Imagine if every Airbnb host had the option of having 5-10% of their earning withheld and used to purchase equity. You'd have a lot of regular people (that helped build the business!) receiving a windfall, instead of a few rich jagoffs getting a bit richer. And on the downside there would be no serious harm. IPOs are finished. Crowdfunding with equity can't come soon enough.
How do your Airbnb hosts exit their positions? Who do they sell to? The more I think this through, the less sense I think it would make.
1. VCs won't buy tiny quantities of equity from these hosts.
2. If they're expected to sell to other individuals, you've essentially recreated the stock market.
3. If they're expected to wait until Airbnb IPOs, well Airbnb now has even less reason to IPO. They can finance in such a way that they can sell equity, but no one else can ever sell equity.
Due to restrictions on maximum number of shareholders while private to avoid SEC filing requirements, Airbnb can't issue equity to all their hosts. But there is no reason, they can't do the same if and when they IPO to go public. Last December, Lending Club did this, LC allowed purchase of up to 250 shares at IPO price to each of its retail lenders.
Imagine if every Airbnb host had the option of having 5-10%
of their earning withheld and used to purchase equity.
Imagine if the rankings of your listing reflected your selection of equity preference... [This is a Thing, not a dystopian speculation.]
Crowdfunding with equity can't come soon enough.
What do you think IPOs were? Putting aside the craziness of the dotcom boom, this is basically what the public markets were doing 15 years ago. Sarbox fixed some of the dotcom issues and, basically, blew up the sub $1B equity market. As you note, the markets can manage this process provided they receive information, return and risk which are correlated with stage. We don't need a special term for this. We just need the regulatory burdens to be consistent with the levels of societal harm and to prevent faddish uni-portfolios.
You don't need crowdfunding, this is literally the purpose of the public markets. Regular people can invest in the company (by purchasing shares), and the market ensures they can buy/sell shares in a fair way.
Also there is still a lot of risk involved for these private investors, this isn't just free money. Just ask all the Facebook private investors who bought shares for $40, when you or I could have bought them for $20 a year later post-IPO.
Public markets don't give regular people anything. At best it lets middle and upper class people pick off the left overs that Goldman Sachs & Co can't figure out how to take for themselves. I'm talking about giving the first 1,000 Airbnb users equity at angel prices. That's how you get life changing multiples for very small tech investors.
This isn't how investing works. You can't just hand wave a situation in which one of the most successful tech companies ever should have offered its early shares to more people. If you went back to the early days of AirBNB and told the early members they could either have the $1,000 from renting their room or .01% of AirBNB's stock, almost all of them are going to take the $1,000. Tons of VCs passed on AirBNB because they thought it was a bad investment.
I'm not against crowdfunding, I think it is great. But to pretend that angel investing is some sort of easy money is ridiculous. Companies like AirBNB which are successful are incredibly rare. Most companies fail and return nothing. Valuations for companies have also gone way up and there is no way to know whether investing now is actually a good deal or not. That is the point of investing, you are hoping for additional returns by taking more risk.
You're no authority on "how investing works", so consider expressing your personal opinions in a less arrogant way.
It's hard to imagine why you think VCs not understanding Airbnb's potential means that the actual users of Airbnb didn't understand it. I absolutely believe many of the early hosts would have elected to have 5% or 10% of their earnings turned into stock certificates. And of course, I'm talking about future companies that fit the Airbnb profile.
Users will be wrong and lose money, but you're wrong if you think regular people can't predict successful companies earlier and better than VCs. They're the ones that actually pick who wins in the market after all.
I'm unsure why you're sure he's not an authority. This is HN, not some random group of people Seems like he has a decent background to know what he's talking about.
Enough authority to purport to tell other people "how investing works"? Not even if he's Ron Conway. Startup investing is undergoing radical changes, no one knows what will work best in the future.
Given how gigantic this market is, that's a pretty common occurance (i.e., starting a property/vacation rental/related site).
There's already plenty of other big players like HA, VRBO, FK, TA, rent and countless others. There's even giants that doing this that are not fully devoted to short-term rentals and vacation stuff like CL.
That doen't even touch on the devoted timeshare and timeshare-related stuff. Or, how many convenient insurance companies can you think of that will underwrite policies for these shot-term renters?
There's just so much opportunity in this field....
Correct me if I wrong, but wouldn't this force Airbnb to have to start filing financial reports once they exceed a certain number of shareholders? I imagine they rather these limited shareholder spots go to bigger investors.
Doubtful. There's a lot of tools available now to avoid limits. The JOBS Act (2012) increased the limit and gave additional carve outs to 2,000 shareholders or 500 un-accredited investors. All of AirBNB's new shareholders are accredited investors – it's not like they are taking angel or friends-and-family funding at this stage. Also, employees that exercise their option grants are not generally counted anymore toward these limits – it's considered part of their compensation benefit.
Would the average AirBNB host be an accredited investor?
Also, I hadn't heard that employee grants are not considered towards the investor limit, is it just that holding options doesn't make you an investor or is it more than that? Can you point me towards some reading material?
Edit: It looks like "Shareholder's of record" as defined in the JOBS Act might exclude employee incentive share programs (as long as those plans were exempt from registration under the Securities Act... not that I know what that means)
Doubtful that the average host would qualify, especially since the average host is using their home to host AirBNB guests, and your primary residence does not count toward the monetary requirements to be qualified as an accredited investor – net worth over $1mm, annual income over $200k [0].
As far as the shareholder limit, Cooley LLP has a decent overview of the JOBS Act's changes [1]. Holding an option grant never counted toward the 499 limit, but previously if you exercised your option grant (through equity compensation), you may have counted toward the 499 limit. Now, most option holders that exercise their grants are exempt from this shareholder count.
Your edit: You can avoid registration through a variety of exemptions of the 1933 Act. One of those is the Rule 701 exemption at the federal level; it carves out exemptions specifically for employee compensation plans. It makes sense. The 1933 act is to primarily protect against fraudulent companies selling 'stock' and came about from the massive crash of 1929. It wasn't to protect against an employer voluntarily giving up a percentage of their equity ownership to employees in exchange for service.
There are limitations on this exemption to make sure companies are not using it to actually solicit stock.
So long as the grant was under the exemption, if they exercise their grant, it should not count toward the shareholder limit.
Anytime your argument relies on "instead of a few rich jagoffs getting a bit richer" you are basically making an argument for tax. And whatever you are proposing is going to be much less efficient than the actual taxation system, or at least the income/capital gains part.
When VA Linux IPO'd they let everyone who had contributed in some way to their open source distribution into the family and friends plan. I was one of them and managed to re-pay my mum for lending me the deposit on my mortgage.
Note that I don't think you can classify it as a bad example just because LNUX was a spectacular failure after the IPO. The F&F situation had nothing to do with their failure.
Sometimes it's just good to help the people who helped you build a business.
Companies generally expect to get a lot more than just money from their early investors. This is definitely a nifty idea for giving people an incentive to participate in a nascent 2 sided market. However it's not quite a no brainer as you're describing, there are trade offs here.
