Serial Fundraising Secrets: Retaining Equity the Airbnb Way
Navigating the fundraising journey while keeping a substantial part of your company’s equity is a common challenge for startup founders. You’re constantly looking for funds to fuel your growth, but how do you do that without giving away too much of your business?
Take a look at Airbnb, the global platform that revolutionized the vacation rental industry. They managed to secure funding seven times, all the while maintaining a significant portion of their equity. Quite a feat, right?
In this blog, we’re going to examine Airbnb’s strategy. Not to recount their story, but to help you shape your own. We’ll reveal how they consistently increased their valuation at each funding round, which allowed the founders to hold onto more of their company.
So, if your goal is to expand your startup and retain your equity, you’re at the right spot. Let’s jump in.
Equity and Valuation Uncovered: The Balancing Act in Fundraising
For any startup, two factors play a pivotal role in its success journey: equity and valuation. Though they might sound a bit daunting, they’re the two critical pieces that hold your business together. Let’s unravel these concepts.
Equity, to put it simply, is your ownership stake in your company. Think of it as your piece of the pie. When you kickstart your business, this pie is all yours. But as you bring in investors for that much-needed capital boost, they get a slice of this pie, which essentially means parting with some of your equity.
Valuation, on the other hand, is the market’s estimate of what your company is worth. Consider it as the price tag on your startup. A higher valuation? Well, that’s a pricier tag.
Here’s where it gets intriguing. The chunk of equity you offer to investors is inversely related to your startup’s valuation. The pricier the tag (higher valuation), the smaller the equity slice you need to hand out for the same amount of funding.
That’s the trick Airbnb used to their advantage. They consistently increased their valuation at each funding round, allowing them to raise hefty funds while keeping their equity giveaway in check. It’s a fine balance, and understanding it and running the numbers is key to smart fundraising.
Airbnb’s Equity Journey: Seven Funding Rounds, One Clever Strategy
Let’s dive into the numbers. Our analysis provides an estimate of Airbnb’s founders’ ownership across seven funding rounds. All valuation data are publicly available, except for the Series A round, which we’ve had to estimate. Additionally, this analysis doesn’t account for factors like employee options or any equity that the founders might have sold outside of funding rounds.
Airbnb’s fundraising journey started in 2009. In this initial round, they gave up 25% of the company, which fits right into the 10-25% equity sale range suggested by Y Combinator for a startup’s first funding round.
The real magic, however, happened after this first round. Airbnb went on to raise funds in six more rounds and only gave up an additional 26% of their company. Assuming the founders only sold equity during funding rounds, they managed to retain roughly 49% of their company.
The infographic captures the core strategy: Airbnb consistently increased their valuation. A higher valuation means you can attract more capital without having to part with large chunks of equity. In total, Airbnb raised a hefty $6.9B in funds over these seven rounds, while ensuring their valuation skyrocketed before each one.
A quick side note: if you’re curious about the calculations behind these numbers, just know that it gets quite complicated after the first round. Analysts usually use cap tables to simplify these calculations when multiple rounds are involved. Check out our article here for more information on cap tables.
Mastering Valuation and Equity – Aim High, Strategize Wisely
A crucial lesson to take away from Airbnb’s journey is the importance of aiming high with your valuation, while managing your equity cautiously. Airbnb’s meteoric rise from a modest $20 million to a staggering $100 billion at its peak IPO valuation is a masterclass in this strategy. It was the consequence of strategic planning, astute execution, and a relentless pursuit to enhance their value proposition.
It’s vital to grasp that the higher your startup’s valuation, the smaller the equity slice you’d need to relinquish for the same amount of funding. This simple yet potent principle was one of the cornerstones of Airbnb’s fundraising strategy.
To replicate their success, ensure that all your business strategies — be it product development, marketing, or forging strategic partnerships — are geared towards amplifying your startup’s valuation. By doing so, you’re not just raising funds; you’re setting the stage for retaining more of your company in the long run.
Join Us in Your Journey
Navigating the fundraising journey and retaining more equity can be a challenging task. At VeFund, we’re here to help. Get an instant valuation for your startup with our automated valuation calculator or apply to our network of active investors. We’re committed to empowering startups like yours to create your own success story.
