How Airbnb's CEO succumbed to an IPO he resisted
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[November 21, 2020] By
Joshua Franklin and Anirban Sen
(Reuters) - Airbnb CEO Brian Chesky
resisted calls from his investors for years to follow the lead of other
Silicon Valley unicorns and take the home rental startup public, as he
pursued his dream of turning it into a one-stop shop for leisure and
travel. He is now pressing ahead with a stock market debut just as the
COVID-19 pandemic hits its peak.
Airbnb aims to complete its initial public offering (IPO) on Nasdaq next
month, 12 years after Chesky founded the company with former roommates
Joseph Gebbia and Nathan Blecharczyk. The long road to the IPO
frustrated many investors and employees waiting for an opportunity to
sell their Airbnb shares in the stock market.
Reuters interviews with more than a dozen Airbnb executives, advisers,
investors and employees show that Chesky put IPO plans on the backburner
as he sought to turn the company into a full-fledged travel agency,
adding "experiences" so guests could participate in vacation activities
such as book-guided tours of local attractions. By increasing spending
on these ventures, he sacrificed Airbnb's profitability, the IPO
prospectus shows.
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It took years of pressure from investors and employees, as well as a
deterioration in Airbnb's finances during the pandemic, for Chesky to
give up on his expansion plans and commit to a listing. Airbnb is poised
to seek a valuation of around $30 billion, less than the $50 billion
that investment bankers told Chesky the company could have been valued
in a listing two years ago.
"Chesky is one founder where it wasn't his dream to go public but it's
part of the process of satisfying all your stakeholders and rewarding
them," said SV Angel founder Ron Conway, an early investor in Airbnb and
a supporter of Chesky who liaises with him regularly.
Airbnb declined to comment, while Chesky declined to comment through a
spokesman.
Airbnb officially reached technology unicorn status in 2011, when it
crossed the $1 billion valuation threshold. As Airbnb raised more money
from investors, Chesky resisted taking it public. He split his time
between running the company, visiting properties and developing
experiences for guests.
"He now has a proper house, but for years he would go and try out a new
Airbnb every night. He would stay for a few nights in each one. In the
trunk of his car he would have his belongings," Conway said.
IPO SPAT
Investors were growing frustrated with the IPO's elusiveness. In 2017,
Lawrence Tosi, who had joined Airbnb as chief financial officer two
years earlier from buyout firm Blackstone Group Inc <BX.N>, guided
investors in a $1 billion fundraising round that a listing was likely in
the next 12 months, according to people familiar with the discussions.
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Tosi also initiated talks with investment banks about a stock market
debut that would value Airbnb at between $45 billion and $50 billion,
one of the sources said. He was doing this at the behest of Chesky, who
had asked Tosi to have Airbnb ready for an IPO by the first quarter of
2018, the source added.
But then Chesky pulled the plug on Tosi's IPO preparations. He published
a memo describing Airbnb as focused on an "infinite time horizon", a
clear sign he had decided to eschew the quarterly financial disclosures
of a publicly listed company.
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![](../images/112120PIX/busine9.jpg)
Co-founder and CEO of Airbnb Brian Chesky speaks during an interview
in Langa township, Cape Town, South Africa March 17, 2017.
REUTERS/Mike Hutchings/File Photo
![](http://archives.lincolndailynews.com/2020/Nov/21/images/ads/current/graue_21MALIBU_111620.png)
Tosi clashed with Chesky, arguing the future of Airbnb lay in its core business
of vacation rentals and business travel, and that putting off the IPO to expand
the experiences segment would waste money and leave the company worse off. The
spat resulted in Tosi's departure from Airbnb in 2018.
CORONAVIRUS HITS
Chesky kept the prospect of an IPO alive for investors but never firmed up plans
until September 2019, when Airbnb announced it would go public sometime in 2020.
In signing off on that statement, Chesky was responding to the frustration of
many of his employees, who had been granted stock options expiring in early 2021
and would lose out if the company was not public and they could not sell shares
by then, the sources said.
Then in March, the novel coronavirus outbreak shook Airbnb. Bookings hit
rock-bottom and guests canceled reservations.
Chesky decided to raise money again. Yet previous fundraising rounds were based
on the prospects of rapid growth, not a crisis. Had the San Francisco-based
company gone public, it could have raised money through a stock sale in the open
market.
The option that was left was debt, and it was expensive. Airbnb secured $2
billion in term loans from several investment firms, including Silver Lake and
Sixth Street Partners, at a blended annual interest rate of more than 9%. By
comparison, ride-sharing company Uber Technologies Inc <UBER.N>, which also
relies on the gig economy, inked a $1.5 billion term loan in 2018 at a 6.2%
interest rate.
![](http://archives.lincolndailynews.com/2020/Nov/21/images/ads/current/beason_ag_sda_030614.png)
Some of Chesky's grandiose plans, including making Airbnb TV shows and movies,
were out the window, as he laid off a quarter of the workforce and slashed the
marketing budget.
He focused on revitalizing Airbnb's core home listing business by transitioning
from city apartments to vacation homes that people wanted to rent in the
pandemic. The turnaround worked, and Airbnb posted a profit of $219 million in
the third quarter.
Yet it has never been profitable on an annual basis, and lost almost $700
million in the first nine months of the year, a far cry from its performance two
years ago, when it was only $17 million away from being profitable.
At an Airbnb board meeting in late July, Chesky signed off on an IPO by the end
of the year, according to the sources.
"When COVID-19 hit, Chesky had to reverse a whole series of initiatives that had
been in the works for three years," said Michael Ovitz, co-founder of Creative
Artists Agency and an informal adviser to Chesky.
"He was really affected by this and it went to the core of everything he is
about."
(Reporting by Anirban Sen in Bengaluru and Joshua Franklin in New York;
Additional reporting by Jane Lee in San Francisco and Krystal Hu in New York;
Editing by Greg Roumeliotis and Grant McCool)
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