Airbnb cofounder Nate Blecharczyk reveals why the company took on billions in debt during its darkest hour: 'We had to prepare for the worst case'

  • Airbnb cofounder Nathan Blecharczyk spoke to Business Insider moments before trading began for the company's $100 billion IPO.
  • In the interview, Blecharczyk revealed why the company decided to take a $1 billion investment from Silver Lake and Sixth Street partners earlier this year.
  • March and April 2020 were some of the darkest times for Airbnb, as the early months of the pandemic ground international travel to a halt. He said the founders agreed they needed more cash on hand to survive the next 12 to 18 months.
  • "We chose to raise debt versus equity," Blecharczyk said, as raising equity would have hurt existing shareholders, including employees.
  • Silver Lake and Sixth Street's combined stake in the company is now worth about $1.08 Billion, assuming the firms exercise their warrants.
  • Visit Business Insider's homepage for more stories.

March and April 2020 will go down as some of the darkest moments in Airbnb's history, when global travel plummeted 80%, Airbnb co-founder Nathan Blecharczyk told Business Insider in an interview just moments before trading began for its $100 billion IPO.

Blecharczyk recalled just how blind the situation felt.

"One of the hard things was the fact that we didn't know when this was going to improve so we had to prepare for the worst case," Blecharczyk said.

After meeting with the founding team, it quickly became clear that given the scale of their operation, they needed more cash on hand to survive the pandemic in the next 12 to 18 months.

"So the decision to raise more cash was not a difficult decision," Blecharczyk said. "It was a clear necessity; no debate."

On April 6, Silver Lake and Sixth Street Partners provided the lifeline, pouring $1 billion into Airbnb at the height of the early months of the pandemic. The loan came with some stiff conditions: There was a steep 10% interest rate attached to the deal, plus other fees, and the investors also received warrants that converted into one share apiece at less than $30. On top of that, the warrants would price the shares, should they convert, at a steep discount, a valuation of $18 billion, almost half of Airbnb's previous valuation of $31 billion. 

Then, a few weeks later, Silver Lake helped Airbnb raise another $1 billion in debt from a list of other bankers in a five-year loan. This one didn't involve selling warrants, but did cost 7.5% in interest, plus a benchmark rate known as the London interbank offered rate, or Libor.

Those moves put about $4 billion in Airbnb's coffers but also saddled it with a surprise extra $2 billion in debt. 

Looking back at the company's decision to take on that debt rather than raise another round of equity, Blecharczyk said it was "the right way to go" because taking on equity would have hurt existing shareholders.

Another equity raise would have meant diluting existing Airbnb shares, making each share a smaller piece of the company.

"We chose to raise debt versus equity, right? Because you know, equity would have diluted us, especially given the state of the world at that point. People were saying our valuation was $18 billion. So, to raise equity at that price would have heavily diluted the company, the shareholders, the employees," he explained. 

Given how the year ended for Airbnb, raising $3.5 billion during its IPO, and having Wall Street receive the shares so warmly, the choice turned out well in the end for everyone.

"I think it made sense then, and in hindsight, I think the choice really makes a lot of sense," Blecharczyk said.

Meanwhile, Silver Lake also did exceptionally well for its eight months of risk. It also bought over $27 million of shares from Belinda Johnson, Airbnb's former chief operating officer who now sits on the board, according to the company's S-1 filing.

All told, Silver Lake's stake is now worth more than $620 million, assuming the investor exercises its warrants, reports Business Insider's Dakin Campbell. Sixth Street did well, too. Should it execute its warrants, its stake would be valued at $466.7 million.

Dakin Campbell contributed to this report.

Axel Springer, Insider Inc.’s parent company, is an investor in Airbnb.

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