From: Chamath Palihapitiya
Date: Sat, 1 Oct 2011 11:16:05 -0700

To: Brian Chesky

Subject: Airbnb financing…

Brian,

Cc Marc, Reid, my deal team

Thanks again for giving me the chance to participate in your latest financing. I had a chance to review the docs at length yesterday and I wanted to follow up as, quite honestly, I’ve never seen a deal like this over ~60 investments I’ve done and I’m pretty concerned.

I’m all for getting the best valuation you can, minimizing dilution and maximizing control. We did this brilliantly at Facebook…all of our financings (except our first $$$ from Peter Thiel) were done not out of necessity but opportunity. As such, our investors had virtually no control and it resulted in a much better outcome. As we’ve discussed, I generally don’t believe investors add much to a success story and so minimizing their impact is a great strategy when you are onto something that is working.

This said, while several of these concepts are reflected in the current deal, there is one big thing that I am fundamentally against and violates my principles and will prevent me from participating in your round. When I saw that you guys were taking $31M out of the company, I didn’t think much of it as I just assumed it would entirely be via a secondary sale.

But as I understand the deal, it seems that you are doing only $9.6M in secondary and $22.5M as a dividend to common (of which $21M goes to you and your co-founders). I am really uncomfortable with this and don’t think its in the spirit of building a good, long term business. Effectively, it is a strategy that allows you guys to take money out of the business and not dilute yourself — I’m not sure why this is such a big deal when you guys are almost 90% vested and the financing is at $1.2B where your dilution is marginal. Further, it excludes many of the employees that probably have helped you and your co–founders get the company to this place as most of these folks probably don’t have any stock but have unexercised stock options and thus won’t get a dividend.

My basic principle on this stuff is that if you want liquidity, that’s fine, but you should make it available to everyone. Otherwise, no one should get it. Your current deal is the farthest away from this principle that I’ve seen in a while…this strategy has been done once before — at Groupon. We can see how “well” they are doing and how short term the investor community is now viewing their motives. I really think you can do better than this…and that you are better than this.

Separately, when you look at successful tech companies, it seems that dividends are an approach used by cash rich operations to distribute excess earnings — in fact, the most successful, cash rich tech company in the world, Apple, hasn’t issued a dividend and they have more than $75B in cash! Again, while I think Airbnb will be a good company, this is nowhere near the truth now — you guys still need to scale and build this thing for the future.

I really think you are onto something but I would implore you to not take the easy way out. Treat your employees the same as you’d treat yourself. Do things that you will be proud of and can defend to anyone including your Board, employees, prospective hires etc. In such a competitive hiring market, you are competing with not just your obvious competitors, but also any successful tech company who is also looking for great talent. A principle that treats your employees as well as you’d treat yourself is a huge strategy for differentiation, retention and long term happiness of the exact types of people you will need to be successful. In contrast, if you are viewed as self-dealing and shady, it will only hurt your long term prospects…

In summary, I’m passing on this financing because I strongly disagree with what’s going on. I’m not sure who advocated this approach but I did mention this to Reid [Hoffman, another Airbnb investor via Greylock Partners] last night and he was of a similar mind to myself and surprised this was the approach being taken. If you want some good advice — I would ask that you consider pinging him about different ways to think about going about the liquidity portion.

If you change your mind on how to close this financing, let me know and I’d love to reconsider. Otherwise, good luck and lets keep in touch.

Take care,

Chamath

Couchbase, the NoSQL database company created by the merger of CouchOne and Memebase, has raised $14 million in new funding. The investors include Ignition Partners, Accel Partners, North Bridge Venture Partners and Mayfield Fund. The Series C funds, which bring the company’s total to $30 million, will be used to grow Couchbase’s enterprise and help the company expand internationally. [TechCrunch]

FAN was created by News Corporation to sell ads for MySpace and other third-party sites. Before selling FAN to The Rubicon Project, News Corp considered folding it to MySpace. Adam Bain, the guy who “founded” FAN is joining Twitter as the president of global revenues this past August.

About 100 FAN employees will be joining staff at The Rubicon Project in the areas of engineering and product. News Corp. participated in the $18 million round of funding in Rubicon. Clearstone Venture Partners, IDG Ventures Asia, Mayfield Fund, Peacock Equity, and Jarl Mohn also participated.

[paidContent]

[VentureBeat]

[TheAlarmClock]

News Facts:

Cloud9 Analytics, a leading provider of SaaS business analytics for line-of-business managers, today announced it has closed its Series C financing for $8 million. Cloud9 has defined the next generation of performance management solutions for the front office, focused on accelerating growth and automating day-to-day management processes for sales, marketing, service, support and others in the line of business. Instead of cost control that back office performance management solutions deliver, Cloud9 solutions deliver operational focus on improving revenue and business performance.

The investment was led by Mayfield Fund, with participation from existing investors InterWest Partners and Leapfrog Ventures.

Rajeev Batra of Mayfield Fund joins the Cloud9 Analytics Board of Directors.

A recent IDC Research report put today’s SaaS business analytics market at $1 billion, with a forecasted 22 percent CAGR for the next five years1.

The financing will be used to:

* Accelerate innovation on Cloud9 Pipeline Accelerator, Cloud9’s flagship service
* Build out Cloud9’s roadmap for performance management applications for the front office
* Extend the company’s unique cloud-based data management automation platform to enable third-party application development.

Supporting Quotes:

“This additional investment not only validates the market’s acceptance of Cloud9 solutions with more than 90 customers worldwide, it underscores the tremendous pent-up demand for performance management solutions that span the entire front office to maximize revenue and improve performance,” said Swayne Hill, President and CEO of Cloud9 Analytics. “In the past, only Finance had purpose-built performance management applications. The burgeoning growth of CRM in the front office, however, has created a significant need for applications that help management plan their business, monitor performance, look for exceptions, and re-plan. That is the market opportunity Cloud9 seeks to fill.”

“Cloud9 has gained impressive market traction with its performance management applications built on a highly scalable and extensible platform,” said Rajeev Batra, Partner, Mayfield Fund. “Besides Cloud9’s fundamentally disruptive technology, we are impressed by the team’s deep analytics domain expertise and vision for the market.”

About Cloud9 Analytics

Cloud9 Analytics is the global leader in SaaS performance management applications delivered directly to line-of-business managers. The Cloud9 Pipeline Accelerator Suite enables sales management and operations to more effectively manage their sales pipeline and forecast. The result is a dramatic increase in forecast accuracy, increased win rates and higher CRM adoption. Powered by patent-pending row-versioning database technology, Cloud9’s applications deliver value in just 24 hours and require zero installation, zero maintenance and zero IT support. Cloud9′s customers include Covad Communications, Data Domain, Siemens, Thermo-Fisher Scientific, and Thomson Reuters. The company is headquartered in Redwood City, California. For more information, please visit www.cloud9analytics.com

1 Worldwide Business Analytics Software as a Service 2009 – 2013 Forecast, IDC #221320, December, 2009

Cloud9 Analytics
Don Tyler, 650-561-7854
don.tyler@cloud9analytics.com
or
The Racepoint Group
Nicole Colwell, 415-694-6702
ncolwell@racepointgroup.com