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Inside Airbnb’s battle to stay private

02/07/2018| 9:09:51 AM| 中文

Airbnb's founders and early employees have little financial incentive to push for an IPO; Sequoia Capital, as the largest outside shareholder with a 13% stake didn’t support its IPO either.

Early last week, the top executives of Airbnb Inc. gathered in San Francisco for annual planning meetings. They were brimming with confidence. The home-rental company had exceeded financial projections for 2017, with $93 million in profit on $2.6 billion in revenue, said people with knowledge of the matter. Airbnb was ready, by some employees’ estimations, to begin the process to go public.

But the boss had another view. Brian Chesky, the 36-year-old co-founder and chief executive officer, privately informed his financial chief, Laurence Tosi, that Airbnb wouldn’t initiate an initial public offering this year, the people said. The news came as a surprise to Tosi. He had been discussing the prospect with major investors before transitioning to a larger role beyond finance.

Chesky made it clear that things wouldn’t go as Tosi wanted. Chesky said he would promote Belinda Johnson, who was running business affairs and legal, to chief operating officer. Tosi had expected to get the COO job after Airbnb’s public offering. He’d struggled to work with Johnson in the past, and some insiders viewed the move as a way to force Tosi’s departure. Accounts differ on whether Chesky then asked Tosi for his resignation, but by the end of the meeting, the CFO was out.

Tosi declined to comment. Nick Papas, a spokesman for Airbnb, disputed that Chesky and Tosi discussed the IPO timeline last week. “The senior leadership and board of the company has been aligned, and the company has never had plans to go public in 2018,” Papas wrote in an email. He made that statement after the story was published, after having declined to comment before publication. Airbnb later issued another statement, saying, “Any individual, currently or formerly associated with the company in a position to have knowledge, communicating that the company had plans to go public in 2018 would have been mis-representing the facts.”

Although the two men had many feuds, the question of when to sell shares to the public was a recurring point of contention between Chesky and Tosi. Four prominent backers—General Atlantic, Glade Brook Capital, Technology Crossover Ventures and TPG—supported Tosi’s plan to begin the listing process by drafting paperwork as soon as next month, according to emails reviewed by Bloomberg and people familiar with the matter. These firms also encouraged the prospect of him taking a more influential role at the company, the people said.

Tosi, the former CFO at Blackstone Group who turns 50 on Thursday, never fit in at Airbnb, according to interviews with more than a dozen executives, employees and investors, who asked not to be identified discussing private matters. While tensions between Chesky and Tosi have been widely reported by technology website the Information and elsewhere, the company’s financial results, clashes over Airbnb’s IPO timeline and Tosi’s differences with other executives including Johnson haven’t been previously reported. People with knowledge of the matter also outlined, for the first time, Tosi’s creation of a hedge fund inside Airbnb and his opposition to a proposed late 2017 investment from Japanese investor SoftBank Group Corp.

The addition of Tosi in 2015 was a signal for Wall Street to pay attention to the company. He was eager to create new, cash-generating ventures at Airbnb, people familiar with his work said. He quietly built a hedge fund within the company’s finance department. He used a portion of capital from the balance sheet to buy stocks, currencies and fixed-income securities, mimicking the treasury fund he ran at Blackstone. The side project represented 30 percent of the company’s cash flow last year and made about $5 million a month for Airbnb, the people said.

But Chesky and his lieutenants had grown frustrated with Tosi, who they believed was too brash and not a fit for Airbnb’s wide-eyed, congenial culture, said people with knowledge of their thinking. Tosi exhibited an alpha temperament, constantly interrupting and sometimes talking over colleagues in meetings, one of the people said. Chesky and Tosi disagreed over matters big and small. A persistent philosophical debate revolved around Tosi’s desire to buy companies, while Chesky preferred to build products in-house. In December, Tosi was leading discussions with TripAdvisor Inc. to purchase its home-rental business, FlipKey, until Chesky decided to back out of a deal, a person familiar with the talks said. Another person said Chesky never took the acquisition proposal seriously and didn’t meet with TripAdvisor’s CEO. The wasted effort infuriated Tosi. TripAdvisor declined to comment.

The founders and early employees have little financial incentive to push for an IPO. They have cashed in about $350 million worth of equity, said people with knowledge of the matter. Chesky found an ally in Sequoia Capital, the largest outside shareholder with a 13 percent stake. The venture capital firm didn’t support a proposal to go public in 2018, one of the people said.

Entrepreneurs often fear what will happen to their creations once under the constraints of being a public company. Google’s Larry Page and Facebook Inc.’s Mark Zuckerberg each fretted over the risks of public scrutiny and quarterly earnings reports. “The immediate feedback and daily heartbeat of Wall Street can be too much for a CEO who aims to take risks and experiment,” said John Horton, a professor at New York University’s Stern School of Business.

Last year, the stay-private crowd at Airbnb was presented with an opportunity. SoftBank, which manages a $100 billion technology fund, repeatedly expressed interest in taking a stake in the company. The Japanese firm dumped billions of dollars into Uber, WeWork Cos. and other highly valued tech startups in the last year. SoftBank typically buys stakes from existing shareholders, lessening the urgency of a public share sale and enabling companies to stay private longer. Tosi rebuffed those overtures as recently as last month, people familiar with the talks said. Airbnb didn’t need the money, Tosi reasoned, because the business was profitable and had more than $5.5 billion in cash reserves. SoftBank didn’t immediately respond to requests for comment.

Despite pledging support for Chesky’s desire to keep Airbnb private, Sequoia Capital partner Alfred Lin, along with Jeff Jordan of Andreessen Horowitz, wanted to explore the possibility. In December, they asked Michael Grimes, the head of global technology investment banking at Morgan Stanley, to present options for going public, said people close to the bank. Papas, the Airbnb spokesman, said the presentation was requested by the founders and board “to have options for review.” He added: “Everyone agreed with the decision that the company would not go public in 2018.”

An email to the board and other major shareholders last month helped instill further confidence in the business. Airbnb’s earnings before interest, taxes and other expenses came to $93 million, more than double the company’s forecast of $36 million, according to the email reviewed by Bloomberg. Revenue beat expectations by about $120 million.

But some directors believed Airbnb was missing important ingredients for going public. On Jan. 25, the company added its first independent director, former American Express Co. CEO Kenneth Chenault, and intends to fill more board seats. Chesky needs to hire a chief marketing officer, someone to run the business in China and now a chief financial officer.

Tosi’s resignation has largely overshadowed the ascension of Johnson, a well-respected legal mind and a board member of PayPal Holdings Inc. Johnson will oversee key functions, including payments, support and legal. She won’t run the core business of home rentals and other units, leaving room for Chesky to hire a president—a process he’s overseeing personally. A clause in Tosi’s contract with Airbnb allowed him to resign if he disagreed with an executive appointment and immediately receive stock that was due to vest over time, according to people who saw the contract. However, he can’t sell those shares for cash without authorization from the company or until an IPO.

Chesky has been unapologetic about his ambitions to keep Airbnb private for now. “I know people will ask what these changes mean for a potential IPO. Let me address this directly. We are not going public in 2018,” Chesky said in a statement announcing Johnson’s promotion and Tosi’s departure on Thursday. “We will make decisions about going public on our own timetable.”

News of Tosi’s exit rocked some employees at Airbnb’s headquarters. Staff in his finance organization were huddled around desks after the news broke, said three people. Others left the office in disbelief. Internal message boards filled with lamentation and expressions of concern for the future of the company, its financial discipline and their stock. Some workers wrote messages mocking Chesky, who had recently given a presentation about building a 21st-century company with an “infinite time horizon.” Employees joked that they couldn’t wait that long.

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