2/8/2018 The Inside Story of Airbnb's Management Shakeup and Battle to Stay Private – Skift

Rooms, Rentals & Shares

The Inside Story of

Airbnb’s
Management
Shakeup and Battle
to Stay Private
Olivia Zaleski and Eric Newcomer, Bloomberg

- Feb 06, 2018 5:30 pm

W
ho needs an IPO when you can control the
limits of space and time on an “infinite time
Skift
Take horizon” like Airbnb CEO Brian Chesky? Also,
if two-thirds of the company’s profits were being
generated by ex-CFO Tosi’s hedge fund within the
company, how will the company fare without him?
— Deanna Ting

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 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
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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.

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 and a
spokesman for Airbnb declined to comment.

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.

The founders and early employees have little financial incentive to push for an IPO.
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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
business professor at New York University.

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.

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-

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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.

–With assistance from Eric Newcomer

©2018 Bloomberg L.P. This article was written by Olivia Zaleski from Bloomberg
and was legally licensed through the NewsCred publisher network. Please direct all
licensing questions to legal@newscred.com.

Tags: airbnb, ipo

Photo Credit: Airbnb CEO Brian Chesky announced that his company, which is valued at $31 billion, will
not be going public in 2018. Mike Short / Bloomberg

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