Airbnb’s Biggest IPO Winners

Airbnb famously snared a $600,000 seed investment from Sequoia in 2009, only a year after the travel site launched. Sequoia doubled down in the Series A the following year, in deals led by then-partner Greg McAdoo. But the firm pulled back for the next couple years. Sequoia didn’t come close to bidding high enough to lead Airbnb’s Series B, which lifted the company’s valuation past $1 billion in 2011.

The next year, Sequoia tried to beat out Founders Fund to lead the Series C. But Airbnb executives and other investors were frustrated that Sequoia was moving slowly amid a more difficult financing, during which several other firms passed on investing. Airbnb picked Founders Fund, even though Sequoia matched its bid. Sequoia did invest a small amount in the Series C, but Airbnb’s decision may have cost Sequoia an additional $1 billion in returns.

Meanwhile, the relationship between Airbnb CEO Brian Chesky and McAdoo, the first non-founder on the company’s board of directors, was going through some rocky periods. McAdoo pushed Chesky to improve Airbnb’s management during its chaotic early days. Chesky didn’t always take the advice well, two people close to him said.

Sequoia kept increasing its stake after the Series C, but at higher prices. Sequoia replaced McAdoo on Airbnb’s board in November 2012 with new partner Alfred Lin, the former chief operating officer of Zappos, who cultivated a friendly relationship with Chesky and remains close to him. Airbnb then picked Sequoia to invest the largest sum in Airbnb’s 2014 Series D. The investment helped Sequoia cement its stake in Airbnb, which now stands at about 12%.

McAdoo left Sequoia in 2013. Michael Celiceo, a spokesperson for McAdoo, said McAdoo and Chesky collaborated closely over the years. “From the earliest days of working with Brian…Greg was impressed with Brian’s vision and leadership,” Celiceo said in an email. Natalie Miyake, a spokesperson for Sequoia Capital, added: “We’ve enthusiastically invested in every round, starting at the seed, and this is the prototypical way we love to partner with founders, across seed, venture, growth and global growth."

Early on, Chesky sought capital from some of Silicon Valley’s most famous names. In addition to Y Combinator, Reid Hoffman’s Greylock and Andreessen Horowitz, early investors included Keith Rabois, Kevin Hartz and Jawed Karim; Ron Conway; Yuri Milner’s DST Global; Yelp CEO Jeremy Stoppelman; and Amazon CEO Jeff Bezos. Hollywood celebrities turned tech investors, including Jared Leto and Ashton Kutcher, also have stakes. Demi Moore, Kutcher’s ex-wife, was awarded some of his Airbnb stake in a divorce settlement, a person familiar with the matter said.

Airbnb’s three co-founders have maintained large equity stakes, too, between them owning nearly one-third of the company before the initial public offering set to take place Thursday. Chesky has about an 11% stake in the company, and his two co-founders, Nathan Blecharczyk and Joe Gebbia, each own about 10%. Their stakes are each worth more than $4 billion. Together, they plan to sell about $100 million of shares in the IPO, the company said.

Nearly all the biggest financial winners—among Airbnb investors and executives—are men. One exception is Belinda Johnson, a former Yahoo executive who was Airbnb’s first general counsel and its first chief operating officer. She owns shares worth about $160 million.

There were some other could-have-beens. August Capital explored investing in the Series A, but ultimately didn’t pursue a deal. The firm “could not get internal consensus on the deal, which I deeply regret,” Howard Hartenbaum, a general partner, said in an email.

Conway, an influential deal maker, passed on the seed round before investing in the Series A, B and D rounds. Andreessen Horowitz passed on the Series A before investing in the Series B—a decision that cost the firm upward of $400 million. Tiger Global Management was outbid by Founders Fund during the Series C, but later took a smaller stake in the Series E. TCV passed on the Series C before investing in the Series F.

Emerson Collective, better known for its media investments, has built at least a $100 million stake in Airbnb, including a direct investment in the Series F in 2016 and several investments on the secondary market over the years, people familiar with the matter said. Powell Jobs is friends with Chesky, a longtime acolyte of Powell Jobs’s late husband.

The Information calculated the estimated returns of Airbnb’s early investors based on the $58 per share midpoint of Airbnb’s tentative pricing range, as well as on information learned from people with knowledge of individual investors, private documents and public information from Airbnb’s securities filings. Actual returns will depend on how the newly public company’s stock performs and when investors decide to sell their shares. In some cases, investors may have already sold shares—or their interest in special-purpose vehicles that hold the stock—on the secondary market.

Here are the details, starting with the firms investing in the seed round:

Sequoia Capital

Some partners at Sequoia Capital, the storied VC firm known for investments in Google, Apple, Oracle and WhatsApp, were fretting toward the end of the 2000s that the firm was losing some of its edge. While it invested in successes like YouTube and Palo Alto Networks in 2005, it missed out on investing early in some of the big startup hits of the day, like Groupon.

That frame of mind helped inspire a concentrated period of success. It was the first investor in Dropbox in 2007. It also invested more than $1 million in Y Combinator, a promising startup incubator. The next year the firm created its famous scout program to prospect for startups.

Around that time, Airbnb and Sequoia were courting each other. Chesky pitched the idea of Airbnb to Sequoia partners at the venture firm’s offices on Sand Hill Road, in Palo Alto, Calif., in early 2009. The presentation was just months after the stock market had collapsed at the outset of the financial crisis, prompting Sequoia to send portfolio companies a presentation titled “RIP Good Times.” Sequoia needed the unanimous agreement of its partners to invest. They gave it. The company invested nearly $600,000 in 2009, getting about 58 million shares at $0.01 per share. That seed deal gave Sequoia about 70% of the total shares it ended up amassing. It also took significant slices of the Series A, D and F rounds.

Theoretical return on total $260 million total investment: 1,746%

Value of stake at IPO price: $4.8 billion

Y Combinator

Y Combinator invested $20,000 in Airbnb when it admitted the startup to its incubator, giving the site, which still promoted guests staying on airbeds, early legitimacy.

Value of initial investment: $116 million

Youniversity Ventures

Another prominent backer was seed investing trio Youniversity Ventures (now Y Ventures), made up of former PayPal and LinkedIn executive Keith Rabois, Eventbrite co-founder Kevin Hartz and YouTube co-founder Jawed Karim. They had long been interested in long-shot bets. Airbnb, which hinged on people feeling comfortable allowing strangers in their homes, fit the mold. They believed Airbnb’s idea to take advantage of unused spare bedrooms and idle vacation homes could cut into the hotel market.

The firm initially offered to lead the seed deal, but was bumped by Sequoia, a more prominent firm with deeper pockets that made an offer in the same week. Still, Sequoia agreed to cut the investors into the deal. Sequoia allotted Rabois, Hartz and Karim a $30,000 stake, which is now worth $141 million. Youniversity Ventures also grabbed chunks of the next few rounds, essentially doubling the value of the investment.

Theoretical return on $5 million total investment: 5,940%

Value of stake at IPO price: $302 million

Greylock Partners

In 2010, LinkedIn co-founder Reid Hoffman was about a year and a half into his tenure as an investor at Greylock Partners, a 50-year-old VC firm that had just raised more than $500 million for another slate of investments. He got an introduction to Airbnb from his former PayPal colleague, Yelp CEO Jeremy Stoppelman. Hoffman pitched Airbnb to his partners but faced skepticism, he would later say. David Sze, a partner who had led Greylock’s investment in Facebook, didn’t think Airbnb would succeed.

Hoffman overcame the skepticism. Greylock led Airbnb’s Series A, investing about $4.9 million of the $7.2 million round. Sequoia invested $1.9 million in the round, while Youniversity Ventures added another $300,000, Conway put in $100,000 and Stoppelman added another $100,000. Hoffman later brought in Hadi Partovi, a former Microsoft executive, to help with engineering recruiting. He and his brother Ali were awarded $250,000 worth of shares at the Series B price, a stake now worth $3.5 million.

Value of initial stake at IPO price: $1.4 billion

A-Grade Investments

The tech investing firm run by Hollywood talent manager Guy Oseary and actor Ashton Kutcher, who cultivated a relationship with Andreessen and Conway, invested about $2 million in Airbnb in a financing round that preceded the Series B, called Series B-1. The firm paid $1.11 per share for nearly 2 million shares, according to the IPO prospectus and documents viewed by The Information. “We realized Airbnb needs to leverage pop culture and social media,” Chesky said at the time.

Kutcher went with Chesky to Australia and Japan in 2012 to launch Airbnb’s service there. Kutcher lost some tech investing esteem last year because of his close association with fallen WeWork CEO Adam Neumann. But he also counts Uber and Spotify as early wins.

Value of initial stake at IPO price: $105 million

Andreessen Horowitz

Andreessen Horowitz had made an expensive choice in 2010, a year after the firm launched, when it passed on Airbnb’s Series A. The next year, more investors were convinced of Airbnb’s potential success. The Series B was a feeding frenzy. The startup was still nascent, with only about 60,000 listings, but investors were courting Airbnb’s young CEO. Chesky made a rookie mistake, according to a person familiar with the matter. He told five different firms that they could have the final opportunity to match other bidders—so-called last-look rights. That was obviously impractical.

To address the problem, venture capitalist Ron Conway, who invested $100,000 in the Series A, helped take over the fundraising process while he and Chesky were in New York for a conference hosted by TechCrunch. He instructed the five firms, which included Andreesen Horowitz and DST Global, to make their final bids immediately.

Andreessen didn’t make the highest bid. But Conway talked Chesky into selecting the firm as the lead anyway, because it was building a reputation for helping portfolio companies with recruiting and public relations. Andreessen Horowitz invested about $60 million, valuing Airbnb at just over $1 billion. Managing partner Jeff Jordan took a board seat, which he still holds. But the firm, which only recently started funds to invest in more-mature startups, saw its share diluted as Airbnb raised more money over the years. Andreessen Horowitz now owns about 3% of the company.

Nearly all the biggest financial winners among Airbnb investors and executives are men.

Value of initial stake at IPO price: $1 billion

DST Global

The firm run by Yuri Milner, an Israeli-Russian tech investor known for his early stake in Facebook, worked its way into Airbnb’s Series B financing by arguing that it could help with the company’s international ambitions. Milner’s contacts in China and Europe would come in handy, he said. Marc Andreessen agreed, cutting DST into the deal. The firm invested $40 million, about one-third of the round. Amazon CEO Jeff Bezos’ personal investment firm, Explore Holdings, also invested in the Series B.

Theoretical return on investment: 1,123% over nine years

Value of stake at IPO price: $810 million

General Catalyst

General Catalyst, based in Cambridge, Mass., was just trying to break into the Silicon Valley investing scene in 2011 when it paid $5 million for a Series B stake in Airbnb. Investor Joel Cutler was known for successful investments in travel firms like Kayak.com, which went public before selling to Priceline, and ITA Software, which sold to Google.

The Airbnb investment helped cement the firm’s reputation in Silicon Valley. But Andreessen Horowitz and DST prevented General Catalyst from taking a bigger stake. The firm, which was better known on the East Coast than on the West Coast, wasn’t able to negotiate a larger slice.

Theoretical return on $5 million investment: 1,660% over nine years

Value of stake at IPO price: $88 million

Founders Fund

By the middle of 2012, fundraising had become more difficult for Airbnb, in part because Chesky had set lofty valuation expectations for the Series C. But investors were wary of paying a higher price for Airbnb just a year after it had crossed the $1 billion valuation mark. Airbnb still lacked veteran executive talent. Its biggest investor, Sequoia, was dragging its feet in making an offer for the lead position.

Founders Fund, which had made a $500,000 investment in the Series B, jumped in. The group, including partners Peter Thiel, Brian Singerman, Napoleon Ta and Luke Nosek, huddled with Chesky and other executives. Thiel peppered them with questions about expansion plans and what rates of growth they expected. His mathematical approach helped win over Chesky. Founders Fund edged out Sequoia for the deal, which had put in a last-minute higher offer.

At the time, it was Founders Fund’s largest investment, about $150 million. It had to get permission from limited partners to make investments across different funds, a practice that was rare at the time. The firm is now the second-largest outside shareholder in Airbnb after Sequoia, having amassed a 4% stake.

Theoretical return on $200 million total investment: 666%

Estimated value of stake at IPO price: $1.5 billion

TPG and Dragoneer

In 2014, Airbnb introduced itself to Wall Street. The startup had become as close to a sure bet as tech investors could make. It had nearly tripled its revenue between 2012 and 2013, from about $75 million to $215 million. That kind of growth attracted the company’s first round of investors known more for private equity investments than for venture capital.

TPG, through its growth equity fund, had just put money into ride-hailing firm Uber. In early 2014, it negotiated a deal to invest $75 million in Airbnb. The firm’s partners, including David Bonderman and David Trujillo, would bring more financial rigor to the startup, executives and investors believed. They joined as board observers.

Dragoneer, an investment firm also invested $75 million. Sequoia, now represented by Lin on Airbnb’s board, invested $85 million. Airbnb kept the round open for a while, letting more investors join. Asset managers like T. Rowe Price, Fidelity Investments and Morgan Stanley also invested tens of millions of dollars each. Mark Pincus, the Zynga founder, participated in the round after advising Chesky on product development.

Investors valued the company at $10 billion, a significant step up from the previous round. But the celebration was short-lived. A few months later, Uber raised money at a $17 billion valuation. Investors wondered why Airbnb couldn’t get that price tag.

Theoretical return on $75 million initial investment: 124% each

Value of initial stake at IPO price: $168 million each

General Atlantic

Investing heavyweight General Atlantic led the Series E in 2015, investing about $300 million of the $1.5 billion round that valued Airbnb at $25.5 billion. Several investors with a focus on Asian tech investing also joined as Airbnb set its sights on a China expansion. They included Singapore’s Temasek and China-focused Hillhouse Capital and GGV Capital. Sherpa Capital also joined the round. In five years, their stakes have appreciated by about 25%, given the midpoint price of Airbnb’s IPO range.

Theoretical return on $300 million initial investment: 25%

TCV, CapitalG and Emerson

Even as a success story, Airbnb shows some of the risks of late-stage investing.

Airbnb started another fundraising round about 18 months after the Series E. Airbnb didn’t really need the money, and some early investors pushed back against the dilution that a new financing would cause. But Emerson, TCV, Alphabet’s CapitalG and Glade Brook Capital Partners convinced Airbnb to take their money, which the startup used for some of its first acquisitions. TCV, an investor in Airbnb rival HomeAway, said that it could help the firm expand into nonurban vacation rentals. CapitalG could help with digital advertising. Both invested $100 million. Sequoia also invested heavily in the Series F to maintain its ownership stake.

The investors haven’t had many on-paper gains to show for their investments yet. They bought preferred share at $52.50, only about 10% below Airbnb’s midpoint IPO pricing. They may have also purchased some shares for about $47 in a tender offer from employees.

Part of the problem was that Airbnb faced growth headwinds. In 2017, Airbnb projected that by 2019 it would generate more than $6 billion in revenue, at a tidy profit. In reality, it fell more than $1 billion short of both revenue and profitability projections. Its share price on the secondary market went up, and then fell amid the pandemic, before recovering ahead of the IPO. The investors could still make solid returns if Airbnb’s stock price shoots up after it lists.

Theoretical return on $100 million investment: 10% each

Value of stake at IPO price: $110.5 million each

Silver Lake Partners and Sixth Street Partners

Airbnb also illustrates the value of being able to swoop in with an investment at the right time. The company went searching for cash when the pandemic hit and revenue evaporated, first seeking equity investments. It entertained taking them from existing investors, including Dragoneer and TCV. Some of the offers had strings attached, including terms such as ratchets that would give firms larger stakes if Airbnb’s value continued to decline.

Silver Lake Partners and Sixth Street Partners offered Airbnb a different kind of deal. They would lend Airbnb $1 billion with a 10% coupon attached. In addition to getting their credit, Silver Lake and Sixth Street also received warrants, or the right to buy shares, at $28.56 a share, for a $112 million total equity investment for each company. Silver Lake also bought $27 million of shares from former Airbnb COO Johnson when she left the firm.

Theoretical return on $112 million investment: 105%

Value of stake at IPO price: $230 million each