I was under the impression that YC introductions were pretty much the equivalent of "hey, here are some guys...invest in them"...but here you can see that there is a lot more pressure....bordering on begging
I've told this story before on HN, but it's worth telling again.
I rented a room in L.A. using Airbnb. The owner of the room said he made $4000 in 3 months on two rooms that would have otherwise been vacant. If you're making this much money for people you've tapped into one helluva market.
Wonder how elastic the market is. Don't know LA enough, but can assume that eventually too much demand will ruin the seemingly perfect situation. It's a luxury position. Huge profits were possible on ebay too at one point in time...
I can cover the rent of a 2-bedroom apartment in Manhattan by renting out one of the bedrooms on Airbnb. I don't expect the situation to last forever, but for now it's great.
If someone still has any doubts about the value of YC, they should read this email exchange. PG is pushing for the startup as if it was his own. He genuinely wanted them (and also the VC firm) to succeed.
I'm not trying to take anything away from pg here, but "all of that" refers in this case to 7 emails with one VC.
AirBnB has raised $7.8M (at, what, around a ~$40M valuation at the time? 6% of which would be over $2m). Is it really that incredible that someone would send a few emails for a shot at that kind of money?
He's risking his reputation if he's pushing a company that he's not confident in. The reputation is worth a lot too, probably mostly in reciprocal connections.
That's true, but he's also risking his reputation (and his paycheck) if he doesn't shop around for later stage investors for his companies. This kind of thing is his job, it's what Y Combinator exists to do. When one of his companies looks like it's going to be successful, he has to do this kind of stuff to actually get a return out of it.
Which, again, isn't to denigrate him at all. He's obviously very good at what he does and deserves a lot of respect for it.
Sometimes it can be advantageous for an investor to have a company crash and burn. If the company's main assets are likely to survive such an event without being destroyed, but be undervalued by people not familiar with the company, then an alert investor can buy those assets out of bankruptcy at a time when the people most invested in the company (founders, employees) have run out of money.
More prosaically, if you can delay the company's getting to break-even, they'll need more rounds of investment, which mean you can buy more of the company.
And then, of course, there are personal feuds. Remember what happened to Scout Electromedia? Their shutdown probably had as much to do with investors being pissed off about being ignored as with any actual rational assessment of their future prospects.
Actually I don't think I worried that the Airbnbs weren't going to be able to raise money. They were one of the top startups in their batch, and the top startups always manage to raise money. The reason I nagged Fred so persistently was that I thought he'd be a good match for them and I was annoyed that I couldn't convince him.
This is neither terse nor concise. Terse and concise means you write what you mean. When the VC writes, "we are still in the data-gathering phase", he really means "I see what you are saying, but my gut says no right now. I may contact you in the future when I know more."
This is longer, but it actually means something. Instead of saying that he needs more data in order to make a decision, he's said that he needs more time to make a decision. The data comes natrually.
A "data-gathering-phase" is the phase that everyone is always in about everything. I am currently in a "data-gathering-phase" with respect to whether or not I should make another cup of coffee. My current cup is cold, but still contains liquid. So it's not a sure thing that I should make myself another cup of coffee. On the other hand, hot coffee is nice. I can't decide, so I will continue to gather temperature and flavor data until I make a decision or I spill my coffee.
Just because people understand businessspeak doesn't mean it's good to use. You would know what I meant if I typed "teh" instead of "the", but we all try to write "the" anyway.
Every niche has it's own lingo. VC's that need to bring the above message across several times a day just don't want to come across as rude or worse. Therefore they use euphemisms of which the messages are perfectly understood by their peers and which leave them as much room as possible (eg. making it easier to come back later and say "finished data acquisition phase -- we are in"). Classic VC play.
In the end, I can somehow understand, and don't find it 'wrong' or 'meaningless' per se.
This is confusing to me. If I'm asking people for money and they don't want to give it to me, I wouldn't really be offended if they said, "the reason I don't want to give you my hard-earned cash is because I think your idea sucks." I wouldn't give someone with an idea that sucked cash either.
This would also not preclude, "you know, I was wrong... still interested in some cash?" It's a business transaction, not dating.
It only does not preclude that if the person who received the message is mature about the whole situation. Unfortunately some people won't be mature, and that is simply not grief that the VC wants.
Furthermore when you come off as rude the first time, you discourage them from asking the second time. What if they come back with an idea that is good, and a team that rocks? Don't close doors that you don't need to close.
Just reminds me of: "Ron wrote back in literally 2 minutes and said, in what I have learned is Ron’s distinctive email style (immediate, short, all caps), “AM ON IT.”" (http://bhorowitz.com/2010/04/07/ron-conway-explained/)
The format seems more IM-over-email than "email where important shit goes down."
That terseness is how Fred writes every email, it's not unique to this thread with Paul. When you try to reply to a couple hundred emails a day, this terseness is the result.
VCs often say they invest in team first and idea second but USV decided not to invest in AirBnb despite having no (obvious) reservations about the team or their ability to execute.
Does this mean that ideas are more important than investors really let on?
Markets are the most important. Great team in a small market: no hope. Bad team anywhere: no hope. Great team in a great market, bad idea: there is hope (changing the idea is easy, just pour more money - changing the team is close to impossible)
I realize that you're joking, but I think it's really important to point out that Paul was backing the team more than the idea. At least that's how I read it.
This is great stuff.
You can't blame any VC for being cautious at that early a stage though, and although the idea of hotels using airbnb to list their vacancies hasn't happened yet, as far as I can tell, it may not even matter. I have just started trying them to rent my apt in NYC, lets see how it goes. Personally as a "landlord" I feel like I do a great job accomodating my tenant, but on a site like craigslist, which is where I'd been posting my listings, this never gets reflected as there are no opinions/ratings, etc. As a result, I can't "stand out" from other landlords. It's not hard to get tenants in NYC, but I can imagine in some other parts of the country or world this may be a bigger issue.
This is where I hope airbnb comes in handy.
Interesting that completely missing from this conversation is:
-- Their website design
-- Their code (Rails? Jquery?)
-- Their hosting / scalability / "cloud" strategy
-- Source control methods, dev environment, tools
-- APIs, "ecosystem", social media, "viral rate" etc.
-- And more...
Basically, all the things that most of us here spend most of our time discussing.
Instead:
1) Idea / Team
2) Execute
3) Talk to people with money
4) Go to #2
This is a great point....market potential seems to be top of mind more than anything else.....which reminds me of how Sequoia invests....clearly they got the larger vision (and presumably had more data points as they invested later)
Why would anyone talk about that stuff when pitching to a VC?
Sure the operational factors are important (and that's why they get discussed here), but they're secondary to size of the market and the nature of the solution when it comes to how big the investment opportunity is.
That's all Fred is looking at in that phase-- because even an awesome team won't build a venture-sized business in a tiny or low-growth market.
At our Demo Day, there was two teams that had a veritable investor feeding frenzy around them-- and they were both attacking markets that were either huge/rich or markets that were growing like gangbusters (and they had the good sense to talk as much about the market opportunity as they did about their product).
Fascinating conversation. Thanks for giving insight into how these deals work...
>ABNB reminds me of Etsy in that it facilitates real commerce in a marketplace model directly between two people.
Interestingly enough, I still tend to side with Fred's assessment of AirBnB's future. All my experiences with it as a user have been too unreliable to expect that it can scale to truly massive usability. Selling your old guitar online is a lot different than renting a room to someone. Renting a room has so much more of a personal aspect to it.
There are so many more subtleties to actually having a stranger come and stay in your house than there are to sending a stranger a book, guitar, etc via USPS.
Regardless, I still think there's a massive market out there for this type of thing, I just don't see it swallowing up the whole Hotel industry.
My take on it is that Airbnb is great unless you're the kind of person that doesn't trust strangers. Sadly, in the United States, the tendency to not trust strangers has been on the upswing for the last few decades.
I think the trusting-strangers thing actually comes down to two questions:
1. The collective level: are there enough people who trust strangers that Airbnb can make tons of money, and help out those people? It looks like the answer is yes.
2. The individual level: are you okay with trusting some random strangers from the internet? I think you probably should be -- people tend toward decency, overall -- and it's possible to change the way you feel about something with a little effort.
Strangers renting rooms are only a piece of their future. HomeAway (vacation rentals) just bought a superbowl commercial and are reporting revenue of $100M+.
Note the # of entire home/apt entries. My guess is that these (with B&Bs, inns, and eventually hotels) will dominate the listings.
ABNB has a challenge with positioning moving forward-- a LOT of people think they are all about renting a room in a stranger's house, sharing a common area, etc. But their growth speaks for itself.
I just did my first AirBNB experience (actually am still in the middle of it) and I can say that it's actually been surprisingly smooth. It's almost like a paid way to make friends. The hosts who I'm staying with are so cool, and since I'm pretty public online, it was easy for them to feel comfortable with me staying at their pad. They've set it up as much like a hotel as I could ask for. It's really great, and it's paying half their rent (they have about 100% occupancy, believe it or not).
I like Airbnb. I've hosted 8ish times and stayed with people once.
Why I think the people on Airbnb are 'cool' is that its a small population that has a lot in common (young or young-at-heart, singles and couples without kids, internet natives, own a macbook, would love to hitchhike Europe while submitting correspond reports for the NYTimes). As it grows, I'm worried that everyone's not going to find everyone else 'cool' on Airbnb.
I wasn't around for the early days of Craigslist, but I imagine it was easy to like people you found on Craigslist because they were probably very similar people to be on Craigslist so early. But now, after scale and popularity, that's gone.
I wonder if Airbnb might lose the 'cool' people edge after scaling.
Good question but I think they will always have the 'cool' crowd simply because allowing a weary stanger to stay in your apartment is inherently a cool thing to do.
also money talks in this case. As has been brought up elsewhere in this thread, there is a huge market here for unused space that AirBnB is exploiting. Even cool people like saving/making money.
Aww shucks, Thanks, Randall. We really enjoy hosting, and it seems like an even better deal for us (we get paid to make friends).
About the only downside Iv'e experienced so far is that I have to wash sheets all the time (most people stay with us for 2-3 days and since we now have between 70%-100% occupancy thats a lot of sheet washing.
I'm also about to go to Paris and the value proposition of airbnb there is even better (try hipmunk's hotel search in Paris). We are staying in a private entire apartment on the seine with a view of the eiffel tower for about $130 a night.
My wife and I used AirBnB to stay in paris on our honeymoon, we had an entire apartment (a studio) in a nice part of town for a fraction of the cost of hotel. It was great experience that we couldn't have had without AirBnB.
If you're renting out your spare room 70-100% of the time, why don't you just get a roommate? Seems like it would be safer, less work, and you'd ideally have a better long term relationship.
Well, to look at it from solely a financial point of view, a room in an apartment is worth much more if you rent it out by the night or week rather than by the year (like you would with a roommate).
Here in my neighborhood, in Chicago, one can find a room for about $40/night; 15 nights and I already have half my rent. So yes, having a roommate might be less work (but that depends on what you consider "work") but I can make more money renting a room out by the night.
Well, we like meeting new people, we probably would have to charge the roommate less and there are different social obligations for a roommate. (For example a guest that stays for a few days is unlikely to leave a mess in the kitchen). In addition any little annoying habits don't have enough time to become tiresome.
Lastly, we can have the room available for our friends and family when they come and visit (which is the point of having a guest room in the first place). My parent stay there (for free, of course) about 2 nights a month.
'It's almost like a paid way to make friends.' - love this :))
I stayed in like 4 airbn places in SV and learned:
1) That it certainly not for everyone, some ppl just dont need all this fun and pretty happy with avg hotel room.
2) If you think that its not for you, still please give it a try, there is a very serious chance that you will absolutely love it. (I was super skeptical too)
3) I dont pay Airbnb fee on second stay and just contact my 'paid friends' directly. They need to consider this and if its a problem in scale.
4) I absolutely love it and will only stay in hotel in worst case scenario if all my "paid friends" in area cant host me.
3) I dont pay Airbnb fee on second stay and just contact my 'paid friends' directly. They need to consider this and if its a problem in scale.
That's a really good point. A common theme in Paul's argument is that "AirBnB could be the next eBay." But eBay's worst nightmare is buyers and sellers communicating directly, saving each other money while cutting the company out of the revenue loop.
AirBnB is almost more like a dating service than a marketplace... a 'buyer' and 'seller' who prove compatible with each other will never need to use the service again, at least not in the same city.
There are so many more subtleties to actually having a stranger come and stay in your house than there are to sending a stranger a book, guitar, etc via USPS.
So, PG is a good salesman, and he hit the nail on the head with this comment:
Just wait till all the 10-room pensiones in Rome discover this site.
If you ever read a Rick Steves guide (which are not exactly the scariest guidebooks on the planet -- they're fairly comfortable middle-class NPR stuff) or tour around Europe in backpacker mode you will become familiar with the pension, aka the German zimmer or the English B&B. These are rooms. In pubs, or very tiny hotels, or people's homes. Which get rented out. They are very common, they have been a tradition forever, and they aren't very formal. Maybe you call ahead. Sometimes that doesn't even work. Sometimes you call ahead but then the landlord forgets your reservation. But ultimately you turn up, meet the landlord, get taken to the room, you look around for two minutes, you say "si" or "no" and fork over a night's rent, and there you go. It's not like buying a house or getting married or anything.
Yes, it's a bit more subtle to rent a room than to deal in used books. But it's not that subtle.
"I just don't see it swallowing up the whole Hotel industry."
I've been out of the travel/hotel game for about 4 years now, but I worked in it on and off from ~'97 through to '07.
It's an industry ripe for a new player to do a Paypal style end run around the traditional banking/creditcard industry.
I don't know whether Airbnb are that player (I'm 100% sure pg and Fred are _much_ better judges of that then I am), but I'm also at least 99% sure that it _won't_ be any of the existing big players (Sabre, Gallileo, Pegasus, MyFideleo, Worldres were the large players I worked with) that revolutionise the hotel booking business.
I'm going to Vancouver soon with my family; the first thing I did with my wife this week was pull up AirBNB (where is your ipad app, guys?) to check out what sort of deals we could get.
I'm not saying I wouldn't check hotel deals, but reading honest reviews from people who really stayed in each room, and sometimes getting to half off a hotel works great for me. They are definitely moving into 'high on my list' for travel, personal and business. I'm guessing I'm not alone here.
I wonder if missed investments like this have the senior guys listening to the junior members a bit more, or whether the young guys are wrong enough to keep it biz as usual.
145 comments
[ 3.2 ms ] story [ 177 ms ] threadMark Pincus is better known as the founder of Zynga, unless this is another Mark Pincus.
I was under the impression that YC introductions were pretty much the equivalent of "hey, here are some guys...invest in them"...but here you can see that there is a lot more pressure....bordering on begging
I rented a room in L.A. using Airbnb. The owner of the room said he made $4000 in 3 months on two rooms that would have otherwise been vacant. If you're making this much money for people you've tapped into one helluva market.
Great stuff.
AirBnB has raised $7.8M (at, what, around a ~$40M valuation at the time? 6% of which would be over $2m). Is it really that incredible that someone would send a few emails for a shot at that kind of money?
Which, again, isn't to denigrate him at all. He's obviously very good at what he does and deserves a lot of respect for it.
More prosaically, if you can delay the company's getting to break-even, they'll need more rounds of investment, which mean you can buy more of the company.
And then, of course, there are personal feuds. Remember what happened to Scout Electromedia? Their shutdown probably had as much to do with investors being pissed off about being ignored as with any actual rational assessment of their future prospects.
It possibly shows why Sequoia are the best.
YC absolutely does hustle for you like this, and it's the best kind -- genuine.
So many 'business' people think that long waffling sentences seem clever and impressive. Nothing is further from the truth.
This is longer, but it actually means something. Instead of saying that he needs more data in order to make a decision, he's said that he needs more time to make a decision. The data comes natrually.
A "data-gathering-phase" is the phase that everyone is always in about everything. I am currently in a "data-gathering-phase" with respect to whether or not I should make another cup of coffee. My current cup is cold, but still contains liquid. So it's not a sure thing that I should make myself another cup of coffee. On the other hand, hot coffee is nice. I can't decide, so I will continue to gather temperature and flavor data until I make a decision or I spill my coffee.
See how meaningless that is?
In the end, I can somehow understand, and don't find it 'wrong' or 'meaningless' per se.
This would also not preclude, "you know, I was wrong... still interested in some cash?" It's a business transaction, not dating.
Furthermore when you come off as rude the first time, you discourage them from asking the second time. What if they come back with an idea that is good, and a team that rocks? Don't close doors that you don't need to close.
This has gone viral!
The format seems more IM-over-email than "email where important shit goes down."
Does this mean that ideas are more important than investors really let on?
Team > Idea.
Thanks for sharing the inside story. :)
Thanks for sharing the inside story. :)
The capital B is either a branding miss or an intentional branding effort to look more upscale than Airbed.
-- Their website design -- Their code (Rails? Jquery?) -- Their hosting / scalability / "cloud" strategy -- Source control methods, dev environment, tools -- APIs, "ecosystem", social media, "viral rate" etc. -- And more...
Basically, all the things that most of us here spend most of our time discussing.
Instead: 1) Idea / Team 2) Execute 3) Talk to people with money 4) Go to #2
Sure the operational factors are important (and that's why they get discussed here), but they're secondary to size of the market and the nature of the solution when it comes to how big the investment opportunity is.
http://pmarca-archive.posterous.com/the-pmarca-guide-to-star...
That's all Fred is looking at in that phase-- because even an awesome team won't build a venture-sized business in a tiny or low-growth market.
At our Demo Day, there was two teams that had a veritable investor feeding frenzy around them-- and they were both attacking markets that were either huge/rich or markets that were growing like gangbusters (and they had the good sense to talk as much about the market opportunity as they did about their product).
>ABNB reminds me of Etsy in that it facilitates real commerce in a marketplace model directly between two people.
Interestingly enough, I still tend to side with Fred's assessment of AirBnB's future. All my experiences with it as a user have been too unreliable to expect that it can scale to truly massive usability. Selling your old guitar online is a lot different than renting a room to someone. Renting a room has so much more of a personal aspect to it.
There are so many more subtleties to actually having a stranger come and stay in your house than there are to sending a stranger a book, guitar, etc via USPS.
Regardless, I still think there's a massive market out there for this type of thing, I just don't see it swallowing up the whole Hotel industry.
1. The collective level: are there enough people who trust strangers that Airbnb can make tons of money, and help out those people? It looks like the answer is yes.
2. The individual level: are you okay with trusting some random strangers from the internet? I think you probably should be -- people tend toward decency, overall -- and it's possible to change the way you feel about something with a little effort.
writing on the wall: https://skitch.com/webwright/rieyj/airbnb-search
Note the # of entire home/apt entries. My guess is that these (with B&Bs, inns, and eventually hotels) will dominate the listings.
ABNB has a challenge with positioning moving forward-- a LOT of people think they are all about renting a room in a stranger's house, sharing a common area, etc. But their growth speaks for itself.
Why I think the people on Airbnb are 'cool' is that its a small population that has a lot in common (young or young-at-heart, singles and couples without kids, internet natives, own a macbook, would love to hitchhike Europe while submitting correspond reports for the NYTimes). As it grows, I'm worried that everyone's not going to find everyone else 'cool' on Airbnb.
I wasn't around for the early days of Craigslist, but I imagine it was easy to like people you found on Craigslist because they were probably very similar people to be on Craigslist so early. But now, after scale and popularity, that's gone.
I wonder if Airbnb might lose the 'cool' people edge after scaling.
also money talks in this case. As has been brought up elsewhere in this thread, there is a huge market here for unused space that AirBnB is exploiting. Even cool people like saving/making money.
About the only downside Iv'e experienced so far is that I have to wash sheets all the time (most people stay with us for 2-3 days and since we now have between 70%-100% occupancy thats a lot of sheet washing.
I'm also about to go to Paris and the value proposition of airbnb there is even better (try hipmunk's hotel search in Paris). We are staying in a private entire apartment on the seine with a view of the eiffel tower for about $130 a night.
Here in my neighborhood, in Chicago, one can find a room for about $40/night; 15 nights and I already have half my rent. So yes, having a roommate might be less work (but that depends on what you consider "work") but I can make more money renting a room out by the night.
Lastly, we can have the room available for our friends and family when they come and visit (which is the point of having a guest room in the first place). My parent stay there (for free, of course) about 2 nights a month.
I stayed in like 4 airbn places in SV and learned: 1) That it certainly not for everyone, some ppl just dont need all this fun and pretty happy with avg hotel room. 2) If you think that its not for you, still please give it a try, there is a very serious chance that you will absolutely love it. (I was super skeptical too) 3) I dont pay Airbnb fee on second stay and just contact my 'paid friends' directly. They need to consider this and if its a problem in scale. 4) I absolutely love it and will only stay in hotel in worst case scenario if all my "paid friends" in area cant host me.
That's a really good point. A common theme in Paul's argument is that "AirBnB could be the next eBay." But eBay's worst nightmare is buyers and sellers communicating directly, saving each other money while cutting the company out of the revenue loop.
AirBnB is almost more like a dating service than a marketplace... a 'buyer' and 'seller' who prove compatible with each other will never need to use the service again, at least not in the same city.
I opted for ABNB literally 5 out of 6 times this past February. All successful.
So, PG is a good salesman, and he hit the nail on the head with this comment:
Just wait till all the 10-room pensiones in Rome discover this site.
If you ever read a Rick Steves guide (which are not exactly the scariest guidebooks on the planet -- they're fairly comfortable middle-class NPR stuff) or tour around Europe in backpacker mode you will become familiar with the pension, aka the German zimmer or the English B&B. These are rooms. In pubs, or very tiny hotels, or people's homes. Which get rented out. They are very common, they have been a tradition forever, and they aren't very formal. Maybe you call ahead. Sometimes that doesn't even work. Sometimes you call ahead but then the landlord forgets your reservation. But ultimately you turn up, meet the landlord, get taken to the room, you look around for two minutes, you say "si" or "no" and fork over a night's rent, and there you go. It's not like buying a house or getting married or anything.
Yes, it's a bit more subtle to rent a room than to deal in used books. But it's not that subtle.
I've been out of the travel/hotel game for about 4 years now, but I worked in it on and off from ~'97 through to '07.
It's an industry ripe for a new player to do a Paypal style end run around the traditional banking/creditcard industry.
I don't know whether Airbnb are that player (I'm 100% sure pg and Fred are _much_ better judges of that then I am), but I'm also at least 99% sure that it _won't_ be any of the existing big players (Sabre, Gallileo, Pegasus, MyFideleo, Worldres were the large players I worked with) that revolutionise the hotel booking business.
I'm not saying I wouldn't check hotel deals, but reading honest reviews from people who really stayed in each room, and sometimes getting to half off a hotel works great for me. They are definitely moving into 'high on my list' for travel, personal and business. I'm guessing I'm not alone here.