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This is Paul Graham, the co-founder of Y Combinator, the startup accelerator that has launched some of the most successful companies of our time, including DoorDash, Dropbox, Instacart, Coinbase, and… Airbnb.
Graham did something for Airbnb that I wish all investors were doing.
What a great investors can do for you.
Today, Airbnb is a ~$100 billion company, but it wasn’t always the case.
Back in 2008:
Brian Chesky and Joe Gebbia (Airbnb’s co-founders) were in $20k debt each
Airbnb was running out of money
They were getting rejected by all investors they met
Airbnb had no traffic and it wasn’t taking off
The founders were nearly out of options.
Out of desperation, they searched for ideas on how to make money and settled on shipping hosts boxes of cereal. I know.. it’s a crazy idea!
Long story short, they were selling $1 cereals boxes at $40 each, they made it a limited edition and sold out in three days. This helped them pay off debt and get media coverage. However Airbnb was still struggling.
(You can read more about it here.)
Come: Y-Combinator.
In late 2008, Joe and Bryan met with Michael Seibel, then the CEO of Justin.tv, and Airbnb’s advisor. He suggested that they apply to Y Combinator. Chesky initially refused, believing Airbnb was too far in their journey. But Seibel convinced them.
They secured an interview with Paul Graham but despite a great presentation, Graham wasn’t convinced. He doubted the idea and was unsure if anyone would actually use their service.
As they were about to leave, Gebbia pulled out boxes of cereals from their limited edition and explained how they made money selling them. Graham said:
“You guys are like cockroaches. You just won’t die.”
Later that day, he admitted them to the W09 YC batch. He didn't believe in the idea. But he felt that the founders had something special.
"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”
The founders would get the $20k pre-seed funding, but this wasn’t the best part.
Graham was actually involved in helping the company succeed. He was pushing other friends to invest.
Look at this email from 2009: Graham introduced Airbnb to a great investor and followed up by encouraging the investor to take a chance on Airbnb.
Unfortunately Fred passed on the deal. He said:
“At that time, Airbnb was a marketplace for air mattresses on the floors of people's apartments. Thus the name. They had ideas for taking on other listings but they had not yet made much progress on them.
We couldn't wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Others saw the amazing team that we saw, funded them, and the rest is history. Airbnb is well on its way to building the "eBay of spaces." I'm pretty sure it will be a billion dollar business in time.
We made the classic mistake that all investors make. 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. I am proud that our portfolio is full of companies where we saw the vision before other investors did and backed a great team. But we don't always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.” - Fred Wilson
Paul Graham has done everything he could to help Airbnb and it was a wild success. Here is what a great investor can do for you.
P.S: I love those emails from Paul - he pushed hard!
More about the story:
🔗 Paul’s post about this story
🔗 Fred’s post about this story
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Hugo 👋
Nice story! Excited!!
Thanks for the share! We all need evangelists - those folks who will bat for you just because they believe in your mission