NOTE: How did Brian Chesky of Airbnb finance his take-off and grow with control? VCs finance after Aha, when there is proof of potential, and call it a startup. Chesky used smart financing to grow from idea (real startup) to Aha (VC “startup”) and to keep control of the venture and of the wealth created. For more, see “Finance Secrets of Billion-Dollar Entrepreneurs”
Bootstrapping: Chesky and his partner started Airbnb by renting air beds in their apartment to make money. They also saved money by using their 3-bedroom apartment for their office until they had 15 employees.
Financing to the stage. At the start, Chesky and his co-founders were rejected by many investors and VCs. The initial financing was provided by about $30,000 in credit card debt. Their initial focus was to rent rooms in cities when there were major conventions. They also sold cereal boxes named after the presidential candidates in the 2008 election, which offered them profits and publicity.
Channeling equity. The co-founders developed the app internally and launched their site with about $20,000 from family and friends).
Using Alt-VC first. After the launch, they sought $150,000 for 10% of the company from 15 angels. Few showed interest. None invested.
Proving bottom-up assumptions. Then they worked with an incubator and got $20,000 in seed capital and advice to focus on one market to prove viability. Heeding this advice, Airbnb focused on New York City, because it gets global visitors. Many of the New York guests became hosts when they returned home. With this start, Airbnb grew to 10,000 users and 2,500 listings. After this proof of strategy and leadership, Airbnb got VC.
Focusing on cash flow till Aha – unless you are in Silicon Valley. Airbnb did not show a profit till 2016, when they were about 8 years old. Being in Silicon Valley, they had no trouble finding growth capital from VCs after they proved their unicorn strategy and leadership.
Conclusion: Use smart financing to keep control and use the capital wisely to prove your unicorn.
