CHAPTER 22

Airbnb, San Francico, November 2018

With the rush of September listings out of the way, all eyes turned to the upcoming multibillion-dollar public offering for Airbnb. Founded by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, the company had helped define the sharing economy and elicited intense interest from investors.

By some measures, the company was an unlikely participant in the going-public process. Airbnb had assiduously avoided the public markets, ignoring years of encouragement and rumors about its IPO plans. It had last completed a traditional Silicon Valley fundraising round in 2017, setting a valuation of $31 billion, which made it one of the world’s largest technology startups. As it entered 2020, it seemed to have little need for capital that the public markets would offer.

The company’s path to its IPO started five years earlier, in 2015, when Airbnb hired Blackstone CFO Laurence Tosi to run its finance operations. At Blackstone, one of the world’s largest private equity firms and a publicly traded company, Tosi had helped more than triple the company’s assets under management. (Tosi was one of several candidates Airbnb considered. Kim Jabal had also considered the job and even rented out her house on Airbnb to better get a sense of the company’s model.)

Airbnb’s hiring of Tosi, who went by “L.T.,” led many journalists and financial prognosticators to gather that he would eventually lead Airbnb to the public markets. Over the next two-plus years, the CFO brought financial discipline to Airbnb’s operations. The company trimmed its annual losses under his watch, reporting a loss of just $70 million in 2017. Tosi also raised new rounds of funding, including $1 billion in 2017, which gave Airbnb the $31 billion valuation.

Chesky, the CEO, didn’t relish the thought of facing the scrutiny of public market investors or their demands for quarterly financial reports, which he felt took the focus away from building a company for the long term. Chesky worried about how quickly a company could change. In 2017, he witnessed Uber’s board, including Bill Gurley, move to fire CEO Travis Kalanick after investor pressure and criticisms about Uber’s toxic environment.

Chesky had enormous ambitions for Airbnb. He envisioned a company that would exist for a century or more. It was a perspective that made any decision to sell shares to the public in a particular year less pressing than it was to others around Airbnb, such as investors or employees who thought in months or years.

Chesky’s foot-dragging caused tensions with Tosi, who had designs on taking Airbnb public, as well as members of the board, and employees who were compensated with options and restricted stock units (RSUs) that stood essentially worthless until the company went public.

Employees were concerned about a delay in Airbnb’s public listing because the options also came with an expiration date, meaning that if Airbnb wasn’t public by a certain moment in time they would expire. Chesky told employees and ex-employees, many of whom belonged to an active alumni group with its own Slack channel, that he would take care of them, but the CEO stopped short of making any promises. Options for the rank and file were limited—unlike Spotify, Airbnb didn’t encourage an active secondary market for employees to sell shares.

Chesky commissioned a review of other large companies that had been able to sidestep the public markets, such as United Parcel Service. (UPS had a class of controlling shares that didn’t trade publicly.) Then, by early 2018, he was ready to tell the world what he was thinking. On January 25 he published what was effectively a corporate mission statement. Titled “Open Letter to the Airbnb Community About Building a 21st Century Company,” it indicated that Chesky did not endorse the short-term thinking favored by IPO investors. Instead of focusing simply on the needs of investors, Chesky wrote, he would be managing the company with all stakeholders in mind: investors, hosts, guests, employees, and the communities in which they operated. The idea was to run Airbnb on “an infinite time horizon.”

Chesky also had more prosaic concerns. The company’s technology systems were a patchwork built up over years of uneven investment. If Airbnb was going to exist for as long as Chesky hoped, it would need better and more robust technology. Old programs would need to be shut down or stitched together more seamlessly. It was the kind of project that cost so much money—perhaps as much as $1 billion—that public market investors would be expected to balk.

Other projects also needed time to bloom. As Airbnb’s home-sharing business matured, Chesky had pushed into ancillary businesses. He launched an Experiences line, with Airbnb curating cooking classes, tours of local landmarks, and other activities that it could sell to customers already using its platform to find places to stay. He created a collection of projects aimed at well-heeled travelers wanting an upscale experience.

His vision didn’t square with Tosi’s outlook, and he didn’t choose his CFO for a larger strategy role. Tosi soon left, and with him any hopes investors or employees may have had for a near-term IPO. Ironically, his success at funding Airbnb’s operations relieved Airbnb of some significant pressure to go public.

It took almost a year for Airbnb to find another CFO. In November 2018, the company announced that it had finally hired one, having settled on Amazon executive David Stephenson. Stephenson was cut from decidedly different cloth than his predecessor. He was earnest, straightforward, and analytical, less brash than many Wall Street personalities, but very competent. Schooled at Montana State University, it was Stephenson’s seventeen years at Amazon working under some of the best business minds in the world that brought him to Chesky’s attention.

If Stephenson wasn’t a logical choice for a company considering an eventual IPO, he was a good fit for a company that had sprinted for a decade and was now looking to set itself up for a long future as a public company. He brought an Amazon playbook that relied on data analytics to measure performance and improve efficiency. He planned to whip the finance department into shape.

San Francisco was cloudy and damp on the day Stephenson walked into Airbnb’s 888 Brannan Street headquarters for the first time as the company’s CFO, in January 2020. The large building anchored an entire block in the South of Market neighborhood, down the street from the Rainbow Grocery co-op, a relic of when hippies roamed the city.

Though it was constructed in 1917 to house Eveready batteries, the building was now outfitted to the specs of the Airbnb cofounders’ aesthetic, honed at the Rhode Island School of Design. An atrium lent a light and airy feeling, with desks arrayed on the floors arranged around it. A massive wall of plants provided a splash of green.

Once inside the building, Stephenson found an out-of-the-way office and a windowless conference room where he and his team could discreetly discuss matters. For years, Airbnb had relied on cloud-based enterprise management service Workday to run virtually all its operations. Stephenson found that the company’s new scale and breadth required a more elaborate accounting system than Workday could provide. It needed to be auditable, and with operations in 220 countries and regions of the world and $40 billion in transaction value, Airbnb needed a strong system underpinning its numbers. The executives adopted Oracle.

Within days, Stephenson realized that the job of CFO would not be exactly what he had expected. Sometime in early 2021, a large number of options given to Airbnb employees would expire. Hundreds of employees would be left out in the cold: collateral damage from Chesky’s reluctance or unwillingness to go public.

As Stephenson read up on the terms of the options, he realized that Airbnb would need to go public sometime around August 2020 if it wanted to avoid having to do something messy, like renegotiate them or hand out an equivalent amount of cash. That was sooner than Chesky had let on in the hiring process, or perhaps had even internalized himself.

In other words, it was time to start thinking about an IPO.

As Stephenson and other members of Airbnb’s management team began to engage in preliminary discussions about what it would mean to be a public company, they responded to the early excitement around direct listings. Slack had already announced its intention. Venture capitalists and media reports touted the potential for more companies to follow the lead Spotify had set just twelve months before.

Sometime around April 2019, consensus inside Airbnb had begun to settle on pursuing a direct listing. The new process would accomplish much of what Airbnb needed from its public market listing. It would give employees and investors who had grown impatient with not being able to sell their shares instant liquidity, and it would give the company a currency it could use to make acquisitions. A direct listing wouldn’t require Airbnb to issue shares. So existing investors, including the cofounders, who owned 30 percent of the company, wouldn’t be diluted.

Apart from not needing money—it had more than enough cash and easy-to-sell securities on hand, somewhere around $3 billion—there was something else that Airbnb didn’t need that a traditional IPO offered: a marketing event. Tens of thousands, if not millions, of people already knew the company’s brand. They didn’t need a splashy IPO or the media circus it brought.

As Chesky considered the direct listing, he reached out to his friend Daniel Ek. The two executives had become friendly in something of a Frat Pack of thirtysomething CEOs that also included Mark Zuckerberg. Among other places, they would meet up at the annual Allen & Co. conference and sing karaoke. Chesky would often promise to come and never show up, leading Zuckerberg to fashion a life-size cutout of him that he brought along with the group and propped up in an empty seat.

More than once, Chesky told Ek that he wanted to talk to McCarthy, but the Airbnb CEO and Spotify CFO never connected. McCarthy even introduced himself to Chesky at one conference, but the Airbnb CEO never sought out the Spotify executive for a longer conversation. Despite the growing enthusiasm for direct listings, Airbnb insiders had some concerns. Among them were worries about the kind of valuation Airbnb might attract in a direct listing. Having raised money at a $31 billion valuation in 2017, executives didn’t want to go public at anything less. Doing so, Stephenson and others feared, would hurt employee morale and signal to other investors and competitors that Airbnb was having problems. It could snowball and harm the company’s prospects.

Airbnb would soon set those worries aside as it began talking to its bankers at Morgan Stanley and Goldman Sachs, who told them that the company could go public at a valuation of at least $40 billion to $50 billion. That matched executives’ own internal projections. The estimate had the advantage of leaving enough cushion so that if the bankers’ prognostications proved too rosy, as they often did, there would still be enough cushion to be public above that $31 billion threshold.

Stephenson had been barraged by bankers wanting to meet with him almost since his first day at Airbnb. For much of his first few months, he kept them at bay, content to work through the early discussions internally. In April, he finally met with Morgan Stanley, whose bankers had been close to the company for years.

Veteran banker Michael Grimes and Kate Claassen, who had both worked on Facebook’s IPO, led the team. Thin and wiry, Grimes knew seemingly everyone. Claassen, by now a rising star in the bank’s Menlo Park offices, had blonde hair and a tight smile. She had gone to Stanford University before getting her MBA from Berkeley’s Haas School of Business. She and Grimes had been close to Airbnb for years.

In one of the company’s early years, Grimes invited Chesky up to his Lake Tahoe property, where the banker worked with a local property manager to rent out his vacation home. The duo flew up on a turboprop that was one of a line of Beechcraft King Airs, associated as much with ferrying cargo as future billionaires. The modest travel inside a nonpressurized cabin became an inside joke.

Claassen missed that trip because of her son’s birthday, but it didn’t hurt her relationship with the company. In the early years of courting Airbnb’s business, she had hosted her home on the platform—as Kim Jabal later did—to gain a deeper understanding of how the company worked. In 2013 Claassen persuaded Morgan Stanley to give Airbnb a credit line of $80 million, and she was instrumental in the company’s 2015 fundraising round, when investors including Baillie Gifford, Fidelity, Kleiner Perkins, Tiger Global, T. Rowe Price, and Temasek came on board. That early work earned her a reputation inside Airbnb as a banker who knew its business model better than most.

The Morgan Stanley bankers arrived at Airbnb for what would be the first official discussion of the future IPO. They made their way to Stephenson’s small conference room, where he brought them up to date on the company’s listing plans. It would be the first inkling Wall Street would get of it.

“I arrived and it felt like every bank was calling me every single week trying to get on our calendar,” Stephenson said later. “But Morgan Stanley is one of our longest, deepest relationships, so that was our first big meeting.”

Stephenson turned to other sources too. He asked a member of his team, Ellie Mertz, to broker a phone call with Barry McCarthy for advice about conducting a direct listing and managing the investment banks throughout the process. Mertz had worked for McCarthy at Netflix and had already spoken to him once about direct listings, sometime after Spotify completed its listing in 2018. Now she arranged a second call.

Mertz, who had served as interim CFO and been considered for the permanent role, had emerged as a key lieutenant for Stephenson. The three-time Stanford graduate—undergrad, a master’s, and then business school—brought nearly fifteen years of experience inside Silicon Valley tech startups and a deep understanding of Airbnb to the IPO process.

By May 2019, Airbnb executives had reviewed the details of the Spotify transaction and concluded that it could work for them too.

With the broad outlines of a potential listing sketched out, Airbnb executives began to think through how they might involve hosts in the process. A direct listing would make it much harder to include hosts because of how it worked: the company would have no influence over which investors received shares in the listing. Executives tossed around ideas—a host endowment program, and other host equity programs that would give the company a mechanism by which to reward the hosts on its platform—but didn’t settle on anything.