These rejections are a testament to why you shouldn't give up just because smart people give you a hard "no", but also why storytelling is so important. These investors clearly did not understand Airbnb, and I think the Airbnb guys would admit that's in large part because they did a bad job explaining it.
Explaining why something that is small today could some day be huge is so hard.
To be fair, their original idea was to rent out a couch for people to crash on, much like couchsurfing. I don't know if even Chesky imagined it would grow to it's current state. Uber was similarly silly when it started: expensive limos on-demand for rich guys in SF. Investing at this stage is just like signing a new band, it's just a lottery ticket.
I think it's quite possible that AirBnB themselves didn't get the "AriBnB story." I don't know though.
To really compress (and make assumptions) I think they went from a sort of "coach surfing for fun and profit" to "holiday rentals" as their central point. They still do the full spectrum, but I think the Air mattress end is pretty small now.
I think the take aways for trying to pick winners are:
(1) Execution and steering the ship are everything. They were not the first startup to try this sort of thing. The idea itself was a dime a dozen, like many others. App for calling taxis. Classifieds. Restaurant reviews. Online profile. Video sharing site. These are all pretty banal ideas. Lots of attempts were made at all of them. Picking winners is about picking a winner, not picking the race.
(2) Try to see "markets" as their full spectrum. High end, low end. Business, consumer. Freaks, mainstream. Coach surfing is a different place on the same spectrum as Hilton. Startups often move up and down spectrums much more easily than mature companies. Tesla could make a budget car next. Jaguar can't. AirBnB can handle mansion rentals for billionaires. Grindr could probably pivot to over 50s Catholic matchmaking easier than one might think.
They definitely didn't see their own story at the time, see my comment at the deepest nesting of the thread. Totally agree. Also agree that execution and actually building a great business is the most important thing and if you survive long enough to be able to do that and you're good at it, you'll win.
The problem is, and the reason VC's need to consider the quality of storyteller you are, is for a business that plans to be capitalized over several rounds, it's a fundamental risk not to have somebody on your team that can tell that story. Secondly, you're going to have to tell stories to your TEAM (internally) and the world (externally/marketing) that will have a huge impact on the future of your company as well. So it matters.
It turns out, Brian especially at Airbnb is a natural story teller, he basically can not stop telling stories when he speaks publicly and they're all good. They just didn't know what story to tell yet :)
> Explaining why something that is small today could some day be huge is so hard.
Actually, seems to be very easy to some people. And quite funny, often those people are not very good at executing business so it will never be actually huge. But they are good at explaining.
The conclusion from putting the two together is "when you get hard nos from smart people, if you're still compelled by your mission, keep going and work on either changing your story or telling it better".
If that's the case, the backstory to Airbnb indicates to me that around this time they had still not adequately figured out how to tell their story in such a way where it seemed like a big deal. At the time I believe, it was about:
- People having strangers stay on air beds in your homes, while you were there, and then serving them breakfast in the morning
- It was ONLY targeted at conferences where people would become so desperate for space that they'd stay anywhere (that's how the company got started - big design conference in SF. Here you can see they were focusing on the DNC and RNC).
This is a really implausible idea for one, a really small market (constrained by hosts but also conferences that fit the criteria) for two, etc.
What the story became when they broke through was about turning the excess living inventory hundreds of millions of people have into a place for people to stay. This has benefits for both sides it turns out and is widely applicable and massively scalable.
Those are really, really different stories. Like, startling different. But if you can't not only tell the second one but also show some evidence that it could be so, your stuck with the shitty first story. When they started seeing the behavior during YC that pointed them to the second story, they focused the company on it which caused it to grow, investors better understood the potential, and slowly over time it became trivially easy for them to raise money.
Explaining why something that is small today could some day be huge is so hard.