How Airbnb CEO Brian Chesky succumbed to an IPO he resisted

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Airbnb CEO Brian Chesky has for years resisted calls from his investors to follow the lead of other Silicon Valley unicorns and go public with the home rental startup, as he pursued his dreams of turning it into a one stop shop for leisure and travel. It is now continuing its debut on the stock market as the COVID-19 pandemic reaches its peak.

Airbnb aims to complete its initial public offering (IPO) on the Nasdaq next month, 12 years after Chesky founded the company with former roommates Joseph Gebbia and Nathan Blecharczyk. The long road to the IPO has frustrated many investors and employees waiting for an opportunity to sell their Airbnb shares on the stock exchange.

Reuters interviews with more than a dozen Airbnb executives, advisers, investors and employees show Chesky put IPO plans on the back burner as he seeks to turn the company into a travel agency full-fledged, adding “experiences” so that guests can participate in vacation activities such as tours of local attractions. By increasing spending for these companies, he sacrificed Airbnb’s profitability, shows the IPO prospectus.

It took years of pressure from investors and employees, as well as a deterioration in Airbnb’s finances during the pandemic, for Chesky to abandon his expansion plans and commit to a listing. Airbnb is set to seek a valuation of around $ 30 billion (around 2.22.487 crore rupees), less than the $ 50 billion (around 3.70813 crore rupee) that investment bankers have said to Chesky that the company could have been rated in a list two. years ago.

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“Chesky is one of the founders he never dreamed of going public, but it’s part of the process of keeping all of your stakeholders happy and rewarding them,” said Ron Conway, Founder of SV Angel, an early investor. Airbnb and supporter of Chesky who liaises with him regularly.

Airbnb declined to comment, while Chesky declined to comment through a spokesperson.

Airbnb officially achieved tech unicorn status in 2011, when it crossed the billion dollar valuation threshold. As Airbnb raised more money from investors, Chesky resisted its publication. He divided his time between running the business, visiting properties and developing experiences for clients.

“He now has a decent house, but for years he would go and try a new Airbnb every night. He would stay a few nights in each one. In the trunk of his car he would have his things,” Conway said.

Spit IPO
Investors were increasingly frustrated by the elusiveness of the IPO. In 2017, Lawrence Tosi, who had joined Airbnb as CFO two years earlier of buyout firm Blackstone Group Inc , guided investors in a billion-dollar fundraiser on whether a listing was likely in the next 12 months, according to people familiar with the discussions.

Tosi has also started talks with investment banks about an IPO that would value Airbnb between $ 45 billion and $ 50 billion, one of the sources said. It was doing so at the behest of Chesky, who had asked Tosi to prepare Airbnb for an IPO by the first quarter of 2018, the source added.

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But then Chesky ended Tosi’s IPO preparations. He published a note describing Airbnb as focused on an “infinite time horizon,” a clear sign that he had decided to avoid quarterly financial disclosures from a publicly traded company.

Tosi clashed with Chesky, saying Airbnb’s future lies in its core business of vacation rental and business travel, and postponing the IPO to expand the experiences segment would be wasted. money and would leave the business worse. The spitting caused Tosi’s departure from Airbnb in 2018.

Coronavirus hits
Chesky kept the prospect of an IPO alive for investors, but never confirmed his plans until September 2019, when Airbnb announced its IPO in 2020. By approving this statement, Chesky was responding to the frustration of many of its employees, who had been granted stock options expiring in early 2021 and would lose if the company were not listed on the stock exchange and could not sell shares by then, said the sources.

Then in March, the epidemic of the new coronavirus shook Airbnb. Reservations have bottomed out and customers have canceled reservations.

Chesky decided to fundraise again. Yet previous fundraising was based on prospects for rapid growth, not a crisis. Had the San Francisco-based company gone public, it could have raised funds through a sale of shares on the open market.

The option that remained was debt, and it was expensive. Airbnb has secured $ 2 billion in term loans from several investment firms, including Silver Lake and Sixth Street Partners, at a combined annual interest rate of over 9%. By comparison, ridesharing company Uber Technologies, which also relies on the odd-job economy, signed a $ 1.5 billion term loan in 2018 at an interest rate of 6.2%.

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Some of Chesky’s grandiose plans, including making Airbnb TV shows and movies, have been scrapped because he laid off a quarter of the workforce and cut the marketing budget.

He focused on revitalizing Airbnb’s core home listing business from apartments in town to vacation homes people wanted to rent during the pandemic. The turnaround worked and Airbnb reported a third quarter profit of $ 219 million.

Yet it has never been profitable on an annual basis and has lost nearly $ 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 from being profitable.

At an Airbnb board meeting in late July, Chesky signed an IPO by the end of the year, the sources said.

“When COVID-19 hit, Chesky had to cancel a whole slew of initiatives that had been underway for three years,” said Michael Ovitz, co-founder of Creative Artists Agency and informal adviser to Chesky.

“He was really affected by it and it went to the heart of everything he is.”

© Thomson Reuters 2020


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