3/21/2014

Airbnb In Advanced Talks to Raise Funds at a $10 Billion Valuation - WSJ.com

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TECHNOLOGY

Airbnb Is in Advanced Talks to Raise Funds at a $10 Billion Valuation

PrivateEquityFirmTPGLikelytoLeadFundingRoundfortheOnlineHomeRental Company
ByEVEL YN M.R U SL I,D OU GL ASMAC MIL L AN a n d MIKESPEC TOR
UpdatedMarch20,201410:22p.m.ET

BrianChesky,cofounderandchiefexecutiveofficerofAirbnb.BloombergNews

AirbnbInc.,whichoncesoldnoveltycerealboxestostayafloatbeforeemergingasathreattothehotel industry,isclosetobecomingoneoftheworld'smostvaluablestartups. Theonlineservicethatletspeoplerenttheirhomestotravelersisinadvancedtalkstoraisecapitalthat wouldvalueitatabout$10billion,accordingtopeoplefamiliarwiththematter. PrivateequityfirmTPGandboutiqueinvestmentfirmDragoneerInvestmentGroupareleadingthefunding round,whichcouldtotalbetween$400millionand$500million,thesepeoplesaid.MutualfundsincludingT. RowePriceGroupInc.areexpectedtobepartoftheinvestmentgroup,thepeoplesaid.Fidelity Investmentsisalsoindiscussionstojointhegroup,thepeoplesaid. Thenegotiationsbetweenthevariousinvestmentgroupsand Airbnbremainfluidandcouldfallapart,thesepeople cautioned.

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3/21/2014

Airbnb In Advanced Talks to Raise Funds at a $10 Billion Valuation - WSJ.com

Airbnbisinadvancedtalkstosecurefundingthat couldplaceitaheadofseverallargehoteloperators. WSJ'sEvelynRuslijoinsdigitstodiscusswhythe onlinehomerentalserviceisnowoneoftech'smost valuablestartups.Photo:Airbnb.

TherichpricetagreflectsAirbnb'spotentialtodisruptthehotel industry.Insixyears,thecompanyhasbecomearequired destinationformillionsoftouristslookingforcheaprooms, whilegivinghomeownersanewsourceofincome.Itispartof atrendoftechnologystartupsincludingcarsharingservice UberTechnologiesInc.creatingmarketsbylettingpeople shareexcessresources. ThecompanycouldbeworthmorethanWyndhamWorldwide Corp.,whichmanages7,500hotelsundertheWyndham, Ramadaandotherbrands,andisvaluedat$9.3billion.Hyatt HotelsCorp.,hasamarketvalueof$8.4billion. Airbnb'sgrowthhasdrawnscrutinyfromregulatorswary aboutsafety,oversightandtaxcollections.Thecompanyhas alsoattractedtheireofhoteloperators,whoarguethatthe rentalsunfairlyskirtlodgingtaxesandaren'theldtothesame firecodesandotherregulations. LastOctober,NewYorkAttorneyGeneralEricSchneiderman subpoenaedAirbnbforinformationonits15,000hostsinthe state,todetermineifanyareviolatinga2010statelawthat prohibitsrentersfromsublettingtheirhomesformorethan30 daysiftheyarenotpresent.Thecompanyiscontestingthe

TheBillionDollarClub
TheJournalandDowJonesVentureSourceare trackingcompaniesthatarevaluedat$1billionor morebyventurecapitalfirms.

orderincourt. Airbnbdoesn'townanypropertyrentedonitsservice,employ bellhopsorserveanycontinentalbreakfasts.Instead,theservice hascreatedanalternativetohotelsbyturningindividualsinto hoteliers,allowinghoststorenttheircouches,rooms,apartments andhomesthroughanonlinemarketplace.Hostssetanightlyrate, andAirbnbcollectsguests'payments,keepingasmallportionofthe feesforitself. Thequalityofaccommodationsisn'tasstandardizedasthehotels listedonsiteslikePriceline.com,butwithinAirbnb'smarketplace, thereistheopportunitytofindaquirkypropertyatreehousein Hawaii,ahouseboatwithaviewoftheEiffelTower,orsimplya cheaperbed. Foundedin2008,AirbnbisaclassicragstorichesSiliconValley startupstory.AsnewtransplantstoSanFranciscostrugglingtopay rent,AirbnbcofoundersBrianCheskyandJoeGebbiarentedout airmattressesintheirapartmentduringabustlingconferenceina bidtomakeextramoney.Theinformalarrangementbecamea websitecalledAirbedandbreakfast.com.Butitwasn'tarocketship atfirst.CEOMr.Cheskyadesignerdidn'tfitthemoldofthe typicalengineerandmanyventurecapitalistswerewaryofthe unorthodoxbusinessmodel. Togetby,thefledglingcompanydesignedandsoldcerealboxesofthenpresidentialcandidatesBarack ObamaandJohnMcCain,fromwhichitmadetensofthousandsofdollars.ThemoveimpressedPaul Graham,thefounderofYCombinator,aSiliconValleyincubator,whoacceptedthemintohisprogramin
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Airbnb In Advanced Talks to Raise Funds at a $10 Billion Valuation - WSJ.com

2009. Thecompanyhassinceexpandeditsrentalservicetomorethan600,000listingsinmorethan190 countries.Revenuelastyearmorethandoubledtoabout$250million,accordingtopeoplefamiliarwiththe matter.Airbnblastraisedfundingatavaluationof$2.5billionin2012,fromventurecapitalinvestors includingPeterThiel'sFoundersFund,AndreessenHorowitzandSequoiaCapital. Beyondroomrentals,Airbnbexpectstoaddanarrayof hospitalityservices.Earlierthisyear,Airbnbbegantestinga cleaningserviceforhostsincertainneighborhoodsinSan FranciscoandNewYork.Lastfall,ithiredChipConley,the founderofJoiedeVivre,aboutiquehotelchain,toleadan effortinstructingthecompany's350,000hostsonthefiner pointsofhospitality. Topexecutivesatthelargehotelbrands,forthemostpart, haveplayeddownanyrivalrybetweentheindustryand Airbnb.Whentheyhavecomplained,thosegripeshave centeredonfairnessandguestsafety.

WSJDistheJournal'shomefortechnews, analysisandproductreviews.

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Butsmallerhoteloperatorsarestartingtospeakout."These guysarescofflaws,"saidVijayDandapani,presidentofNewYorkhotelchainAppleCoreHotels."There's noreasonwhytheyshouldbesubjectedtoacompletelydifferentsetofrulesthanthelegacyhotel businesses." Mr.DandapanisaidthatwhileoccupancyathisfivehotelsinmidtownManhattanhasriseninrecentyears,it hasn'treturnedtoprerecessionlevels,partlybecauseofcompetitionfromAirbnb."Therearesomehotels herewhoarelikeostrichesandhavetheirheadsburiedinthesand,butIamoftheviewthatthisisafull blownthreat,"Mr.Dandapanisaid. SeanHennessey,chiefexecutiveatLodgingAdvisors,ahotelconsultingfirm,saidthattheeconomypriced hotelshavebeenhitthehardest.InNewYork,forexample,hesaidthat80%oftheAirbnblistingswerefor $200anightorless.Heestimatesthatthe416,000AirbnbguestswhovisitedNewYorkforthe12months endinginJuly2013,costthecity'shotelindustryaboutonemillionroomnights. Asahugemarketplacewithlittlecontroloveritsusers,Airbnbhasalsohadtograpplewithhostsorguests behavingbadly.Afterasmatteringoftheftsandvandalism,Airbnbputinplacea$1millioninsurancepolicy forhosts.Still,headlinesofguestsrunningamokcontinuetoplaguethestartupandfuelconcernsaboutthe service'ssafety.Earlierthismonth,ahostsaidoneguestturnedhisManhattanapartmentintothesiteofa sexparty,whichledtotensofthousandsofdollarsinpropertydamage.Airbnbreimbursedtheownerforhis losses. Evenwiththesechallenges,Airbnbcouldcommandoneoftherichestvaluationsforacompanybackedby venturecapital,benefitingfromsoaringinvestorinterestinnewmobileandInternetbasedbusinessmodels. Inthepast12months,atleast22companieshaveraisednewfundsthatvaluedthemat$1billionormore. Atthetopofthatlist,onlinestorageproviderDropboxInc.andChinesemobilephonemakerXiaomiInc. notched$10billionvaluationslastyear,whiledataminingspecialistPalantirTechnologiesInc.wasrecently valuedat$9billion.Uber,whichisunsettlingthetaxiindustrybyturningqualifiedcarownersintochauffeurs, wasvaluedlastyearat$3.8billionfollowinganinvestmentfromagroupincludingTPGGrowthTPG's middlemarketandgrowthequityarmthatisinvestinginAirbnb. Theinfluxofcapitaliscomingmostlyfromprivateequityfirms,hedgefundsandinternationalinvestorseager togetintotech'shighgrowthstarsbeforetheyholdanIPO,saidGregBettinelli,apartneratLosAngeles
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3/21/2014

Airbnb In Advanced Talks to Raise Funds at a $10 Billion Valuation - WSJ.com

venturecapitalfirmUpfrontVentures. ThenewfundingforAirbnbcouldhelpthestartuprampupmarketingandotheradvertisinginitiatives,an areawhereitspendslittlemoneycurrently,onepersonfamiliarwiththemattersaid.Thefundscouldalso helpthecompanyrecruittalentandspruceupcurrentonlinelistingsofproperties,thispersonsaid. CraigKarmincontributedtothisarticle. WritetoEvelynM.Rusliatevelyn.rusli@wsj.com,DouglasMacMillanatdouglas.macmillan@wsj.comand MikeSpectoratmike.spector@wsj.com

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