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In an Arena Ventures blog post today, angel investor Paige Craig recounted the story of how in 2008, after putting in six weeks of work and a term sheet for their entire seed round as their lone believer, Airbnb spurned him for Y Combinator, which had previously rejected the then startup.
Craig is an Iraq War vet and angel investor who’s invested in over 100 companies, including Angellist, Twitter, Lyft and Postmates.
Craig wrote in his post:
“Brian Chesky recently wrote about his 7 Rejections — feedback from a small set of the many investors who turned him down. This is my story as the one guy who didn’t. I was one of the few investors who actively pursued this deal from August through October 2008, and the only among them to agree on a term sheet.“
Before Craig came into the picture, Airbnb was only looking to raise $100,000 in funding. Craig, however, helped them reassess:
“Throughout our first meeting, I spent a lot of time going through their budget with them and realized their $100,000 fundraising ask was too low. Based on their traction and burn rate, we came to an agreement that they needed to raise funding closer to $250,000 to give them enough runway, and that it made sense to increase the valuation in order to protect their interest and upside as founders.”
Ultimately, they decided to raise $250,000 with a valuation between $2-2.5 million. They expected multiple investors to get in on the deal, but in the end, literally everyone of them dropped out, except Craig.
“… instead of a handful of us coming together as I expected, I was the one lone dude writing a check for the entire seed round. But ultimately that was fine by me — I was good to move ahead.”
At the end of September, both parties agreed on the terms and Craig flew up to San Francisco to do a closing dinner. They planned to make the deal official the next day.
Then things got interesting. The next day, Craig’s lawyer told him that he still had not heard from Airbnb founder Brian Chesky. That’s when he dropped the bomb:
“I hear back from him later in the day. Initially, he had great news to tell me: Y Combinator had changed their mind and was in fact going to participate in the round. “Awesome,” I thought, “that’s another great investor for the guys to have involved,” and it gave me some appreciated reassurance after all the prior investors had opted out.
And then Brian told me the second part — that only YC would be participating. Talk about good news followed by ugly fucking news. YC was taking the full allocation and I was getting bumped. And that was it — end of story. After 6 weeks of work, I didn’t get to invest.”
So to sum things up: Back then, no one believed in Airbnb but Paige Craig. Craig decided to invest in the whole round because he believed in their “work ethic, vision, and scrappiness,” spending his own resources and money to draft contracts over a six-week period. Airbnb then turned around and literally left him in the dust for a more well-known investor who didn’t believe in them prior to Craig.
In the end, Craig noted that he had no hard feelings toward the startup and actually blamed himself on not getting the deal because he wasn’t as aggressive as he should’ve been.
“The reality is I should have worked my ass off to get in that deal even after YC’s decision. These days when I find a deal I want, I chase it until I’m dead and I almost never believe any deal is definitively ‘closed’ off.”
He says that it was, overall, a good experience that taught him some of his most important lessons in investing.
“Airbnb was a tough deal to ultimately miss out on, but the lessons from it enabled me to be a much sharper investor in finding and supporting other exceptional startups in the years since. And at the least, I still get to benefit as a consumer who gets to use the incredible Airbnb marketplace when I travel.”
Airbnb is now worth an estimated $25 billion.