you sign the papers, doesn't that legally obligate them to follow through on their offer?

Approximately 100% of institutional VC term sheets have a "conditions precedent to closing" section that includes something like, "completion of due diligence to sole satisfaction of Investors." Often there are other "outs" as well.

Really, the moral obligation to consummate a deal is only policed by reputation. And that is not often discussed out loud (see, for example, how parent describes the deal but doesn't name the last-minute-back-out VC).

(Plus there are whole other big cans of worms for discussing investor reputation online "out loud" -- it CAN be done and there is a lot of truth out there, but a ton of noise. The real scoop is generally spoken 1:1 over the phone, or over coffee in person.)

Interestingly, the whole gist of TFA is that investors should move fast once they have conviction. But the more they do that (instead of "front-loading" diligence and negotiation), the more like it is that you get last-minute backing out (or perceived backing out).

The way the VC firm I'm affiliated with has always handled it is to "front-load" diligence, and treat a signed term sheet as if it were very nearly binding and final. I think we've pulled ~ 2 signed term sheets, out of almost 100 new deals over the years.

Point is, you can't have your cake (enjoy super-fast handshake commitments without the diligence that is "due") and eat it too (enjoy high certainty of closing on those commitments).

Re: Airbnb, My $1B Lesson

#122

Post by gleb »

pitchups wrote: post #89

It is interesting and a bit ironic that AirBnb accepted funding from YC - who did not believe in their idea [1], and rejected the only investor that not only believed in their crazy idea, but actively sought them out and tried to woo them. Did they go with YC because of its brand, name recognition, or because it offered them better terms? Of course, it is all counterfactual, but could Airbnb have been as successful h…

YC invested on the assumption that their business wasn't really working. Arena would have invested on the assumption that it was.[1] YC was right, and helped them get to a true product-market fit. It was the right money to take.

[1] Paige's post is actually very nuanced about how much product-market fit he saw in AirBnB, and how much he wanted to invest because of the market and team. But he clearly gave them more credit on "making something people want" than YC.

Re: Airbnb, My $1B Lesson

#123

Post by AnimalMuppet »

frogpelt wrote: post #103
gargarplex wrote: post #99

Earlier quoted context omitted.

Those who aren't willing to walk away make bad deals.

This is generally true. "Today and today only" is usually a red flag. But those who aren't willing to pull the trigger quick enough miss the great deals.

It seems to boil down to "How fast can you be mostly right?"

Re: Airbnb, My $1B Lesson

#124

Post by eonw »

forgetsusername wrote: post #117
pitchups wrote: post #89

It is interesting and a bit ironic that AirBnb accepted funding from YC - who did not believe in their idea [1], and rejected the only investor that not only believed in their crazy idea, but actively sought them out and tried to woo them. Did they go with YC because of its brand, name recognition, or because it offered them better terms? Of course, it is all counterfactual, but could Airbnb have been as successful h…

> "but could Airbnb have been as successful had they not joined YC?" These guys had a good idea, some luck, and were able to execute. I doubt that the "brand" of their money or broad aphorisms from VCs had much to do with any of it. For all intents and purposes, money is money. There's an element of "tech celebrity" in the Valley, and big-name VCs are part of that. In reality, successful businesses around the country…

frbo.com had been up and operating for many years before airbnb came around. "good idea" in this case wasn't original, so that would leave luck or connections. maybe it wasnt the YC money that helped as much as YC's connections.

in the end we will never really know, but it wasnt the "good idea" part that made them successful.

Re: Airbnb, My $1B Lesson

#125

Post by jsprogrammer »

jondubois wrote: post #90

If YC hadn't invested, nobody would have ever heard of AirBnb. This is a case where the investor added a great deal of value to the business. YC is at the center of a large network of investors, startups and bloggers and somehow its investment decisions ultimately influence the habits of technology consumers in general. I think it was a lose-lose situation for the author.

Is every successful company from YC?

Is every YC company successful?

You must answer yes to both to believe:

>If YC hadn't invested, nobody would have ever heard of AirBnb.

Re: Airbnb, My $1B Lesson

#126

Post by dajohnson89 »

joshmn wrote: post #62
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.

I follow sports, but I don't know what you're talking about.

edit:http://www.tmz.com/2015/07/09/deandre-jordan-clippers-may-ha...

Possibly this? Interesting term in there re: handshakes, called "promissory estoppel".

http://www.investopedia.com/terms/p/promissory_estoppel.asp

Re: Airbnb, My $1B Lesson

#127

Post by djb_hackernews »

paigecraig0231 wrote: post #70
staunch wrote: post #42

Earlier quoted context omitted.

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.

Do you honestly think if you hadn't haggled for 3 weeks that:

a) They wouldn't have turned around for advice from YC

b) YC deciding to come over the top once hearing the news

I agree with your assessment that YC was probably trying to keep dumb money out of the cap table but I also hypothesize they originally underestimated the team and once they saw they were actually able to put a TS together that was proof enough their original calculus was wrong and they circled back around. I don't think you were getting this deal either way.

Re: Airbnb, My $1B Lesson

#128

Post by infinite8s »

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…

I believe contract law doesn't require signed physical paper to have an agreement be legally binding (it just makes it easier to litigate disagreements on either side).

Re: Airbnb, My $1B Lesson

#129

Post by micoolcho »

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…

I respect you for taking this view cos it's so much easier to be a lesser man and whine about how you missed a great deal. Thanks so much for your candid sharing!

Re: Airbnb, My $1B Lesson

#130

Post by andreasklinger »

Why are those metrics considered to be bad? I am obviously judging with hindsight and without daily deal noise here but if i look at them:

* Within the first weeks first revenue

* Within 4 months numbers that by themselves each look promising (40-60% response rate although crap product, good revenue per night, good nights booked, etc)

Personally i dont expect any of those metrics nowadays to be further away than 1.5-2x better

The "only" big q's left is:

* is the market big enough it's worth scaling the quantity

* is that team capable of doing it

I feel like i am missing something here (obviously i judge from hindsight) but what about this numbers is "bad metrics"?

Post reply on HN