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There’s something I need to tell you. We’re going to start a company one day, and they’re going to write a book about it.
—JOE GEBBIA
THE BASIC STORY OF how Airbnb came to be is already lore in Silicon Valley and beyond: in October 2007, two unemployed art school grads living in a three-bedroom apartment in San Francisco, needing to make rent, decided on a lark to rent out some air mattresses during a big design conference that came to town and overcrowded the city’s hotels. In certain circles this tale has already attained the same mythic stature as some of the legendary founding stories that came before it: when Bill Bowerman poured liquid urethane into his wife’s waffle iron, birthing the Nike waffle-sole sneaker; or when Bill Hewlett and Dave Packard built an audio oscillator in Packard’s now-famous garage.
In truth, the Airbnb story begins a few years before then, three thousand miles away in Providence, Rhode Island, in a studio on the campus of the Rhode Island School of Design in the summer of 2004. Brian Chesky and Joe Gebbia, two students—Gebbia was in the fourth year of a five-year dual degree in industrial and graphic design, and Chesky had just graduated—were part of a RISD-sponsored research project with the Conair Corporation, the company best known for its hair dryers and other personal-care products. Companies would often partner with RISD for access to its industrial-design students. Under this particular program, Conair had hired the school, which assigned a group of students to essentially work solely on designing products for the company over the course of six weeks. Most of the work would take place on the RISD campus, but the company would own the rights to the products, and the students would get real work experience and a stipend. At the end of the session, they would present their ideas to Conair executives.
The students worked in teams of two, and Chesky and Gebbia decided to team up. They already knew each other well, having first met through a shared interest in sports. Chesky ran the RISD ice hockey team, and Gebbia had started the basketball team. To say sports was an afterthought among the RISD student body was an understatement, but, determined to bolster their teams’ images, the two co-conspired on an ambitious marketing plan: they raised funding, created a schedule, designed new uniforms, and cooked up other creative flourishes—including the liberal use of cheeky bathroom humor—to give the teams a sense of irreverence. They succeeded; the RISD games became popular events among the student body and even drew neighboring Brown University students and the city’s colorful then-mayor, Buddy Cianci, who agreed to be an “honorary coach” of the hockey team. “I think it was one of the hardest marketing challenges you could ever face,” Gebbia later told Fast Company. “How do you get art school students to a sporting event on a Friday night?”
But for all their antics, the Conair internship marked the first time Chesky and Gebbia had worked together on a design project. The team of students would travel to Conair’s offices in Stamford, Connecticut, once a week by bus for briefings with the company’s marketing team, then retreat to the RISD shops to work on their designs. Gebbia and Chesky worked hard on their ideas, often staying up all night in the studio. They let their creativity run wild, but it wasn’t until it came time to present their ideas that they realized just how wild. While the rest of the teams came back with different designs for hair dryers, Chesky and Gebbia came back with a different vision for the company, pitching out-of-the-box products like a shirt made of soap that washed off. “The look on their faces said everything,” says Gebbia of the Conair executives. The marketing manager running the project told Chesky he had drunk too much coffee. “But I didn’t have any coffee,” Chesky says. For both of them, it was an epiphany, not about hair dryers, but about what they could come up with when they put their heads together. “We kept building on each other’s ideas,” says Chesky. “Joe and I, when we get together, ideas typically get bigger, not smaller.” Gebbia felt the same way: “I got a taste of, ‘OK, when [Brian and I] get in the same room together and we work on an idea, we can do things differently than everybody else.’”
Gebbia already had a sense of this. The previous month had brought Chesky’s graduation ceremony. It had been a memorable event: Chesky had been chosen by the student body to be the commencement speaker, and he delivered a performance, approaching the stage to the tune of Michael Jackson’s “Billie Jean,” tearing off his robe to reveal a white jacket, and grooving, Jackson-style, in front of the crowd before taking the podium. A few days after that, Gebbia had invited his good friend and kindred spirit out for a slice of pizza. Their time together on campus was soon coming to an end, and Gebbia had a premonition he had to get off his chest. “There’s something I need to tell you,” he said. “We’re going to start a company one day, and they’re going to write a book about it.”
Chesky appreciated the sentiment. (“He looked at me and he kind of laughed it off,” Gebbia says.) But despite what they later would call their “Casablanca moment,” Chesky knew he needed to move on with his life and find a respectable job. After all, wasn’t that the whole point? Growing up in upstate New York, Chesky was the son of two social workers who’d worked hard to be able to give their children the freedom to pursue whatever passions and hobbies they chose. His mother, Deb, now a fund-raiser for Rensselaer Polytechnic Institute, and his father, Bob Chesky, who retired in 2015 after working for the state of New York for forty years, were supportive of their son’s interest in art; his high school art teacher had told them she thought he was going to be famous as an artist one day. And his parents were thrilled when he’d been admitted to RISD. But they were wary of the job prospects their son would have with a degree in art. (“We were afraid he was going to be a starving artist,” Deb Chesky says.) Not wanting to disappoint them, Chesky had switched majors halfway through his time at RISD, from illustration to industrial design, precisely because it would open up a much larger job market. So Chesky and Gebbia said goodbye, and while they were reunited briefly for the Conair program, Chesky eventually moved to Los Angeles to start his new life as an industrial designer.
Before shipping him off, Chesky’s parents bought him a suit and a car, a Honda Civic that they arranged would be dropped off at the airport when he landed. (Deb Chesky coordinated the logistics of all this, at one point finalizing the delivery on the phone with the car dealer from the dressing room at Macy’s while her son tried on suits. She explained to the dealer that she was buying the car for her son, who was moving to Hollywood. “He said, ‘He’s not going to be an actor, is he?’ And I was, like, ‘No,’” she says. “‘It’s just as bad—he’s going to be a designer.’”)
Once in Los Angeles, Chesky moved in with some friends from RISD and started working at the industrial-design firm 3DID. For the first few months he liked the work, designing real products for companies like ESPN and Mattel. But soon it started to become evident that the job wasn’t what he’d hoped it would be. He dreamed of becoming the next Jony Ive or Yves Béhar, famous designers who’d reimagined companies like Apple and the consumer-technology firm Jawbone, but he found his daily work to be uninspiring, mostly rote execution. “It was not silly stuff, but it was so obviously not in the promise of RISD,” he says. The renowned institution had filled him with a spirit of change-the-world idealism: almost any problem in the world could be solved by creative design, he was told; if you could conceive of something, you could design it; and it was possible to design the very world you wanted to live in. As a designer, you could change the world. “But when I got to LA, it was kind of a giant reality check,” he later said. “‘OK, here’s the real world. It’s not what you thought it was.’”
He hadn’t taken to Los Angeles, either. “I spent an hour and a half each way [to work] in a car, an empty car,” he recalls. He felt disillusioned—and that he’d made the wrong choice. “I felt my life was, like, I was in a car, and I could see the road disappearing into the horizon in front of me, and I could see the same view in the rearview mirror,” he later told Sarah Lacy, the technology journalist and founder of PandoDaily, in a fireside chat in 2013. “It was, like, ‘Oh, this is all I’ll end up doing. I guess it wasn’t like they said it would be at RISD.’”
Meanwhile, Gebbia had finished up at RISD and eventually moved to San Francisco, where he was working as a graphic designer for Chronicle Books and living in a three-bedroom apartment on Rausch Street in the city’s South of Market district. He’d also tried his hand at entrepreneurialism, attempting to launch a line of seat cushions he’d designed at RISD. Conceived for art school students as a comfortable seat when sitting through famously lengthy critiques, or “crits,” they were cheekily called CritBuns and designed in the shape of rear ends. They had won a prestigious award at RISD, with the prize being that the school would pay for the development of the product and give it as a gift to every member of the graduating class. Gebbia had hustled to find a manufacturer and a mold maker in order to produce eight hundred CritBuns within four weeks so they’d be ready by graduation day; the next day, he turned the enterprise into a company. (Gebbia had showed a knack for merging entrepreneurialism and art at an early age: in the third grade growing up in Atlanta, he sold drawings of Teenage Mutant Ninja Turtles to his classmates for two dollars each until their parents told the teachers he had to stop.)
The two talked frequently, Gebbia updating Chesky on CritBuns and the two also brainstorming ideas for any products they might be able to cook up together for 3DID. Always, Gebbia would end their conversations with a plea for Chesky to consider moving to San Francisco so they could start a company together. Chesky was mostly reluctant, always for the same reason: no health insurance, no move. One day, a package arrived in the mail at work from Gebbia, and Chesky opened it to find a pair of commercially produced CritBuns. Gebbia had succeeded at launching them out onto the marketplace, landing a big order at the Museum of Modern Art Design Store, a designer’s holy grail. He had really done it, Chesky remembers saying to himself. (“It was a subtle nudge,” Gebbia says. “It was a reminder: Don’t forget. We could potentially be creating things too.”)
It was enough to get Chesky to start looking around for jobs in San Francisco. In early 2007, he heard about a job opening at Method, then a fast-growing home-products company with a focus on sustainability and award-winning packaging. Chesky thought this could be his answer: it would get him to San Francisco, and it was a design-oriented company whose values were much more in line with his own. He went far in the interview process: he went through multiple rounds of interviews, completed a design challenge, and presented in front of a panel of five executives, getting more and more excited about the opportunity at every step. But in the end, he didn’t get the job; it went to another candidate. He was crestfallen.
But the interviews had gotten him up to San Francisco a few times, and he instantly loved the city. Its energy and the creative, entrepreneurial types he encountered through Gebbia’s circles reminded him of the spirit he’d felt back at RISD. (Gebbia had become the primary leaseholder on the Rausch Street apartment and had fashioned it to be a sort of designers’ collective, carefully interviewing and “curating” like-minded roommates.) He and Gebbia started thinking more seriously about what kind of company they could start. By now Chesky had quit his job—much to the chagrin of his parents—and began creating a different plan for himself. He’d been asked to teach industrial design at California State University at Long Beach and had started getting involved in the Los Angeles design community. He thought he could remain based there and commute to San Francisco for a few days each week to work with Gebbia.
That September, both of Gebbia’s roommates suddenly moved out after his landlord raised the rent, and Gebbia went into a much harder sell mode trying to get Chesky to move to San Francisco and take one of the rooms. Gebbia had already filled one of the rooms, and Chesky would be a perfect fit for the other. But Chesky was reluctant. He couldn’t afford it, and the two of them would need to cover rent for all three bedrooms for a month, because the third roommate couldn’t move in until November. Chesky started pitching Gebbia on—of all things—letting him rent his sofa three days a week so he could commute and essentially live in both places. Gebbia thought that was utterly ridiculous. With the deadline looming and no roommates in sight, Gebbia finally decided he would have to give up the apartment. But the morning he was due to call the landlord, Chesky called him and said he was in; he would take one of the bedrooms.
Chesky said a quick goodbye to his life in Los Angeles—he broke up with his girlfriend, delivered the news to his housemates, left his apartment and most of his possessions, and set off for San Francisco in his Honda late on a Tuesday night. Driving up the coast in the dark, he could barely see the road in front of him, yet all he kept thinking was that it was nothing like the empty road he’d kept seeing in his head for so long when he felt trapped in his job. This was not that road. This road, to San Francisco, looked only like possibility.
“Like Craigslist and Couchsurfing.com, but Classier”
As the mythologized version of the story goes, when Chesky arrived at the Rausch Street apartment, Gebbia informed him he was on the brink of losing the place, that the rent had gone up to $1,150, and that it was due within the week. Chesky had $1,000 in his bank account. In truth, they’d known for weeks about the higher rent—plus the fact that they’d have to cover the extra empty room in addition to their own—and they had been brainstorming various schemes to come up with the funds even while Chesky was still in Los Angeles. One idea centered around the International Council of Societies of Industrial Design/Industrial Designers Society of America (ICSID/IDSA) World Congress, the biannual confab for the design community, scheduled for San Francisco in late October. It would draw a few thousand designers to their city, and they knew hotel capacity would be tight and rates would be high.
They thought, why not create a bed-and-breakfast for the conference out of the empty space in their apartment? RISD, after all, had taught them that creativity can solve problems, and Gebbia happened to have three air mattresses in his closet from a camping trip he’d taken. The place was a spacious three-bedroom, so there would be the living room, kitchen, and a full bedroom all for the taking. They could sell a cheap place to stay, and even offer breakfast—and they could advertise their place on the design blogs they knew all the attendees would be reading.
They refined this idea for weeks, and the more they talked about it, the more they realized it was so weird that it just might work—and with a looming deadline to pay the rent, they had little to lose. They started drawing wireframes, or skeleton outlines, and mock-ups for the website that would advertise their concept. Once Chesky moved in, they hired a freelancer who knew HTML to put together a rudimentary website using their designs, calling the service AirBed & Breakfast. The final product featured a robust website announcing the service (“Two designers create a new way to connect at this year’s IDSA conference”), an explanation of how it worked, and included a listing for three airbeds in their apartment for eighty dollars apiece (amenities listed included a roof deck, a “design library,” “motivational posters,” and 3-D typography). “It’s like Craigslist & Couchsurfing.com, but classier,” proclaimed one “endorsement.”
They e-mailed design blogs and the conference organizers and asked them to help promote their website, which they did; the conference organizers thought it was a funny, oddball idea, and the design blogs were more than happy to help support two of their own. Chesky and Gebbia thought that, with any luck, they’d get a couple of hippie backpacker types and would make enough money to pay rent. Within a few days they had booked three guests: Kat, a thirtysomething designer based in Boston; Michael, a father of five in his forties from Utah; and Amol Surve, a native of Mumbai who’d just graduated from Arizona State University’s master’s program in industrial design.
Their guests weren’t hippies at all; they were professional designers on a budget who needed just what Chesky and Gebbia were offering. True, it required a big leap of faith on their part: Surve, the first guest to book, thought the idea was strange, but, he says, “I was desperate to go to the conference,” and when he came across the website, he says he knew it was created by like-minded people. “You could tell that the concept was designed by designers for designers.” After Googling what an airbed was—new to the United States, he had never heard of one before—he submitted a request on a form on the website asking to stay at the “original” AirBed & Breakfast. When he didn’t hear back, he tracked down Gebbia’s information and called him on his cell phone. (“He was completely surprised,” Surve says. “They had no idea that someone would stay with them.”) Surve made plans to stay for five nights at eighty dollars per night. “It was a hack on both our sides,” he says. “I was trying to hack and go to the conference, and they were trying to hack and make rent. It was, like, a perfect match.”
“I Was Both in the Living Room and in the Slide Deck at the Same Time”
After landing at the airport and following the BART directions his hosts had provided, Surve arrived at the door of the apartment and was welcomed by Gebbia. “This guy opens the door, he’s wearing an aviator hat and some big trendy glasses, and I was, like, ‘Yep, that’s a designer right there,’” Surve recalls. Gebbia asked him to remove his shoes, gave Surve a tour around the place, and showed him to his room, which contained an air mattress, a pillow, and a welcome package that included a BART pass, city maps, and spare change to pass out to homeless people. (“They were so detail-oriented,” Surve says. “They said, ‘Is there something else we could have added to this package?’ I said, ‘No, this is already too much.’”)
After dropping off his things, Surve sat down on the living-room couch and opened his laptop to familiarize himself with the conference program. Gebbia and Chesky were hard at work at the table, putting together a PowerPoint for their new concept. Surve leaned over and took a peek and spotted a slide about his being their first guest. “It was ironic,” he says. “I was both in the living room and in the slide deck at the same time.” They began peppering him with questions for feedback and invited him to join them in a pitch session they were participating in that night—a PechaKucha, a kind of poetry slam–meets–PowerPoint presentation in which designers pitch ideas to other designers. Gebbia and Chesky had their presentation; now, they could present their end user, too.
The other guests soon arrived at the apartment, Kat and Amol sharing a room and Michael claiming the kitchen. By the time they all set out for the conference together the next day, Chesky and Gebbia were in major hustle mode to promote their new idea. They dodged the registration fee by telling the organizers they were bloggers. They tooled around the conference together, Chesky with a camera slung around his neck so as to best resemble a blogger, and excitedly talked up their new service. “He would pitch anyone and everyone,” says Surve, whom they used as a prop. “Ask him how great it is!” Chesky would say, pushing Surve forward. Surve confirmed how much fun he was having and how it wasn’t just a place to stay. (“My product stuck up for us!” Chesky said recently, reflecting on this. “He was the most unbelievable advocate.”) People were mostly amused. No one took them seriously. During a happy hour in the lounge of the Fairmont Hotel, Chesky managed to edge into a crowd surrounding a well-known designer he’d looked up to for years. He introduced himself and told him about their new concept. The designer was not impressed. “Brian,” he said, “I hope that’s not the only thing you’re working on.” It was the first of many reality checks. (“I remember that so well—like, it’s seared in my brain,” Chesky said.)
Outside the conference, Chesky and Gebbia showed Surve around their city: they took him to their favorite taco place, to the San Francisco Ferry Building, and to Stanford’s design school. They served their guests breakfasts of untoasted Pop-Tarts and orange juice. In a short few days, the five of them became comfortable enough around each other in the apartment that at one point Chesky remembers talking to Michael as he was lying on his air mattress on the kitchen floor in his underwear. All told, they made $1,000 from the weekend.
But even with that, they didn’t have the feeling their idea would be huge. It was just too weird. It was something they had come up with to help pay the rent, to keep them afloat, and, if anything, to buy them a little more time to think of their really big idea.
They turned their attention back toward brainstorming the company they would start for real. They brought in one of Joe’s previous roommates, Nathan Blecharczyk, a gifted engineer from Boston who was between gigs. The son of an electrical engineer, Blecharczyk had taught himself to code at age twelve with a book he found on his father’s bookshelf. By age fourteen, it had become an “intense passion” and he had started doing work for paying customers who’d found him online. By the time he finished high school, he had made close to $1 million building and selling marketing software. That had paid for his Harvard computer science degree, but Blecharczyk had spent most of 2007 at a failing education start-up and was thinking of leaving his job. Gebbia had just left Chronicle Books and was still working on a new start-up he’d conceived after CritBuns—Ecolect.net, a sustainable-materials marketplace for the design community. The three of them hunkered down to brainstorm, veering from one idea to another. At one point they landed briefly on a concept for a roommate-matching website they imagined as a Craigslist-meets-Facebook for roommates. “We thought, no one would do this AirBed & Breakfast thing, but people need roommates,” says Chesky. But after four weeks of designing and refining the idea, they typed “roommates.com” into a browser and were crushed to discover that the idea and website already existed. They went back to the drawing board.
Chesky went home to Niskayuna, New York, for Christmas that year, discouraged. When his friends and family asked him what he was doing, he told them he was an entrepreneur. “No, you’re unemployed,” his mother corrected him. (“No, I’m an entrepreneur!” he would protest. “No, you’re unemployed,” would again come the answer.) His parents aside, “entrepreneur” wasn’t really a word people knew in Niskayuna. “What are you ‘entrepreneur’-ing?” his friends would ask. With nothing truly significant to tell them about, he found himself time and time again coming back to AirBed & Breakfast. Gebbia, at home in Atlanta, found himself doing the same thing. They were getting used to talking up AirBed & Breakfast. And then they started wondering—was this the idea?
AirBed & Breakfast “Lite”
Chesky and Gebbia returned from the holidays revved up about trying to make a go of AirBed & Breakfast. As they had discussed it, they had refined the concept: it could be a resource for finding rooms during sold-out conferences across the country. They knew that such gatherings can easily max out a hotel’s supply, creating just the kind of demand that led them to book their first three guests in San Francisco. And they had the perfect idea for where to launch it: South by Southwest, or “Southby,” as it’s known, the Austin-based tech, music, and film-festival confab that had become the preeminent technology-industry gathering in the United States.
But they knew they needed to convince Blecharczyk; they couldn’t do it without him. They called him up and said they had something they were really excited about and asked him to dinner, where they pitched the idea to him. He was reluctant. He liked the idea, and he knew from his time living with Gebbia, when they’d help each other out on side projects on nights and weekends, that they shared a similar work ethic. He felt the three of them would make a good team, but as he listened to his designer friends’ more grandiose vision, he became apprehensive about the amount of work they were describing. Most of it would fall on him, the only engineer of the three of them, and it would need to be done in just a few weeks in order to get up and running in time for South by Southwest. “I think my response was supportive, but cautious,” Blecharczyk recalls. Sensing his reservations, Chesky and Gebbia left the dinner, regrouped, and came back a week later to repitch the idea to him. But as they were in the elevator on the way to see Blecharczyk, Gebbia suddenly realized their vision was still too ambitious. “Nate’s going to freak out,” he said, shaking his head. “We have to scale it back.” They quickly agreed on a retooled alternative, something they called AirBed & Breakfast Lite, a scoped-down version of the concept with fewer features and fewer technical hurdles that would be executable in a few weeks. (“Same great product, half the code,” Gebbia says.) They had a few drinks, and Blecharczyk agreed; they would make a run at it.
In those very early days, Chesky felt strongly that the service should be free. “I was a little nervous about starting up a corporation,” he says. They had wanted AirBed & Breakfast to become a movement, and he had an idealistic view that everything would be shared freely. “I was extremely progressive in the sense that I initially thought maybe Airbnb should be a free website, like Couchsurfing. Like, no money.” Gebbia and Blecharczyk convinced him otherwise, and Chesky says he eventually came around. “I was, like, ‘Yeah, you’re right. This should be monetized. There should definitely be a business model.’”
They decided that at South by Southwest, they would introduce Airbedandbreakfast.com as an entirely new site, to try to get another round of press. (It’s a tactic Chesky has since advised to other entrepreneurs: “If you launch and no one notices, you can keep launching. We kept launching, and people kept writing about it. We thought we’d just keep launching until we got customers.”) They spruced up the site, billing it as lodging for sold-out conferences (“Finally, an alternative to expensive hotels,” the site read), and notified some tech blogs. But almost nothing happened. “It wasn’t really a big moment for traction,” Blecharczyk says. That was an understatement: they got only two paying customers—one of whom was Chesky.
Even the person Chesky stayed with—Tiendung Le, a PhD student at the University of Texas in Austin—was someone the founders had recruited off of Craigslist to list on AirBed & Breakfast. When Chesky arrived, he was impressed with the way Le had spruced up the air mattress in his living room, even putting a mint on the pillow. For his part, Le recalls Chesky spending a lot of time out on the balcony, either on the phone or “deep in thought.” Le made him an espresso every morning (which he says Chesky drank “in two seconds”) and drove him to the festival, during which time Chesky described his vision for the company and his fervent hope to meet Mark Zuckerberg, who was speaking at the conference.
Despite pulling in zero outside business, the South by Southwest launch actually served a few purposes. By using the website himself, Chesky identified some kinks in the payment process. He’d forgotten to go to the ATM not once but twice, so for two nights he was in the awkward position of staying in the home of a stranger who had no reason to believe he’d actually pay. And Le felt that after a day or two of becoming friends, it felt awkward to ask for the money at all. The three founders realized they’d need to build a more sophisticated payment system. Additionally, after the event was over, they heard from a few potential customers who said they were traveling to other places, but not for a conference. Was it still possible to use AirBed & Breakfast? The founders said no.
The Godfounder
At South by Southwest, Chesky and Gebbia also made a key connection. Their third roommate at Rausch Street, Phil Reyneri, was an employee at a start-up called Justin.tv, and he, too, was there in Austin along with his CEO, a twenty-five-year-old entrepreneur named Michael Seibel. Chesky had decided to stay an extra night, and Seibel let him crash in his hotel room. Chesky told Seibel about their idea, and he liked it. “I was, like, ‘Yeah, that makes sense,’” Seibel recalls. He had used Couchsurfing.com, and while he didn’t foresee AirBed & Breakfast’s becoming a multi-billion-dollar juggernaut upon hearing the idea, he didn’t think it was out of left field either; they were, after all, themselves crammed into a small hotel room during a conference. “We were sitting in the home of the problem,” Seibel says.
Seibel is now an established entrepreneurial adviser with two major successes under his belt: he and his cofounders sold Twitch (which is what Justin.tv eventually became) to Amazon for $970 million and Socialcam, a video app, to Autodesk for $60 million. But back then he was twenty-five, had only recently become a first-time CEO, and didn’t have much experience. “I wasn’t someone people pitched,” he says. Chesky and Gebbia were the first founders who had ever asked him for advice. But he had just gone through Y Combinator, the prestigious start-up accelerator program cofounded by the entrepreneur and venture capitalist Paul Graham (Seibel is now CEO of the Y Combinator program). Seibel told them he’d help give them counsel, and as they began to devise something more tangible, he could maybe introduce them to some angels. Chesky had no idea what he was talking about (“I’m, like, ‘Oh my god, this guy believes in angels. What the hell?’” he says now). Seibel explained to Chesky that he was referring to angel investors, people who over dinner might write him a check for $20,000. Chesky thought that sounded even weirder. “No, no, you give them a pitch, a slide deck,” Seibel pressed. Chesky didn’t know what a slide deck was either, but he sensed that Seibel was someone he should listen to.
After South by Southwest, with their website traffic having flatlined, the founders retreated to San Francisco. They were dejected, but Chesky and Gebbia already had an idea for their next attempt: it was an election year, and the Democratic National Convention was going to be held in August in Denver; they could try again. But Blecharczyk’s initial cautiousness had shifted to outright skepticism. He had been working on another idea he was much more excited about, a social-advertising network for Facebook. He still liked AirBed & Breakfast, but he was very practical about accepting their results at South by Southwest, and he wouldn’t fully commit until Chesky and Gebbia had a better strategy. “Joe and Brian really wanted to move forward, but I was quite hesitant until we understood how we’d make the product better and achieve a better outcome,” he says. So for the next few months Blecharczyk spent most of his time on his own start-up while Chesky and Gebbia kept moving forward refining their idea and product, bringing updates week by week to Seibel, who’d offer feedback and suggestions. “He [Seibel] just kept us in check,” Gebbia says. “Whenever we went off the guardrails, he’d be, like, ‘Guys, what are you doing? Back this way.’ ” They called him their “godfounder.”
But without Blecharczyk’s full attention, many of Seibel’s suggestions weren’t being implemented. Chesky and Gebbia didn’t want to let on to Seibel that Blecharczyk wasn’t fully on board, because Seibel had started introducing them to investors, and a start-up without an engineering founder would stand no chance. As far as Seibel knew, Blecharczyk was working full-time on Airbedandbreakfast.com. Gebbia and Chesky assumed it was realistically more like a few hours a day, but they didn’t dare tell Seibel. In truth, Blecharczyk was spending no more than an hour every few days on it. “We only started grasping later how checked out Nate was,” Chesky says. “He would do less and less work, and the contact would be less and less frequent.”
Then, in May, Blecharczyk dropped a bomb: he was moving back to Boston to commit to his girlfriend (now wife), who was in medical school. “That was probably out of left field for Joe and Brian,” Blecharczyk concedes. “There was a sense at that point that maybe the team was falling apart.” It was. The next month, Chesky and Gebbia started looking for another cofounder. They posted ads for a “cofounder and CTO” at San Francisco’s Moscone Center during Apple’s Worldwide Developers Conference. Blecharczyk says he wasn’t too threatened by that. “For all the same reasons I was skeptical, I thought someone on the street would be more skeptical,” he says. “I wasn’t particularly concerned that someone else was going to emerge overnight.”
But Chesky and Gebbia kept refining their vision, kept collecting feedback from Seibel, and kept talking with Blecharczyk over the phone, and it was actually during this time that a new and much broader vision for AirBed & Breakfast crystallized: instead of targeting sold-out conferences, it would be a website where booking a room in someone’s home would be as easy as booking a hotel. It was in essence the same version of Airbnb that exists today. But it meant they had to build a sophisticated payment system that could handle transactions without taking the customer away from the site; and it meant they would need a review system and a much more robust website in general.
This was a much more ambitious vision, but it was also exactly what Blecharczyk needed to hear. He had also decided to throw in the towel on his advertising idea, because he realized the concept needed more than engineering expertise, and he didn’t have cofounders. So he recommitted to AirBed & Breakfast, agreeing to work on the concept from Boston.
Meanwhile, Chesky and Gebbia had started meeting with the “angels” Seibel had mentioned—or at least trying to. (By this point, the group decided that Chesky would be CEO. “It wasn’t really a major conversation,” Chesky recalls. “There was a moment when one of us had to put the title on.” The three cofounders have very different skill sets; it had become clear that Chesky was the natural leader among them. “I knew a lot less than Joe and Nate,” he says. “They had been involved in start-ups and I had not. So I think I was always trying to make myself very useful, and that transitioned to starting to build a company.”) The investor outreach would soon become a lesson in rejection. Of seven investors Seibel had connected them to, most didn’t write back. And the ones who did all said some version of no: it was not their area of focus; they hadn’t had luck in the travel category; the potential market didn’t seem large enough; they were committed to other projects; they were out of town; they were unavailable; they wished him well:
Brian good to meet you—while this sounds interesting it is not something we would do here—not in our area of focus, do wish you best of luck.
Unfortunately don’t think that it’s the right opportunity for [firm] from an investment perspective . . . the potential market opportunity did not seem large enough for our required model.
Thanks for the follow up. I was unavailable to get on the call today as I’ll be out of town through end of day Thursday. I really like the progress you guys have made, but between issues outstanding with ABB and my current time commitments to other projects . . . I’m not going to be able to proceed with an investment at this point. My biggest remaining concerns are:
–significant ramp up in traction post the DNC and RNC
–technical staffing
–investment syndicate
Brian
We decided yesterday to not take this to the next level
We’ve always struggled with travel as a category
We recognize its one of the top e-commerce categories but for some reason, we’ve not been able to get excited about travel related businesses
The few meetings Chesky and Gebbia did set up were mostly disastrous. Investors thought the idea of renting out space to strangers was totally weird and unbelievably risky. They were put off by Chesky and Gebbia’s art school background; they thought they lacked technical DNA (at the time, investors were still looking for the next Google, that is, two PhDs from Stanford). One investor they met with at the University Café in Palo Alto simply got up with no warning and walked out halfway through the meeting, leaving his half-full smoothie on the table. Gebbia and Chesky took a photo of the smoothie.
It should be said that at this point the founders were looking for someone to buy 10 percent of their company for $150,000, valuing the company at $1.5 million. Under certain scenarios, that $150,000 could have been worth a few billion dollars today. But at the time, it was a radioactive idea. “No one wanted to touch this,” Chesky says.
“Just Keep Launching”
Undaunted, the three cofounders kept refining their product, so by the time the DNC in Denver approached, they had finessed a way to facilitate payments on the site, they had a review system up and running, and they had come up with a new marketing slogan: “Stay with a local when traveling.” Excitement about the DNC, too, was heating up: Barack Obama’s nomination for the presidency had led to a frenzy of media coverage and a surge of interest in the convention. The DNC organizers decided to move the location of Obama’s acceptance speech from the Pepsi Center to Invesco Field, which held some eighty thousand people. Local articles started appearing suggesting that Denver had only twenty-seven thousand hotel rooms and forecasting a massive housing shortage. “The hysteria was perfect for us,” Chesky later told an audience at the Urban Land Institute. This could be their moment.
Chesky, Gebbia, and Blecharczyk launched their site—now for the third time—on August 11, 2008, a few weeks before the convention. Through persistence and connections, they had managed to secure a feature on the prominent tech blog TechCrunch. (“AirBed and Breakfast Takes Pad Crashing to a Whole New Level” was the headline; writer Erick Schonfeld wrote that the “combination of the AeroBed and the Internet has now made everybody into an innkeeper.”) The story succeeded in building awareness, but it drove so much traffic that Airbedandbreakfast.com crashed. Chesky and Gebbia happened to have another meeting with an angel investor, Mike Maples, that day, and since their site was now live, they decided to skip the slide deck and just show Maples the real thing. But when they tried to open the site, they realized it had crashed—and they hadn’t brought their slide deck. “It was mostly us staring at each other for an hour,” Chesky later said. Maples did not invest.
The founders had another problem leading up to the DNC, which was supply: no one wanted to list his or her home if no one else was going to book it; and with few homes listed, no one would use the site. They weren’t going to be able to get off the ground, let alone trigger any kind of “network effect,” where the more people use something, the more valuable it becomes—leading even more people to use it. Their preliminary outreach showed them people either didn’t want to rent their homes or thought they were being asked to participate in some kind of weird social experiment.
Chesky may not always have known what angels or slide decks were, but he and his cofounders always had a very good instinct for using the media, and, much like that first October weekend, they knew that success or failure lay in their ability to drum up news coverage. They also knew that the political news media were desperate for any new wrinkle they could find. Thinking creatively, the founders pitched to the smallest local blogs they could find, on the principle that the smaller they were, the more likely they were to pay any attention to them. They were able to get a few stories on microblogs, which started a domino effect: the smaller-blog stories were then picked up by bigger blogs, which were then seen and covered by local newspapers like the Denver Post, which in turn triggered a call from the local broadcast stations. And those stories were then seen and covered by the national media: Politico, the New York Daily News, the New York Times, and others.
The press strategy worked, and things began to happen: eight hundred people listed their rooms, and eighty guests booked. It was nail-biting at times. The founders were using a PayPal account to handle all payments, but when PayPal saw the huge spike in activity, it deemed it suspicious and froze their account. Blecharczyk spent hours on the phone with PayPal customer service in India, while Chesky and Gebbia frantically pleaded with annoyed customers to be patient, they would get paid (they did, by the end of the weekend). But overall, the founders were elated. “As far as I was concerned, we were the Beatles,” Chesky told Lacy in their fireside chat.
But once again, the success would be short-lived. Despite the bookings and the media coverage, as soon as the convention was over, traffic crashed. “We realized if only there were political conventions every week, we’d be huge,” Chesky said. Instead, they were back at square one. Chesky would later put it in medical terms: they were losing their patient.
“I Don’t Remember Mark Zuckerberg Assembling Cereal Boxes”
Back at home in San Francisco, with Blecharczyk back in Boston, Chesky and Gebbia were launched, out of money, in debt, and without traffic. Desperate and nearly out of options, they resuscitated an idea they’d had before the DNC, which was to ship their “hosts” free breakfast that they could then in turn give to their paying guests. After all, breakfast was half of the name and a big part of the concept. They had landed on cereal—and, with the convention on their minds, they’d come up with a fictitious brand called Obama O’s. They’d designed a cereal box, added slogans—“The breakfast of change” and “Hope in every bowl”—and added a Republican version, Cap’n McCain’s, “A maverick in every bite.” An illustrator designed the box, and Jonathan Mann, a jingle writer who was an early host on the site, drummed up a jingle for each. (These are both available with a quick web search and are highly worth listening to. The Obama lyrics are as follows.)
Oh-my-god it’s Obama O’s
Mommy, can I have some please?
There’s a really cool cereal that you oughta know
Everybody’s talking about Obama O’s
Just one bite and you will understand
Cause every single O sings “Yes, we can!”
Oh-my-god it’s Obama O’s
Mommy can I have some please?
Back in the kitchen after the convention, Gebbia and Chesky started getting excited about resurrecting the cereal idea. If they could produce one hundred thousand boxes and sell them for two dollars each, they reasoned, they’d be able to fund the company; Chesky even rationalized that it would be just as if the “angels” they had talked to had given them money. By this point, they had filled up baseball-card binders with credit cards to the tune of $20,000 in debt each. Blecharczyk thought this was crazy, at first thinking they were playing some kind of prank on him (which they had been known to do). He told them they could do it, but he wanted no part of it and made them promise not to spend any money on the idea. “We’d each been out of jobs for almost a year,” Blecharczyk says. “They were on their own.”
Chesky and Gebbia retreated into a mode they were familiar with—the creative hustle—and found a RISD alum in Berkeley who had a printing shop. He wasn’t willing to make one hundred thousand boxes, but he said he’d print them five hundred boxes of each for free if they’d give him a cut of the sales. That smaller scale would crush their economic model, but they decided to recast the idea as “limited edition” boxes; they’d number the boxes, pitch them as collectors’ editions, and charge forty dollars per box.
They scoured San Francisco’s supermarkets to find which sold the cheapest cereal and filled up shopping cart after shopping cart until they had a thousand boxes of one-dollar cereal, loaded them into Gebbia’s red Jeep, and hauled them home. Back in the kitchen, with a thousand flat boxes and a hot-glue gun, they got to work, hand-folding the boxes and sealing them shut with the glue. “It was like doing giant origami on my kitchen table,” Chesky recalled during the Lacy interview. He burned his hands. He thought to himself that he couldn’t remember Mark Zuckerberg hot-gluing anything or burning his hands assembling cereal boxes to launch Facebook. Maybe, he thought, this wasn’t a good sign.
But they finished the boxes, and, in their last-ditch attempt at stirring up attention for their failing company, alerted the press. Tech reporters got bombarded with pitches, they reasoned, but they probably didn’t get cereal shipped to their desks all that often. Maybe they’d respond; and if they displayed the boxes on their desks or on bookcases in the newsroom, all the other reporters would also see it. The gimmick worked: the press ate it up, and the boxes started moving. Obama O’s sold out in three days, after which people started reselling them on eBay and Craigslist for as much as $350 per box. (Cap’n McCain’s never sold out.)
The founders paid off their debt, but they still had no traffic on their original idea, which had nothing to do with cereal, and they had no sense of how to develop more traffic. It was a grim time. (During one phone conversation, Deb Chesky asked her son, “So wait—are you a cereal company now?” Even worse than the question was that Chesky didn’t know how to answer it.) They had made less than $5,000 from their core business and somewhere between $20,000 and $30,000 selling cereal. Blecharczyk, deeply skeptical of the cereal plan from the start, decided enough was enough. Back in Boston, he started consulting again and got engaged.
In effect, Chesky and Gebbia were back at square one, in their apartment with no money. Chesky had lost twenty pounds over the course of the year. Out of money and out of food, for the next few months they lived off of dry Cap’n McCain’s; even milk was too expensive. (And yet even during these difficult times, Chesky was still strategizing. At one point Deb Chesky remembers urging her son to go buy some milk. “No, we’re just going to struggle through,” she says he told him. “It’ll be a better story someday.”)
One night in November 2008, Chesky and Gebbia were having dinner with Seibel, who suggested that they consider applying to Y Combinator. Chesky took umbrage at the suggestion. Y Combinator was for prelaunch companies. AirBed & Breakfast had already launched—they had customers! They had been written up on TechCrunch! But Seibel delivered the truth that, deep down, they all knew: “Look at you,” he said. “You guys are dying. Do Y Combinator.” The application deadline had passed, but Seibel sent a message to Graham, who said he’d consider them if they got their application in by midnight. They called Blecharczyk in Boston, waking him up at 1 a.m. to ask if they could put his name on the application with them. He hardly remembers agreeing, but he did.
They applied, got an interview, and somehow convinced Blecharczyk to come back to San Francisco for it. Y Combinator’s application process is famously brutal; interviews are just ten minutes flat, consisting of Graham and his partners asking rapid-fire questions; no presentations are allowed. After several hours of prepping and mock-interviewing one another, the founders were ready to leave for the interview. On the way out, Gebbia went to grab a box of Obama O’s and Cap’n McCain’s to put them in his bag, but Chesky and Blecharczyk stopped him. “Are you out of your mind?” Blecharczyk asked him. “Leave the cereal at home.” (Says Gebbia, “I felt very outnumbered in that moment.”) They piled into Gebbia’s Jeep and drove down to Mountain View, where Y Combinator’s headquarters were located.
The interview didn’t go well. After the founders explained the idea, Graham’s first question was “People are actually doing this? Why? What’s wrong with them?” Chesky felt Graham was impressed that they knew so much about their market and customers, but it seemed like he dismissed the idea itself entirely. (Graham and others often point out that at this time the idea for the company was still that the person renting out the space would be present; the founders hadn’t yet conceived of their users renting out their entire home or apartment.) As they started to pack up to leave, Gebbia pulled out the cereal boxes; against Blecharczyk’s wishes, he’d sneaked them into his bag. He walked over to where Graham was talking with his partners and handed him one. Graham thanked him, awkwardly—he thought they had bought some cereal for him as a weird or bizarre gift. The founders told him, no, they had made and sold the cereal boxes—it was, in fact, how they’d funded the company. They told him the story behind the Obama O’s. Graham sat back and listened. “Wow,” he mused. “You guys are like cockroaches. You just won’t die.”
The founders were told to expect a call from Graham very shortly if they were accepted. But the rules were strict: if they got an offer, they needed to accept on the spot; otherwise Graham would go down the list and offer the slot to the next person. In the Jeep on the way back to San Francisco, Chesky saw Graham’s number pop up on his cell phone. He picked it up, with Gebbia and Blecharczyk eagerly listening in. Just as Graham started to say, “I’d love to . . . ,” the call dropped. They were on a stretch of I-280 between Silicon Valley and San Francisco where it was well known that there was no cell signal. “I’m, like, NOOOO!” Chesky later recalled. “Me and Joe are freaking out, and Joe is, like, ‘Go, go, go!’” They weaved frantically through traffic to try to get a signal. “I’m, like, ‘Oh my God, I just ruined it,’” says Chesky.
It wasn’t until they were back in San Francisco that Graham called again and got through—and offered them the spot. Chesky feigned that he had to “check” with his cofounders, put him on mute to ask if they would accept—they were, of course, totally out of options—and told Graham they were in. Graham would later tell Chesky it was the cereal that clinched it. “If you can convince people to pay forty dollars for a four-dollar box of cereal, you can probably convince people to sleep in other people’s airbeds,” he said. “Maybe you can do it.”
The founders would get the $20,000 in seed funding that came with admission, in return for a 6 percent stake in the company, and they would enroll in the next three-month term, which would begin in January. They were due to report for a welcome dinner on Tuesday, January 6, 2009. After what Chesky would later refer to as an “intervention,” Blecharczyk finally agreed to relocate to San Francisco for three months and moved back into the Rausch Street apartment. The band was back together. They had been given another chance.
“What Are You Still Doing Here?”
Founded in 2005 by Paul Graham and three copartners, Y Combinator very quickly became one of the most prestigious launchpads in Silicon Valley, a “quasi startup factory, university, and venture capital fund rolled into one,” as Fortune called it. It wasn’t easy to get in, but start-ups it deemed worthy got seed funding of $5,000 plus another $5,000 per founder and a priceless wealth of knowledge, connections, operational assistance, and more offered by Graham and his copartners. Between their expertise and that of the program’s influential network of alumni, advisers, and investors, “YC” provided hands-on guidance for everything from incorporating and lawyering to hiring, building a business plan, selling to acquirers, and mediating disputes between founders. It was a full-on start-up school, as well known for the access it provided—through dinners, speakers, and the high degree of hand-holding provided by its leaders—as for its specific way of doing things. Its motto, “Make something people want,” originally attributed to Paul Buchheit, the creator of Gmail and now a Y Combinator partner, is one of many YC principles that often run counter to conventional MBA wisdom. Chesky would later say that although he went to RISD, he graduated from the school of Y Combinator. Graham himself has become a Silicon Valley folk hero, a prolific thinker and writer on entrepreneurialism known as much for his wisdom as for his tough-love approach.
These days, YC takes on more than a hundred companies each season, but in January 2009, AirBed & Breakfast was one of just sixteen start-ups participating. It was the depths of the Great Recession, and venture funding had dried up; a few months earlier, Sequoia Capital had held a meeting where partners famously presented a slide deck entitled “RIP Good Times.” Anyone who was accepted to YC that year was offered the chance to defer and wait for a better investing climate. But the cofounders of AirBed & Breakfast couldn’t defer. They were at the end of their rope.
Partially because of the funding conditions, Graham told the entire group to focus on one thing: being profitable by “Demo Day,” the twice-yearly event where the newest classes of entrepreneurs present their business plans to investors. Demo Day was set for March; “profitable” was defined by Graham as “Ramen profitable”—raising enough for the entrepreneurs to afford to feed themselves, even if on cheap store-bought noodle mixes. They had three months.
Going in, Chesky, Gebbia, and Blecharczyk had made a pact with one another that for three months they’d give it their all. They’d wake up at 8 a.m. and work until midnight, seven days a week. For once, they would be 100 percent focused; none of them would work on any other side projects. And they decided that if on the last day they didn’t get funding, they would go their separate ways. After Graham’s introductory lecture, they made their own version of the hockey-stick revenue chart he had showed them and taped it to their bathroom mirror so it was the first thing they saw when they woke up and the last thing they saw before they went to bed. They would update it every week.
There was an almost infinite amount to learn, but the three of them did their best to soak it all up. Very early on, Graham would teach them two important lessons. First, he asked them how many users they had, and they told him not many at all—only a hundred, if that, they said. He told them not to worry, that it’s much, much better to have one hundred users who love you than one million users who “sort of like you.” It’s a tenet that flies in the face of conventional Silicon Valley wisdom, which prioritizes scale and growth above all else, but it sank in, and it gave them hope. Next, he asked them about these users. Where were they, exactly? The founders told them they were mainly in New York City. Graham paused, then repeated back to them what they had just told him: “So, you’re in Mountain View, and your users are in New York?” he asked. They looked at each other, then back at him. “Yeah,” they said.
“What are you still doing here?” Graham said to them. “Go to New York! Go to your users.”
So to their users they went. For the next three months, Gebbia and Chesky flew to New York every weekend. While Blecharczyk stayed behind coding, they went door-to-door, trudging through the snow and meeting or bunking with every user they could. They learned a lot from talking to their customers, but they learned more by simply parking themselves in their living rooms and observing them as they used their product online. Chesky and Gebbia quickly identified two pain points: people had trouble pricing their properties, and photos were a huge problem area. Users didn’t take very good ones, and back in 2009 many people still didn’t know how to upload them properly. As a result, homes that looked inviting in person looked tired and dingy on the site. So they decided to offer to send professional photographers to each host’s home at no charge. But they had no money, so Chesky borrowed a camera from a RISD friend and did it himself, often knocking on the door as the “photographer” to the same hosts he’d visited the day before as the CEO.
Chesky was also a one-man payment system, often taking a checkbook ledger out of his backpack and writing individual paper checks to the hosts they visited. Any customer-service calls went to Gebbia, who took them on his cell phone. They went door-to-door signing people up for the website, hosting meet-ups and approaching people wherever they could to tell them about this great new service that would let them monetize their apartment. They’d take any feedback they received each week and bring it back to Blecharczyk, and week by week they’d make improvements and tweaks to the site.
They also went to Washington, D.C., where they had a small group of users, and made a fast play in late January to pull together another plucky launch around another major event: the inauguration of Barack Obama. They started a website called crashtheinauguration.com and combined the press tactics that had worked so well at the DNC in Denver with their new microtargeting approach of visiting hosts door-to-door, holding meet-ups, cajoling people into listing, and generally rousing the community to life. They ended up getting 700 D.C. residents to list their spaces, and 150 bookings.
Among other things, these experiences also opened their eyes to the narrow view they’d been taking of their business. To qualify for AirBed & Breakfast, the rules required that hosts had to rent out air mattresses, even if they had an actual bed to spare. (Chesky remembers suggesting to one user who wanted to rent out a real bed that he blow up an air mattress and put it on top of the bed so it would qualify.) Another host, a musician who was about to go on tour, asked if he could rent out his full apartment, but Chesky and Gebbia said no; if he wasn’t there, how could he provide breakfast? That musician was David Rozenblatt, who was the touring drummer for Barry Manilow, and he forever changed AirBed & Breakfast’s business: His request led the cofounders to see that their business could have much bigger potential. They eliminated the breakfast requirement and added the option to rent an entire residence. (Giving a talk at Y Combinator’s Startup School, Chesky later recalled Rozenblatt calling him while he was backstage, complaining to Chesky through muted chants of “Barr-y! Barr-y!” that he couldn’t log on to his account.) Graham had noted the limitations of the company’s early model, too, and somewhere around this time, he suggested they remove “airbed” from the name to broaden its market potential. They bought the domain Airbanb, but it looked too much like “AirBand,” so they chose “Airbnb” instead.
During one of those trips to New York, they met with the esteemed venture capitalist Fred Wilson, cofounder of Union Square Ventures. Paul Graham had thought that if any investor were to see the potential in Airbnb, it would be Wilson, who had been early to invest in many of the Web 2.0 start-ups. But after meeting with them, Wilson passed; he and his team liked the founders, but they didn’t see the idea as having a huge market. “We couldn’t wrap our heads around air mattresses on living room floors as the next hotel room and did not chase the deal,” he later wrote on a blog post.
All the while, the cofounders were still model students of Y Combinator, Chesky and Gebbia flying back every week and learning everything they could. They’d arrive to Y Combinator events early even as they were trailing their luggage fresh off the plane from New York. The three of them constantly pestered Graham to meet with them. “We got office hours with Paul Graham every single week, even though he doesn’t have time to do office hours,” Chesky recalls. “We just showed up before everyone else and stayed after everyone else. We were more shameless than other people, and we were more curious.” Graham agrees this was an accurate portrayal: “I certainly talked to them an awful lot,” he says. He also noted that, having seen several hundred start-ups come through the program, he’d observed an interesting pattern: the most successful companies always end up being the ones that participated most eagerly. “It’s not that the most successful thought they were too good for this,” he said. “It’s always the crappy companies.”
As Demo Day approached, the founders started getting signs of traction—what Graham called “wiggles of hope.” Bookings had started to climb, edging up to twenty per day; the sessions with users in New York and the guerilla marketing were paying off, and they could see it in the numbers. The bookings, and the fees to Airbnb, were coming in. A few weeks later they became “Ramen profitable”; they had hit the revenue target—$1,000 in revenue per week—that they’d been aiming for on the chart on their bathroom mirror every day for three months. They celebrated with a champagne toast on the roof of the Rausch Street building.
The Rocket Ship Takes Off
The cofounders had just one other big problem to solve: they needed funding. Investors were always coming by Y Combinator to pay regards to Graham and his partners and to see what was cooking; one day in April 2009, Greg McAdoo, a partner at Sequoia, the vaunted venture-capital firm that had funded Google, Apple, Oracle, and many more, came for a visit. McAdoo and his partners had come to believe the bleak economic climate probably made it a smart time to invest, and he asked Graham what kind of founders he thought were good at getting companies off the ground in down economic times. Graham said founders with “intellectual toughness.” McAdoo asked him if any of the founders in the current class exhibited that trait, and Graham said there was an interesting three-person founding team with a unique idea for renting out homes that he might want to talk to. As it turned out, McAdoo happened to have just spent a year and a half doing a deep analysis of the vacation-rental business and knew a great deal about it. He said he’d love to meet them.
McAdoo found Chesky, Gebbia, and Blecharczyk sitting at a long bench huddled over a laptop. They got to talking, and McAdoo asked them if they knew that the vacation-rental industry was a $40 billion industry, as Sequoia had found. Chesky told him he hadn’t even thought about putting the words “vacation” and “rental” together when describing their company; the last time he’d even heard that phrase was when his parents rented houses in the summer when he was a kid. “We hadn’t connected those dots,” he says. But the conversation led to a series of meetings, much to the surprise of the stunned founders, who couldn’t believe that after having been summarily dismissed by every investor they’d pitched, one of the most prestigious firms in the venture-capital world was now interested. But interested McAdoo was. He was impressed by their philosophy of building a community of hosts and guests, as well as the way they had designed social mechanisms to address trust issues. These concepts, he said, were “so far out of the thought process of the traditional vacation-rental business, yet it was very clear to me that they solve some if not all of the challenges of bringing together hosts and guests at scale.”
Around the same time, the founders had also been talking with Youniversity Ventures, an early-stage fund founded by Jawed Karim, the cofounder of YouTube; Kevin Hartz, the cofounder of Xoom and Eventbrite, now at Founders Fund; and Keith Rabois, a former top executive at PayPal, LinkedIn, and Square, now at Khosla Ventures. The three had been drawn to the idea because it seemed radical but harked back to the age before hotels, when people opened up their homes. “This was almost a reversion to a very standard practice,” says Hartz. And they liked the founders, who “seemed like this ideally balanced founding team.”
A few weeks later, the Airbnb founders had a term sheet from Sequoia for $585,000. Youniversity invested $30,000, for a total of $615,000. The investments valued the company at $2.4 million.
It’s hard to overstate how significant this was. “The moment Sequoia funded us, the rocket ship took off,” says Chesky. “There was no turning back.” Even more significant than the money was the legitimization. The fact that after so many outright dismissals and rejections Silicon Valley’s most prestigious firm had committed to Airbnb was validation that the trio had been onto something all along. It was a huge injection of confidence. “That was by far the most important [thing],” Chesky says now. “The biggest enemy of a start-up is your own confidence and your own resolve. We were told for a long time that this was terrible. Then we were told we were exciting.” There would be plenty of pain and hardship still to come, but at least at this critical point they had been proved right. They had been given a chance. (It would be significant for Sequoia, too: that $585,000 investment is, as of this writing, worth roughly $4.5 billion.)
A few other things fell into place. Blecharczyk had told his fiancée, Elizabeth Morey, he’d be back in three months to start their life together in Boston. But on the same day Chesky, Gebbia, and Blecharczyk got their term sheet, Morey learned she’d been matched at Stanford’s Lucile Packard Children’s Hospital for her medical residency. Blecharczyk could make a go of the start-up, and Morey would move out to San Francisco.
Over the next few months, the groundwork they had laid in New York continued to pay off. By August, their twenty to thirty bookings a day had hit seventy bookings a day. They started to get attention for quirkier listings, like treehouses, igloos, and tepees. With the Sequoia funding, they started paying themselves an annual salary—$60,000 each, which felt almost gluttonous after their days of milkless bowls of cereal. Chesky’s mother and father started, ever so slightly, to relax.
None of them would ever forget how painful the struggle had been. “If you are successful, it will be the hardest thing you ever do,” Blecharczyk told YC’s Startup School in 2013. Chesky says he has now told the founding story hundreds of times, but there was a time when he didn’t think he’d ever tell it a second time. When I first met him, in 2012, I asked him to describe the lowest moment in his career. He said it was starting Airbnb. “It was exciting and in hindsight it’s nostalgic and romantic, but at the time it wasn’t at all. It was actually very scary.”
Chesky continues to maintain that the idea itself is not that crazy, and there was little special about him and Gebbia that made them come up with it. “We weren’t visionaries,” he says. “We’re ordinary guys. We thought, ‘There have to be other ordinary people like us with a little extra space that want to make a little money.’”
Some of Airbnb’s earliest advisers say there was indeed a lot that was special about them. “People talk about ‘minimum viable team,’” Michael Seibel says now. “That was an amazing team.” He also points out that they were extremely serious about their business. “You have to understand the number of people you talk to about doing a business versus the number of people who actually did it,” he says. “They did it.” When they didn’t understand something, he says, they went and learned it. If you told them to look something up to learn more, they looked it up. “They didn’t spend a lot of time ‘imagineering’ things,” Seibel says. “They launched.”
A few years later, the venture capitalist Fred Wilson wrote a rare-for-the-industry mea-culpa blog post describing how passing on Airbnb was a mistake. “We made the classic mistake that all investors make,” he wrote. “We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do.” Wilson’s firm now keeps a box of Obama O’s in its conference room as a daily reminder of the one that got away.