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It’s late 2007 and Brian Chesky had just moved in with his former Rhode Island School of Design (RISD) classmate, Joe Gebbia in San Francisco. Brian had just quit his job as an industrial designer in Los Angeles and moved to San Francisco with just $1,000 in his bank account.
But there was a problem: Brian was short $150 on rent in the first month of living in the bay. Scrambling for cash, he noticed there was an international design conference coming to town that weekend. Brian and Joe created a post inviting attendees of the conference to stay at their apartment for a small fee.
Humble Beginnings
That weekend they hosted the first three Airbnb guests which included a 35-year-old woman from Boston, a 45-year-old man from Utah, and a 30-year-old man from India. All three guests slept on Joe’s air mattresses that he had from a camping trip and Brian made breakfast for everyone in the morning before heading to the conference.
While Brian and Joe didn’t think they were onto the next billion-dollar idea, they had made rent for the month and met some great people during the process. Looking back, Brian said, “These people came as strangers, they literally left as friends.”
The two decided to create a roommate matching service but after an initial launch and little to no traction, they pivoted back to the original idea: What if we could rent out short-term stays for strangers in town for conferences? To build the back end of the site, Joe reached out to his old roommate Nate, a Harvard computer scientist who lived in Boston.
Airbed and Breakfast Launches
After a year of tinkering, the final launch of the Airbed and Breakfast product was unveiled, complete with a homepage of listings, individual pages for each, and a payment system to process bookings. That same year they debuted the site at South by Southwest (SXSW) and had two site hits throughout the day. Brian was one of them.
To grow, they knew they needed to raise some capital. Through their small network in San Francisco, they were introduced to 15 investors. Brian and Joe began reaching out, pitching their grand idea of Airbnb. They set the goal of raising $150k at a $1.5M valuation but half didn’t reply to the initial email and a quarter of the replies said that Airbnb “didn’t fit their investment thesis.”
The DNC Provides Hope
After swinging and missing on the list of investors, the pair began to take on credit card debt to fund the business. At its peak, Brain and Joe were in $30,000 of debt with no outside investor money. They were desperate to do anything to stay alive.
As a ploy to get press at the DNC convention in 2008, Brian reached out to every blogger in the city of Denver asking for a feature at the event. They scrapped together 80 bookings for the weekend. However, they only received two bookings at the RNC convention only a week later. And by the week after that, the website had little traffic and no bookings. Brian and the team felt like they had missed their shot to get the idea off the ground.
Living Off Credit Cards and Cereal
After multiple failed launches and debt piling up, late one night Brian and Joe had an idea: Since selling airbeds wasn’t working out, what if the team sold breakfast? A short time later, Obama O’s and Cap’n McCain’s cereal was born. Brian found a guy to give them 1,000 boxes free of charge plus a royalty on each box sold. For the next week, they both sat in their apartment folding cereal boxes and reaching out to customers.
Obama O’s and Cap’n McCain’s
Labeled as “limited-edition themed presidential breakfast cereal,” Brian and Joe sold $30,000 worth of Obama O’s and Cap’n McCain’s. The company had enough cash to pay off their credit card debt and they again went out to look for additional investment.
Airbnb’s Big Break
After exhausting their local network, a friend at another startup told them to apply to Y Combinator, a popular San Francisco-based startup incubator.
Paul Graham, former CEO of Y Combinator, met the trio and like many other investors at the time, thought the idea was terrible and lawsuits would bury the company. At the end of the meeting, Nate, who had been roped into coming to the meeting from Boston, handed Graham a box of Obama O’s. Surprised, Graham thought the team had brought the cereal as some sort of gag gift.
Instead, they explained that this was how they had funded the company for the past couple of months. Graham was taken aback and said, “If you can convince people to pay $40 for a $4 box of cereal, maybe you can get them to stay in stranger’s homes.”
Where Is Airbnb Today
Airbnb was eventually accepted into Y Combinator and went on to raise a seed round of $600,000 at a $2.4M valuation. The team led the way for other popular marketplace startups like Uber, Doordash, and Instacart to raise billions from investors in the coming years.
From 2009 to their IPO in 2020, the company raised a total of $4.74B over ten years and went public at nearly a $100B valuation.
