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Airbnb’s value may soar to $10 billion, highlighting ‘sharing economy’

Sat., March 22, 2014

In a defining moment for the sharing economy, Airbnb is in funding talks that would value the room- and home-renting company at $10 billion, more than some long-established hotel companies and among the highest valuations for a startup in the country.

The sharing economy refers to a wide range of companies that use social networks and smartphones to offer everything from clothes to cars, with business models that connect those with something to offer and those who want something. Airbnb, for instance, lets people around the world rent out space to those looking for a place to stay, taking a cut of each transaction. Sharing companies have grown remarkably fast, disrupting industries like hotels and taxis and raising a host of thorny regulatory concerns.

Clearly, though, they are here to stay and, based on this deal, could become some of the largest companies in the world.

“Getting things from your peers is faster and cheaper,” said Jeremiah Owyang, founder of Crowd Companies, which aims to help large traditional companies adapt to the new sharing economy. “People are doing this for selfish reasons. But it’s actually sustainable; this is good news for the planet. It’s like healthy food that tastes good.”

San Francisco-based Airbnb is in negotiations to raise between $400 million and $500 million, which would be its largest funding round ever. The expected investment is more than double its last cash infusion and would value the entire company at $10 billion. In comparison, Hyatt Hotels Corp. is worth $8.4 billion, and Wyndham Worldwide Corp. $9.3 billion.

Airbnb, along with ride-sharing services like Uber, freelance sites such as oDesk and online marketplaces such as Yerdle, has managed to help carve out a new economy. But regulators worry that sharing companies may represent a public safety threat – there are horror stories of Airbnb hosts having their homes trashed, and an Uber driver between rides hit and killed a girl on New Year’s Eve in San Francisco. Airbnb has also been criticized for evading hotel taxes.

“That’s going to be a challenge for many years to come. There’s a hand-to-hand battle in every city,” Owyang said. But most consumers do trust the sites, experts say, and many sharing-economy users have replaced traditional hotels and taxicabs with these services.

Since it was founded in 2008, born out of Silicon Valley incubator Y Combinator, the Airbnb marketplace has grown to about 600,000 rooms, apartments and houses to rent and has facilitated more than 11 million guest stays in about 190 countries.

Airbnb’s valuation has quadrupled, from about $2.5 billion when it raised funds in 2012. Private-equity firm TPG is expected to lead the next funding round, although Airbnb has also been backed by Greylock Partners and Sequoia Capital.

Other sharing companies have also piqued the interest of some of the valley’s highest-profile venture capital firms. Uber received a $258 million funding round from Google Ventures and TPG last year, and Google also led a $125 million investment into the Lending Club, a peer-to-peer loan website. TaskRabbit, a site to outsource errands and chores; ride-sharing service Sidecar; and fashion-sharing company Poshmark have each landed tens of millions of dollars in investments in the past couple of years.

“The numbers that we are seeing are self-validating that this is working,” said Stephane Kasriel, vice president of product and engineering for oDesk, which has raised about $44 million. “It’s a very hot space.”

Sharing economy companies are cheap and efficient to operate – Airbnb doesn’t have to build hotels or pay for housekeeping. With few costs, investors see room for huge growth.

“They don’t own any properties,” Owyang said. “They don’t have to deal with anything.” Owyang estimates Airbnb, a private company that doesn’t disclose financials, makes about $1 billion to $2 billion in annual revenue.


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