Son, no one from the internet is going to pay you a thousand dollars.
—Paul Blecharczyk to his son Nathan
Greg McAdoo knew all about the nonstarters. A year and a half before he met the founders of AirBed & Breakfast, the New York City–born venture capitalist had an epiphany about how to consolidate and streamline the vacation-rental market. Small-business owners in the travel industry, like proprietors of bed-and-breakfasts, usually had only enough money to advertise locally. The internet could let them reach travelers around the world.
Exploring this thesis, he visited more than half a dozen web outfits, such as LeisureLink and Escapia, and started watching HomeAway, an Austin, Texas, company that was gobbling up rivals like the VRBO—Vacation Rentals by Owner—in an effort to create a dominant network of vacation properties. McAdoo spent nearly a year sizing up these companies, but he wasn’t convinced that any of them had a particularly novel approach. “It was a very fragmented market and it was never clear how it should be presented online,” he said many years later. “Frankly, I had moved on.”
Then, in early 2009, he sat down for coffee with Y Combinator chief Paul Graham and started talking about the mental toughness that founders needed, and Graham pointed across the room to the Airbnb guys as prime examples.
McAdoo introduced himself to Brian Chesky, Joe Gebbia, and Nathan Blecharczyk that day and was struck by their approach. The vacation-rental startup founders he had talked to were trying to make the experience better for travelers; the Airbnb guys wanted to make it better for hosts. It was the first of many meetings McAdoo and his partners at Sequoia Capital would have with the Airbnb founders over the next few months and one way in which YC, as the high-profile startup school is known in Silicon Valley, would radically change the prospects of the struggling company.
Airbnb had only narrowly gained admission to that winter’s YC program, thanks in part to its unlikely cereal gambit. After the founders got in, Blecharczyk apologetically said a temporary good-bye to his fiancée in Boston, moved back to the Rausch Street apartment, and installed himself on the living-room sofa. The founders drove forty-five minutes to get to YC’s offices in Mountain View, on a street optimistically called Pioneer Way, where they typically set up shop on the long trestle tables in the main dining hall.
At YC, Chesky, Gebbia, and Blecharczyk had constant access to Graham, the closest thing Silicon Valley had to Yoda from Star Wars. Since selling his e-commerce company, Viaweb, to Yahoo during the first dot-com boom, PG, as he was called, had become a font of startup aphorisms, such as “It’s better to have a hundred people that love you than a million people that sort of like you,” and “Don’t worry about competitors; startups usually die of suicide, not homicide.” He was in his early forties and typically wore the I-don’t-care-about-your-social-customs sartorial combination of cargo shorts, a polo shirt, and sandals.
At the time, the global economy was cratering, unemployment was skyrocketing, and Graham’s advice was more sobering than usual. At one point he warned Airbnb and the other fifteen startups in the program that investors were spooked, so they should all make sure they had a graph in their presentations with a single line racing up and to the right, demonstrating increasing profits. The Airbnb founders, who hardly had any revenue, let alone growing profits, mocked up that hypothetical chart and taped it onto the bathroom mirror at Rausch Street.
Despite the economic meltdown, the founders were determined to make the most of their turn of fortune. They stuck around each night, peppering Graham and his staff with questions. “We were the students that were just relentless,” Chesky says.1
Graham, still skeptical of the home-sharing concept, asked a blunt question: Was the site working anywhere? New York City, the founders replied, where around forty people were making rooms in their homes available for short-term rental. “Well, what are you sitting around here for? Go out there and talk to these people,” Graham said.
While Blecharczyk stayed behind to code, Gebbia and Chesky flew to New York over a long weekend and started meeting hosts. One obvious problem was that hosts weren’t presenting their properties online in an appealing way—the photos were grainy and usually taken with the primitive cell phones of the time. They reported this observation back in Mountain View, and Graham compared it to a challenge he had encountered at the online marketplace Viaweb, where he had to show naive retailers how to sell on the internet. “What they needed to do was teach their hosts how to sell,” Graham says. “That was the missing ingredient.”
So in what has become a bit of oft-repeated Airbnb lore, Chesky and Gebbia returned to New York regularly over the weekends that winter after e-mailing hosts that the site was sending a professional photographer to their homes for free.
Once in the city, they rented a high-quality camera and trudged around in the snow, knocking on doors and taking pictures of people’s bedrooms and backyards. “We were on a budget. I remember deliberating every little expense, like the quality of the tripod and whether we should go for the nice one or not,” Gebbia says.
In the parlance of the Valley, this kind of activity did not “scale.” It was a wildly inefficient use of their time. But it helped the founders tune in to the needs of their earliest users and to recognize that large, rich, colorful photos of homes and good profile pictures of the hosts would make the experience on the site more compelling. “Paul was the first person to give us permission to say, It’s okay to think about things that may not scale, to break away from the mythology of Silicon Valley,” Gebbia says. “We could actually think creatively around how to grow the business.”
Gebbia and Chesky logged a lot of miles that winter of 2008–2009. They spent most weekends in New York and on Tuesday mornings flew back to San Francisco; Blecharczyk would pick them up at the airport, and the three of them would race down to Mountain View to make it in time for the weekly YC dinner. “They were never late for anything and were the first to show up and the last to leave,” Graham says. He was starting to believe—first in the dedication of these entrepreneurs and then, slowly, in the concept itself. “How are the airbeds doing today?” was his standard greeting to them.
But Graham was still having trouble wrapping his mind around the idea of people actually sleeping on airbeds. Finally he identified the real opportunity as “eBay, but for spaces” and urged them to think of their brand as comparable to the auction giant’s. By the end of the program, the founders had moved their website from Airbedandbreakfast.com to the abbreviated Airbnb.com.
Greg McAdoo was also getting excited about the concept. Nobody else in the vacation-rental market had taken the time to visit the actual hosts and survey their needs, and no one else had the three men’s facility with the emerging tools of social media, like community meet-ups, online ratings, and Twitter.
Moving quickly in advance of demo day, when rival investors would get a peek at Airbnb, McAdoo introduced a few of his Sequoia colleagues to the company. There were some prescient questions.
“Have you thought about the legality of this?” asked Mark Kvamme, a longtime Sequoia partner.
McAdoo believed that it was too early to judge how such a novel activity would fit into existing laws governing the hotel industry. “These businesses either work or don’t work based on whether or not they are good for consumers,” he recalls telling Kvamme.
McAdoo returned to the YC offices the day before demo day and sealed the deal with the founders in a side room, convincing them not to appear onstage to deliver their already scripted presentation. Sequoia, one of the marquee firms of Silicon Valley, invested $585,000 for approximately 20 percent ownership of this small, unproven startup that had struggled for much of the past year and a half. Along with its participation in later rounds of fund-raising, Airbnb would turn into Sequoia’s most profitable investment ever, exceeding even the returns on its home-run bets Google and the chat service WhatsApp. The December 2016 value of its stake: $4.5 billion.
But back then, in March of 2009, that success was still far off. Once Airbnb graduated from YC, more than a year after they had started the company, the founders returned to living and working on Rausch Street, facing many of the same challenges of the previous year: there was little variety on the site in most tourist destinations and an anemic rate of revenue and listings growth.
The startup hadn’t solved the tricky chicken-and-egg problem that confronts the creators of online marketplaces. The relatively few listings on the site drew few guests looking for travel accommodations, and the paucity of guests didn’t inspire potential new hosts to embrace the unorthodox concept of making their homes available to total strangers over the internet.
The Airbnb founders like to talk about some of their more ham-handed attempts to ignite their marketplace that first year, but none of them account for how the company actually achieved liftoff. For example, while Blecharczyk stayed behind to code, Chesky and Gebbia continued to try to build up early listings by visiting New York, Las Vegas, and Miami, among other cities, and organizing meet-ups with any hosts they could find.
During one meeting McAdoo suggested another way to boost growth: urging property-management companies that controlled multiple listings to add them to the site. Chesky hired three sales interns that summer to cold-call such firms. Then, in the fall of 2009, he and Gebbia visited Europe. In Paris they stayed in the spare room of a native Parisian who was charming and hospitable. Chesky remembers it as a magical trip. The following week they went to London and stayed at a home that had been listed by one of the property-management firms. There was no host present and the two found it to be a hollow experience. “It didn’t have the love and care and it felt like it wasn’t in the spirit of what Airbnb was,” Chesky says.
He returned to San Francisco and says he ended the cold-calling operation. Whether Airbnb was actually committed to keeping managers of multiple properties off the site would later become a topic of blistering controversy. Such opportunists would flock to the site anyway, and cities were forced to consider how to deal with them and whether to regulate Airbnb like conventional hotels.
The founders seemed to move slowly on everything. McAdoo remembers them as being a little too “wonderfully frugal,” reluctant to spend their new venture capital, which is ironic considering their later profligacy on elaborate corporate offices around the world. “On the one hand, that is fabulous,” McAdoo told them, discussing the high bank balance. “On the other hand, guys, we need to invest in the business.” They also moved glacially in signing on new employees, declining at first to even hire customer-support help. (The only phone number on the site redirected the caller to the personal cell phone of Joe Gebbia.) The founders spent six months looking for the first full-time engineer before they finally settled on Nick Grandy, a fellow Y Combinator alumnus who had abandoned his own startup.
Grandy, who left Airbnb in 2012, remembers working out of a cluster of desks in the apartment living room, at first with the distracting chatter of the sales interns on the phone cold-calling hosts. One early challenge, he remembers, was getting hosts to actually reply to guests’ messages on the service. The solution was to make a user’s response rate—“the host responds to 75 percent of messages,” for example—visible on the site.
The founders worked seven days a week but there was a spirit of camaraderie and plenty of goofy fun. They would break occasionally to go to the gym or hang out on the roof. Once a week, they went to a nearby park on Folsom Street for “recess,” to play kickball or even a game of tag. On Friday they usually went to a bar for happy hour.
Eventually ten employees worked out of the crowded apartment. Chesky had to interview job candidates in the stairwell for privacy; employees took important calls in the bathroom.2 The bedrooms became offices; Gebbia slept on a mattress on the floor until he finally rented another unit in the building, and Chesky started living entirely out of a suitcase in rooms he rented around town on Airbnb. During one month, he stayed in the captain’s quarters of a Norwegian icebreaker that was docked in the Bay Area.3 And he left behind his Honda Civic and commuted to the apartment by taking Uber, the suddenly fashionable black-car service that was sweeping San Francisco. The Airbnb employees marveled at the magic and simplicity of the Uber app, says Grandy, and it inspired the team when they developed the first Airbnb app for the iPhone in 2010.
Chesky was moving slowly, but at the same time, he was frustrated that his imagined success wasn’t arriving quickly enough. “Every day I was working on it and thinking, Why isn’t it happening faster?” he told me.4 “When you’re starting a company it never goes at the pace you want or the pace you expect. You imagine everything to be linear, ‘I’m going to do this, then this is going to happen and this is going to happen.’ You’re imagining steps and they’re progressive. You start, you build it, and you think everyone’s going to care. But no one cares, not even your friends.”
To understand the spark that finally ignited the Airbnb inferno, it’s imperative to explore the background of Nathan Blecharczyk, the tall, seemingly unflappable engineer of the group, the co-founder who always stayed behind while his partners traveled the world.
Blecharczyk was twenty-four at this point but was already a technical wizard. He had coded the entire site himself, using what was then a new open-source programming language called Ruby on Rails. He devised a flexible, global payment system that allowed Airbnb to collect fees from guests and then remit them to hosts, minus the company’s commission, using a variety of online services such as PayPal. He had also presciently hosted the site on the nascent Amazon Web Services, a division of the e-commerce giant that allowed companies to rent remote Amazon servers via the internet only when they needed them, a huge cost savings and efficiency advantage that would power an entire wave of new businesses.
“Joe and I would have crazy dreams and visions,” says Chesky of his co-founder. “Nate would find a way, without compromising the vision, to make the wildly impractical possible.”
But that wasn’t the full extent of Blecharczyk’s talents.
Nathan Underwood Blecharczyk was born in Boston, the son of a homemaker mom and an electrical-engineer dad who worked for a local company that made industrial equipment. Blecharczyk’s father, Paul, taught him and his younger brother to be curious and to question how things worked. He would have his sons do mechanical tasks around the house, and he would bring home discarded equipment, like an old Xerox copier machine, and invite them to take it apart in the backyard. “There is no job too big or too small for PB and sons,” he would say to his boys.
Soon, young Nate was consumed with computers. According to family lore, home sick one day from middle school at age twelve, he took a book about computer languages off his dad’s shelf and devoured it. For Christmas, he asked for a book about Microsoft’s programming language QBasic, and he plowed through that one in three weeks.
Blecharczyk ran cross-country at his Boston public high school and excelled in his classes, but at home he had a far less conventional life. After learning to code, he started writing increasingly sophisticated computer programs and giving them away on the internet, asking for voluntary donations. An early such shareware program allowed computer users to place digital sticky notes on their screens. Later on, another program of his interfaced with America Online, the dominant online network of the time, which was then walled off from the broader web, and gave programmers a way to send internet messages into the e-mail and IM accounts of AOL members.
Soon after he posted that program, Blecharczyk got a phone call from someone who had seen it. The person offered him a thousand dollars to write a similar e-mail tool. When he told his dad about the offer, Paul Blecharczyk responded: “Son, no one from the internet is going to pay you a thousand dollars.”
Nevertheless, Blecharczyk wrote the program and earned the money. He later found out his customer had himself been hired to create it and was merely subcontracting out the work (and was probably paid more than a grand). The customer then introduced Nathan to his client and to other potential clients, and suddenly Blecharczyk was earning considerable money writing a variety of tools for a nascent industry. Its practitioners innocuously dubbed it “e-mail marketing.” The world, of course, came to know it as something else: spam.
Throughout high school and into college, Blecharczyk wrote customized tools for spammers. He eventually developed a suite of e-mail marketing products to help them organize and orchestrate their campaigns and maneuver around internet service providers that were desperately attempting to shut off the spam deluge. The orders poured in, as did the cash. He called his company several names at various times, including Data Miners and, eventually, Global Leads, which he incorporated in the State of Massachusetts after his freshman year at Harvard in 2002. At first he couldn’t accept credit cards, Blecharczyk recalls, so he had spammers enter their bank account details on his site, and then he printed the bank numbers on blank Office Max checks, wrote down the amounts he was due—typically around a thousand dollars—and went to the bank to deposit them. “Amazingly, this is legal,” he says, recounting his early success with delight. “I was literally printing money!”
At the end of every week and after every three months, he gave his parents a financial report. Naturally, Paul and Sheila Blecharczyk were mystified. “This was a whole new world,” Blecharczyk says. “The internet had just been born. I don’t think anyone really knew what to expect or what this was.”
The spam operation earned Blecharczyk close to a million dollars, he says, and paid his college tuition at Harvard University and more. It also earned him a spot on an online blacklist called Register of Known Spam Operators, maintained by an anti-spam London-based organization called the Spamhaus Project. On its page devoted to Data Miners, Spamhaus alleged that Blecharczyk often used the names Nathan Underwood and Robert Boxfield and appeared to have set up a service that offered spammers access to a range of accounts, called relays, outside the United States that would disguise and anonymize their e-mail campaigns. “Data Miners (aka: Nathan Underwood Blecharczyk) is one of the main sources of broken/open e-mail relays (used by spammers), and the tools to help locate and exploit them,”5 Spamhaus reported.
Blecharczyk says he shut his business down in 2002 to focus on his college studies because the work was taking up all his time. A Harvard classmate later recalled Blecharczyk telling him that he had received threatening letters from the Federal Trade Commission about his activities.6 (Blecharczyk does not recall this.)
He discusses all this years later from Airbnb’s offices and is unapologetic about how he earned his first considerable fortune. “All this was new,” he says. “There were frankly no rules around it.” That is technically true—the Federal CAN-SPAM Act that made sending or facilitating spam a federal crime was not passed until 2003. But for years before that, spam was a well-known scourge that frustrated e-mail users and overwhelmed internet companies.
“It’s part of being a pioneer,” he says. “It’s not just exciting to build things but to explore new fields and to recognize what comes with that is a lot of uncertainty. That’s very true today and it has been true of Airbnb. It’s a whole new concept, around which there haven’t been many rules.”
When Nathan Blecharczyk graduated from college, he was not just a skilled programmer but the embodiment of a new Silicon Valley hero: the growth hacker. Growth hackers use their engineering chops to find clever, often controversial ways to improve the popularity of their products and services. Blecharczyk, it turned out, was an exceedingly good one.
That makes the mysterious rise of Airbnb in the year after its graduation from Y Combinator easier to understand. Two other apartment-listing services were far larger: Couchsurfing, which was still laboring under the disastrous effects of its nonprofit status, and Craigslist, the popular and practical online bulletin board that hadn’t changed much in thirteen years. Craigslist had a huge audience; in 2009, it had forty-four million unique visitors a month in the United States alone,7 with active apartment rental and home-sharing channels in many of its 570 cities.
Recognizing this fact, Airbnb designed two clever, somewhat devious schemes to usurp Craigslist’s advantage. While Airbnb has always minimized the impact of these programs, each bore the unmistakable mark of Nathan Blecharczyk.
In late 2009, a few months after it had graduated from YC, Airbnb appeared to create a mechanism that automatically sent an e-mail to anyone who posted a property for rent on Craigslist, even if that person had specified that he did not want to receive unsolicited messages. If the apartment was listed in, say, Santa Barbara, the e-mail would read: “Hey, I am e-mailing because you have one of the nicest listings on Craigslist in Santa Barbara and I want to recommend you feature it on one of the largest Santa Barbara housing sites on the Web, Airbnb. The site already has 3,000,000 page views a month.” All these e-mails were identical except for the city, and they typically emanated from a Gmail account bearing a female name.
Dave Gooden, another online real estate entrepreneur, recognized the soaring popularity of Airbnb in 2010 and became curious about it. Suspecting what was going on, he posted a few dummy listings on Craigslist and then wrote a blog post in May 2011 about his findings, concluding that Airbnb had registered Gmail accounts en masse and set up a system to spam everyone who posted on Craigslist. He described Airbnb’s activity as a nefarious, “black-hat” operation. “Craigslist is one of the few sites at massive scale that are still easily gamed,” he wrote. “When you scale a black hat operation like this you could easily reach tens of thousands of highly targeted people per day.”8
After Gooden’s post, a few technology blogs picked up the story and Airbnb was put on the defensive.9 Its explanation was that it had hired contractors who were behind the effort to spam Craigslist users. “One of the lessons you learned is you have to be very close, provide constant management and guidance to the people you’re working with,” Chesky said when I asked him about it onstage at an industry event after Gooden’s blog post.
A few years later, Blecharczyk offered a little more detail. They had hired foreign contractors on eLance, an online staffing service, and were paying them per lead, or for every new host that would list on Airbnb. “Many companies bootstrap themselves off of finding a user segment on Craigslist and then building a better experience and going after those users,” he says. The whole effort, he insisted, was ineffective because Craigslist users typically weren’t looking to rent their rooms to vacationers but to find roommates or longer-term tenants. “It did not end up driving any meaningful business,” he says.
But another strategy clearly did. A few months after the bulk-e-mailing campaign to Craigslist users, Airbnb tried a new tactic. Instead of luring Craigslist users to Airbnb, the company did the opposite: it allowed users to take a streamlined version of their elegant listing on Airbnb and then cross-post it with a single click on Craigslist. “Reposting your listing from Airbnb to Craigslist increases your earnings by $500 a month on average,” the site informed prospective hosts. “By reposting your listing to Craigslist, you’ll get the benefit of more demand, while still being able to use Airbnb to manage and moderate your inquiries.”
The tool, which Chesky says was originally the idea of adviser Michael Seibel, was a boon for the company. It established Airbnb as a way to create more visually appealing Craigslist ads and, in effect, dropped ubiquitous Airbnb ads into the network of its largest competitor. “It was a kind of a novel approach,” Blecharczyk says. “No other site had that slick an integration. It was quite successful for us.”
Other growth hackers noticed this and applauded it as a sophisticated technical achievement. Craigslist has different versions of its site in hundreds of cities, each with different web domains and menu formats. Blecharczyk had designed a way to make it simple for Airbnb to post seamlessly onto the right site. “It’s integrated simply and deeply into the product, and is one of the most impressive ad-hoc integrations I’ve seen in years,” wrote Andrew Chen, a fellow growth hacker who would later work at Uber, in an admiring blog post. “Certainly a traditional marketer would not have come up with this, or known it was even possible. Instead it [would] take a marketing-minded engineer to dissect the product and build an integration this smooth.”10
For years Craigslist did not seem to care about Airbnb’s cross-posting tool. The San Francisco company, one of the pioneers of e-commerce, is small, inward-looking, and not particularly growth-oriented, which is why the outward appearance of its website hasn’t evolved in more than a decade. (The company did not respond to requests for comment on Airbnb’s activities.) Then, in 2012, Craigslist suddenly woke up to this type of activity and sent cease-and-desist letters to several businesses using similar tactics. Chesky says he could not recall whether Craigslist sent such a letter to Airbnb but noted that the cross-posting tool also helped Craigslist because “it made their ads look better. There were people that wouldn’t have posted to Craigslist, and Craigslist got new inventory.”
Airbnb dutifully removed the tool after Craigslist objected to these tactics, but by then it was too late. Like sucking through a straw, Airbnb was pulling listings and users over from Craigslist. It helped, of course, that its site was better designed and far easier to use and that it was constantly working to provide easier forms of payment, better mobile apps, and a safer experience where hosts and guests used their real identities and reviewed one another.
Blecharczyk also ran productive online ad campaigns during these early years. If people searched Google for an apartment in Boston, for example, Airbnb ads would pop up at the top of the page. Blecharczyk and his marketing team became experts at finding the cheapest and most frequently searched keywords and generating crisp and somewhat pointed ads. “Better than Couchsurfing.com!” some of Airbnb’s early search ads blared. Dan Hoffer, the Couchsurfing co-founder, at one point e-mailed Chesky to complain about this technique. He says Chesky apologized, stopped the campaign, and sent him two boxes of Obama O’s as a peace offering.
Blecharczyk pioneered a clever use of Facebook’s fledgling ad system, which for the first time allowed companies to tailor and target ads to the interests and hobbies that members specified in their profiles. If a user said he liked yoga, for example, he would see an ad from Airbnb on Facebook that announced “Rent Your Room to a Yogi!” If a person liked wine, he’d see “Rent Your Room to a Wine Lover!” and so on.
Facebook ads were cheap and people tended to respond to these eerily targeted messages. There was a whiff of false advertising, of course, because Airbnb was not actually offering a way to rent rooms specifically to yogis or wine lovers. Nevertheless, Blecharczyk says the Facebook ads worked beautifully and powered the company’s expansion. Early employees were left marveling at his combination of technical ability and marketing instincts. Says Michael Schaecher, an early marketing employee who joined over the summer of 2010, Nathan Blecharczyk “is one of the best online marketers the world has ever seen.”
By that fall of 2010, thanks in large part to Blecharczyk’s growth hacks and a sunken global economy that had many travelers looking for online deals, Airbnb was on fire. It boasted seven hundred thousand nights in eight thousand cities booked on the site and introduced a sleek new app for the iPhone, hitching its wagon to the smartphone revolution.11
Airbnb was finally looking like a real company, with revenues and a modicum of corporate decorum. Chesky now referred to himself in the media and on the website as the CEO, formalizing a leadership position he had held since the beginning. Gebbia was chief product officer, in charge of defining “the Airbnb experience,” according to the company website, while Blecharczyk was chief technology officer. The company even had a new office, a few blocks away from the Rausch Street apartment in a two-story former auto shop on Tenth Street, with a garage door that opened onto the street, awful cell phone reception, and a local homeless population that made good use of the adjoining side street. It had all the charm of a dusty warehouse but it was a real office, with room for new employees.
The founders realized they had to make customer service a priority. McAdoo suggested they take a few lessons from another Sequoia company, the shoe retailer Zappos, an unconventional e-commerce player that had originally focused solely on shoes and that had won customers’ loyalties with free shipping and by accepting returns with no questions asked. When he spoke to the founders a few days later, they had already taken his advice and been to the Zappos headquarters in Las Vegas; they’d toured the company’s tchotchke-lined offices, where employees stood in unison to warmly cheer guests, and met CEO Tony Hsieh and his COO, future Airbnb board member Alfred Lin. Amazon had acquired Zappos in June 2009, but its slightly madcap vibe remained intact.
Around this time, Airbnb returned to Sand Hill Road, the seat of the venture capital industry, to raise more money. Blecharczyk’s productive Facebook and Google ads were expensive, and Chesky had to keep the coffers full. Seeing the company’s growing market opportunity, McAdoo wanted Sequoia to supply the entire round of funding itself, but Chesky had learned at Y Combinator to be wary of giving too much control to venture capitalists, and he insisted on bringing in another firm.
He found a willing investor in Reid Hoffman, the co-founder and chairman of LinkedIn and a partner at Greylock Capital. Hoffman says he was skeptical at first. Ugh, couch-surfing is not that interesting, he thought. Then Chesky met him at Greylock’s offices on Sand Hill Road over a weekend and spun a compelling vision of Airbnb as the largest hotel chain in the world but one without the expensive burden of maintaining actual buildings or hiring workers like bellhops and maids. “The idea of essentially transforming this massive illiquid asset that existed in most of our lives—the room, an apartment, a house, a unique space—into something that could actually be in an essentially peer-to-peer marketplace is just one of the killer ideas,” Hoffman said. “I was like, ‘Okay, I’m ready.’”12
Hoffman could seize the Airbnb opportunity in part because the other VC firms Chesky approached still didn’t get the concept and weren’t able to look beyond the obvious risks—that someone could get hurt in an Airbnb, or an apartment could get ransacked, or a host could stash a secret video camera somewhere. They couldn’t see a company that might end up appealing not just to twenty-somethings from Europe but to real adults, even retired couples, who were seeking more authentic experiences when they traveled.
Marc Andreessen, the Netscape founder and investor, had just started his own venture capital firm with partner Ben Horowitz when he passed on Airbnb’s Series A round of funding. Andreessen liked to say that the goal of their firm, Andreessen Horowitz, was to identify the fifteen or so tech startups every year that actually mattered and back as many of them as possible.13 The firm took a long look at Airbnb and whiffed. “Marc struggled with the idea that this would be mainstream,” Chesky says. Andreessen Horowitz would rectify the oversight the following year and lead the Series B, a less lucrative but still hugely profitable investment.
Another venture capitalist that passed was across Sand Hill Road at a firm called August Capital. Howard Hartenbaum, an investor in the online video-calling service Skype, met with Chesky repeatedly that fall and took the founders to dinner at Alexander’s Steakhouse near the new office in San Francisco. Chesky impressed Hartenbaum; he seemed to have poise, intelligence, and a fierce determination to succeed. But Hartenbaum couldn’t wrap his head around the numbers. Chesky, emboldened by Airbnb’s early momentum, was offering a 6 percent ownership stake in the company for an investment of $4.5 million.
Hartenbaum thought Airbnb could eventually be a two- or three-billion-dollar company. Even in that best-case scenario, it wasn’t a big enough ownership stake to influence the outcome of August Capital’s half-a-billion-dollar fund and wasn’t a significant enough opportunity for Hartenbaum to try to convince a few of his partners, who were skeptical of Airbnb. So he passed. Years later, he was still beating himself up. What he failed to recognize, he said, was that investors would be seized by a wave of euphoria around the upstarts, and that three billion dollars would end up being a radical underestimation of Airbnb’s eventual worth. “You can make lots of little type one mistakes all day long,” he says. “They are not fatal. This was a type two mistake, which is the one mistake you can’t afford to make. Entire funds are made often on one deal. If you pass on it, you are not doing your job as a venture guy.”
Despite the fact that August Capital never invested, Chesky would remember that dinner with Hartenbaum well. It was the first time he heard of the people whose names would soon send shudders down his spine: the Samwer brothers.
“This is probably what’s going to happen,” Hartenbaum told the three founders over steaks that night. “There are these German brothers. If they haven’t already, they will soon see that Airbnb is doing very well. They will then raise a ton of money in a very short period of time to create a company that will copy you. Then they will try to get you to buy them. And they will make your life miserable.”