Airbnb valued at $10 Billion

Earning a piece of travelers’ wallets is big business, and Airbnb is proving just how lucrative it can be. The company is close to closing funding valuing it at more than $10 billion.

Michael J. de la Merced had this story for the New York Times:

Airbnb is close to joining a rarefied group of start-ups: the 11-digit valuation club.

The couch-surfing company is close to raising more than $400 million in a new round of financing, a person briefed on the matter said on Thursday. The fund-raising effort would value the six-year-old Airbnb at more than $10 billion.

Leading the round is TPG, which has already taken stakes in other Silicon Valley darlings like the car-ride service Uber.

Airbnb’s fund-raising round is the latest sign of exuberance in the technology world, as the new generation of start-ups fetches eye-popping valuations. Companies like the online storage provider Dropbox have been appraised at about $10 billion, while Facebook – itself worth more than $172 billion – bought the messaging application WhatsApp for $16 billion last month.

The Financial Times story by Tim Bradshaw added this background about the company’s roots and what they plan to do with the cash:

Airbnb’s rise has been meteoric. Founded in 2008 by roommates who rented out beds to help pay for their San Francisco loft, the company said at the end of last year that it has hosted more than 11m guests in 34,000 cities around the world.

As well as joining that elite group of private technology companies in the US to attain an 11-figure valuation, Airbnb is the latest to seek private equity funding thta will allow it to delay an initial public offering. The deal was earlier reported by the Wall Street Journal.

The company is raising more than $400m to help expand its peer-to-peer home renting marketplace into a broader offering of “hospitality”, including transport or cleaning services, said co-founder Brian Chesky, now chief executive.

TPG, the private equity group that also led sharing-economy rival Uber’s fundraising last year, will lead the Airbnb investment, according to sources close to the discussions. Airbnb declined to comment and TPG did not immediately respond to a request for comment.

The Wall Street Journal pointed out in an article by Evelyn M. Rusli and Douglas MacMillan that regulators have looked into the business model:

The service has become a cheap alternative to hotels for millions of tourists, a source of income for homeowners and a target for regulators wary about safety, oversight and tax collections.

Last October, New York Attorney General Eric Schneiderman subpoenaed Airbnb for information on its 15,000 hosts in the state, to determine if any are violating a 2010 state law that prohibits renters from subletting their homes for less than 30 days if they’re not present. The company is contesting the order in court. Hotel operators argue that the rentals unfairly skirt lodging taxes.

Airbnb is benefiting from soaring investor interest in mobile and Internet-based business models, which is propelling a wave of initial public offerings and eye-popping valuations for private companies. Facebook Inc. FB -0.12% recently agreed to acquire closely held text-messaging service WhatsApp for $19 billion.

In the past 12 months, at least 21 companies have raised new funds that valued them at $1 billion or more. At the top of that list, online-storage provider Dropbox Inc. and Chinese mobile-phone maker Xiaomi notched $10 billion valuations, while data-mining specialist Palantir Technologies Inc. was valued at $9 billion. Uber Inc., an on-demand car service, is valued at $3.8 billion, following an investment last year led by Google Ventures, with TPG participating.

Airbnb and Uber are part of the so-called sharing economy, in which people offer resources or services, such as cars, spare bedrooms, or extra time, to others for a fee. The companies need investments to expand into new regions, staff international offices and ward off competitors. One of Airbnb’s largest competitors is vacation-rental service HomeAway Inc., a public company valued at $3.9 billion.

Ryan Lawler wrote for TechCrunch that much of Airbnb’s growth is coming from Europe, which bodes well for tapping various markets:

With that report as a backdrop, Airbnb has shared some stats this morning that show its guests increasingly are traveling to, from, or in-between nations in Europe. In a blog post today, the company said that 50 percent of its guests over the last year were from Europe, and that number is only expected to grow over time.

Airbnb said that more than a million guests each from the U.K. and France have booked stays through its platform. Meanwhile, more than a million guests have stayed at places listed on Airbnb in both Italy and Spain. It’s likely that those guests and stays overlapped quite a bit — according to the company, more than 80 percent of European guests staying with Airbnb traveled to other destinations within Europe.

The growth comes as Airbnb has been investing in the continent over recent years — in 2012, the company opened offices in London, Paris, Barcelona, and Milan, among other European cities.

Airbnb has had a particularly international audience for a while, with three-quarters of all stays involving a stay by an international guest or a guest staying in an international listing. But this announcement marks a serious shift in the makeup of Airbnb guests. Back in 2011, about half of all guests were from the U.S., but that’s dropped to below 30 percent.

Airbnb is smartly raising money while the notion of the “sharing economy” is hot and people are flocking to its site. Many travelers are searching for a more personalized or authentic experience than hotels and finding it by staying with others. Some are using the site to pay the rent. No matter the reason, it is obviously filling a gap. But is the gap $10 billion wide? Only time will tell.