CHAPTER 23

Airbnb, San Francisco, June 2019

On June 19, Airbnb executives made their way to a French restaurant in the Hayes Valley neighborhood of San Francisco. Chesky, Stephenson, Mertz, and Belinda Johnson, the company’s chief operating officer, had a dinner scheduled with Goldman Sachs at Absinthe Brasserie & Bar, a corner restaurant that suggested Paris in the early 1900s. Large letters spelled out its name in green neon script above the entrance.

Goldman Sachs had reserved Absinthe’s private dining space, which would provide an intimate setting for a conversation about Airbnb’s listing plans. Chesky had a soft spot for the French city—one of his favorite conference rooms at Airbnb’s headquarters was fashioned after an Airbnb rental in Paris. This space also had the advantage of being discreet—it was separated from the rest of the restaurant by a curtain and had its own entrance off the street. Airbnb executives were worried about being seen with bankers and sparking a news story about its IPO plans.

The meeting was critical because it involved all of the Airbnb decision makers—it wasn’t just the finance team and bankers. Chesky’s presence was notable, as was Johnson’s. The executive had been at the company since 2011 and was another key player in Airbnb’s listing plans. She had initially joined Airbnb as general counsel and since then had grown into one of Chesky’s most trusted advisors. Johnson also knew her way around IPOs. As general counsel at Broadcast.com in the late 1990s, she had witnessed the IPO pop that Citigroup’s Doug Baird credited with sparking years of subsequent infatuation with stock pops.

Goldman Sachs’s contingent was represented by George Lee, an affable Silicon Valley veteran who as the bank’s co–chief information officer was the most senior banker in the room. For most of his career, Lee had been a banker in Goldman’s technology, media and telecommunications practice, and he was well known throughout the startup world. Tech banking head Nick Giovanni, the lead banker in the Airbnb relationship, joined him, alongside internet coverage banker Jane Dunlevie, and Ludwig, the capital markets executive.

The Goldman Sachs bankers had brought printed materials to share with the Airbnb executives, and over the course of the evening they discussed Airbnb’s various options for going public. And they offered their own ideas for how Airbnb could make their listing special.

Led by Giovanni, a hard charging but engaging banker good at forming tight relationships with clients, the Goldman Sachs representatives persistently probed the Airbnb executives’ motivations and helped them think through a list of priorities that included providing liquidity to employees and setting a high valuation. A direct listing would provide instant liquidity to employees but might not help Airbnb reach the highest valuation. A traditional IPO, on the other hand, would likely deliver a higher valuation by artificially constraining supply. One topic that the group didn’t discuss in depth: raising capital. Airbnb did not need the money. By the end of the evening Chesky was suitably impressed. Despite his long-standing relationship with Grimes and Claassen, Chesky began to think that perhaps Goldman should be the lead bookrunner for Airbnb’s listing. Chesky began to form a close working relationship with Giovanni that persisted over something like two dozen meetings where Giovanni was the only banker in attendance. Giovanni was granted a pass to Airbnb’s corporate headquarters so that he could come and go as he pleased, without having to stop at reception each time.

“It really, really resonated with Brian,” another attendee said. “Morgan Stanley realized that they’re maybe not in the lead anymore. So then there was this back-and-forth between who’s going to be the lead bank.”

By July, a small group of company executives had decided to suggest to the Airbnb board that Morgan Stanley and Goldman Sachs serve as equal partners on the forthcoming direct listing. The recommendation came chiefly from Chesky, Stephenson, Belinda Johnson, and Chesky’s fellow cofounders Nathan Blecharczyk and Joe Gebbia. The Airbnb group felt that there were nuanced differences in how the banks positioned internet companies with the institutional investors that would be expected to buy Airbnb’s public shares. They wanted the benefit of both banks’ skill sets. Airbnb “didn’t want to choose one and miss out on the expertise that the other could provide,” according to a person involved in the process. Allen & Co. and Bank of America, the lead bank on a revolving credit line that was the successor to the $80 million line Morgan Stanley had arranged, which now stood at $1 billion, would round out the small group of banking institutions involved.

The next month, Airbnb’s board came together to hear an update on the company’s IPO plans. Board members including former Pixar CFO Ann Mather, Andreessen’s Jeff Jordan, Sequoia’s Alfred Lin, former Apple senior executive Angela Ahrendts, and former American Express chairman Ken Chenault were broadly in agreement that it was time for Airbnb to go public. For the details on how, and with what banks, they turned to Stephenson. The CFO gave his presentation, offering the recommendation that the larger group had settled on to make the two banks equal partners.

The idea was unconventional. Wall Street banks competed vigorously to be the lead bank on a deal. Banks may have shared equal duties and fees in the past, but common wisdom suggested that a company only wanted one bank to be in the driver’s seat for a transaction—to cut down on potential communication breakdowns or interbank squabbling. The rivalry between Goldman Sachs and Morgan Stanley was well known throughout the industry, and some of the board members worried that the tension between the two banks would distract from the direct listing plans. The board wasn’t thrilled with the idea of making them equal partners. Directors pushed the IPO group to choose one lead bank.

In September, Grimes, Claassen, and Vice Chairman Colin Stewart visited Airbnb’s office to present to a small group of managers including Chesky, Stephenson, Johnson, and Mertz. They assembled in a conference room, off Airbnb’s atrium, that had a symbolic past. It was one of Chesky’s favorite rooms, where the Airbnb CEO huddled with bankers in 2015 to prepare for a fundraising meeting with investors. As he prepared to host investors at the time, the CEO and former design student fiddled with the lighting in the room. A series of hanging lights hung too low, the founder worried, and he asked his team to raise them.

Whether it was the lighting, Morgan Stanley’s advice, or something else, Airbnb successfully raised $1.5 billion at a massively inflated valuation. The startup went from a previous valuation of $10 billion to more than $25 billion with investments from General Atlantic, Tiger Global, and Hillhouse Capital.

On this day in September 2019, the Morgan Stanley bankers spent more than ninety minutes explaining how they would position the company in the marketplace. The bankers told the Airbnb executives that they would position the firm as a one-of-a-kind, category-defying business.

Airbnb formally launched the project that month, giving it the code name “Project Constellation.” On September 19, it took the unusual step of announcing its intentions. “Airbnb, Inc. announced today,” the one-line statement said, “that it expects to become a publicly-traded company during 2020.”

Less than two weeks later, Chesky once again grew anxious about the ouster of a startup executive, according to someone who was in contact with him at the time, when WeWork founder Adam Neumann was removed after the company’s IPO process collapsed over questions about his partying and WeWork’s financial position. Chesky confronted his bankers at Morgan Stanley and Goldman Sachs, trying to get answers about how WeWork’s IPO had gone so wrong.

“He was fairly destabilized by it,” the person said. “He was as shaken as any entrepreneur I saw, like, ‘This is what’s going to happen to a founder when they start an IPO process. Wait a minute. This guy went from on top of the world to losing his company.’”

Nonetheless, Airbnb pressed ahead with its listing plans throughout the fall.

With sign-off from the board, a small team gathered to write the securities prospectus. Morgan Stanley wrote a draft, unbidden, and offered it to Airbnb as a template, as did Airbnb’s communications team. Ultimately the group chose to create a third document. An early drafting group included Grimes and Claassen; Giovanni and Dunlevie from Goldman Sachs, and Airbnb’s Stephenson and Mertz. Chesky would occasionally join and offer feedback.

A feasible timeline began to emerge. If Airbnb could file its prospectus confidentially with the SEC before the end of the year and negotiations with the agency were relatively straightforward, Airbnb could release the document publicly in March. That would allow it to include a fully audited 2019 financial picture. A briefing day for Wall Street analysts could then take place around April 15, with Airbnb aiming to go public on or around May 14.

The timeline followed common IPO practice. The date of the IPO, in mid-May, was chosen specifically for the benefits it conferred to the company listing its shares. It was roughly halfway through the second quarter, giving Airbnb time to update investors about the previous quarter without having too much material nonpublic information about the current quarter. Too early and the company might struggle to present its numbers accurately. Much later and investors might grow wary that there was information about the company’s performance they didn’t know.

If Airbnb missed the May date, its management team could shoot for mid- to early August—again, roughly halfway through the quarter—and still go public before employee options expired.

Executives conducted an extensive request-for-proposal process with both the NYSE and NASDAQ around which exchange would best fit the company’s listing. The NYSE was emerging as the market leader in direct listings, having already hosted Spotify’s 2018 listing and Slack’s June 2019 transaction. NASDAQ, on the other hand, was still looking to break in. It was the exchange of choice for some of the world’s biggest tech companies, including Alphabet, Amazon, and Facebook, but McCarthy’s choice of the NYSE had put the larger exchange in front. After conducting some research into the NASDAQ’s ability to conduct a direct listing, Airbnb settled on NASDAQ as a better fit.

As the 2019 holidays approached, Airbnb wasn’t quite ready to submit the prospectus that the executives had been writing. The executives didn’t know how soon their plans would change.

Heading into 2020, Airbnb’s future looked bright. Stephenson, his team, and the company’s bankers were close to being able to officially kick off their IPO process with a confidential submission to the SEC. The company had billions of dollars in cash at hand, seemingly more than enough to fund its growth plans and withstand any market gyrations.

By February, Airbnb executives were two to three weeks away from having a prospectus they could file with the SEC when cancellations began to tick up in China—one of Airbnb’s largest markets—as the spread of COVID-19 shut down travel. Elsewhere across the globe, Airbnb’s platform showed that fewer travelers were taking to the company’s platform to book trips. Those who had already booked Airbnbs began to cancel their reservations.

As February bled into March, Airbnb approached an existential crisis just as Unity received cancellations for its second investor cocktail event. In March, cancellations on Airbnb’s website surged with the WHO’s announcement that the outbreak would be classified as a pandemic.

Stephenson’s finance team convened Zoom meetings to strategize about how the company could make it through the pandemic. The models showed a disturbing trend. Airbnb was still spending liberally to get tour guides and cooking classes to become a meaningful part of the company’s growth story. Even grander ambitions, such as Studios, an effort to create original video programming centered around travel, and little-understood efforts to improve the experience of traveling to and from an Airbnb, also drained the company of cash. Cancellations were then high, and bookings were falling rapidly. Between those two factors and spending on other projects, Airbnb might go through $1 billion a quarter in cash. Finance executives debated possible outcomes.

During one meeting, Christopher Lehane, the head of Airbnb’s global policy and public affairs department, was just perplexed. A veteran of the Clinton White House, Lehane had joined the company in 2015. He was one of Airbnb’s longest-tenured senior executives, responsible for shaping the company’s image with hosts, guests, and the media.

Lehane couldn’t understand what Stephenson’s team was trying to accomplish. Executives couldn’t model a pandemic. Models are based on an empirical framework, but Airbnb hadn’t ever experienced a pandemic before. How long would it last? What percentage of people would continue to travel? The answers to those questions would help the finance team understand what it needed to do to conserve Airbnb’s cash. But the answers were unknowable.

After some urging, Chesky joined the call. As he listened to the finance executives debate the merits of the various options, he came to a decision. You can’t model this kind of thing, Chesky said, according to the recollections of a person on the call. “We are not a tobacco company. We should do what is in the best interest of public health. Let’s not put anyone in a position of choosing between travel and health—especially because it could lead to the spreading of the virus to communities. We will need to find a way to use our cash to try to help hosts.”

Airbnb made the decision to provide guests who had booked stays before the WHO’s declaration with full refunds if they wanted to cancel. The decision would negatively impact hosts who had come to count on the income their rentals brought in. Many had already collected down payments for future trips.

On March 11, Greg Greeley, then the president of Airbnb’s Homes division, wrote a post on the company’s website to explain how management was responding to the pandemic. In the sixth paragraph, Greeley attempted to sound an empathic note: “When a crisis like COVID-19 hits, we know that it doesn’t just impact us as a company, but also the individual stakeholders within our community: the hosts who rely on their Airbnb income, and guests whose travel plans have been disrupted. We are committed to doing everything we can to fairly support both parties, consistent with how this two-sided marketplace works.”

Two paragraphs down, Greeley said guests could invoke a little-used clause in their rental contracts called the “extenuating circumstances policy” to cancel their reservations and get a full refund. Greeley also told hosts that it wouldn’t leave them out in the cold. “We know our hosts depend on the economics generated through the Airbnb platform,” he said, though he stopped short of saying how the company might help them.

Despite the turmoil, Airbnb executives continued working on the company’s listing. On March 13, Morgan Stanley bankers and Airbnb executives met to continue drafting the prospectus. But that weekend, the difficult decision was made to shelve the direct listing plans. Airbnb needed to focus on managing through the pandemic.

With reservations plummeting and the future uncertain, the company would need money. Its objectives for entering the public markets had dramatically changed. It would have to scrap the direct listing and rewrite its prospectus.