Starting the next AirBnB of xyz - initial growth and funding
so, i have an idea that i'm working on that could possibly be the next "AirBnB" of xyz market, and i'm considering going to angel / pre-seed VC investors for pre-seed capital. I'm not competing with AirBnB, but i'll be copying their concept skelton.
Reading thru AirBnB's history, i was surprised to find that dozens of VC chose not to invest in AirBnB, even tho AirBnB was selling 10% for 600k (which VC in their right mind would turn this down?). In a similar fashion, Tom Brady was the 199th selection in the 6th round of the 2000 NFL draft.
The experts have a very hard time identifying the standouts.
Similar to AirBnB, my startup will be:
1) Peer-to-Peer marketplace
2) Hosts make money "selling" underutilized assets during their free time
3) Guests pay a discounted price for the service/product, and get a {better quality / more variety / more flexibility} product/service vs what is currently available in the form of an institutional product that current users reluctantly use because they have no other choice...Market is ripe for disruption.
4) Platform connects buyer with sellers, hosts transaction processing, provides insurance (when we get big enough), assists with regulatory issues if any exist, and provides customer service.
Nobody is doing this...a goldmine of an untapped market.
In the US:
"Guest" total potential population is around 30-40 million people
"Host" total potential population is around 10 million
1 host can serve multiple guests per "service" but probably 5-10 would be the max per day.
Platform would take 10% of transaction revenue (just like AirBnB)
Capturing 1% of the US market = around $300 million annual platform revenue
Many other industrialized countries could also use this service...potentially 2x-3x platform revenue.
"Hosts" who fully utilize their assets could potentially generate up to ~ $8000/month, so this could potentially become a fulltime career for some "hosts".
For reference, AirBnB now has captured around 6% of the US hotel market, and depending on how you measure the market, up to 20% of the vacation home rental market globally.
Similar to AirBnB, this platform has the potential to increase total spending in the industry. AirBnB both increased spending on the "vacation home rental industry" and took market share away from the hotel industry, and they did this by making the entire process easy for all parties. This new platform could be equivalent on both metrics.
In 2009, when every VC turned them down, Airbnb was only making $200 in revenue per week, and then growth went exponential within 1-2 years after getting their 600k for 10% investment from Sequoia
Now, onto my fundraising questions:
Many pre-seed investors suggest going the route of the LeanStartup.which essentially says, instead of building your product, just build a landing page with a signup form and collect email addresses and user signup info for your potential customer (pretend there is a product to get the signup, and then "surprise!, no product but we'll contact you when there is"), to determine if there is actual demand for your conceived product. So, i've done that.
My question here is, how many people need to "sign up" before it makes sense to talk to pre-seed funds / angel investors and claim "product-market fit" ? Just posting a very basic signup form 2 weeks ago via a survey i've 44 signups so far, which represent 63% of my 70 survey takers. Yes, i know these numbers are very small...but this is with no advertising, so i'm surprised i got any at this point. My next step is to create a couple FaceBook ads and Google ads, and get more traffic to my signup page.
How much should i be spending on advertising (google / facebook ads) to help get this initial MVP signup process going...and otherwise, how do i get my concept in front of potential customers? Really, how much should i spend on this? I'm not loaded, so this is a legit constraint, and this money spend is just to answer the hypothesis "how many people would really choose to buy this" (as the founder, i know i'm biased and need to validate my hypothesis).
Assuming i get 500 people to sign up and a decent ad click thru vs signup rate (i think i'd be very happy with 20%), is that enough to start capital raising....or is the number 5,000 signups? I have no idea what the minimum number is here for what pre-seed / angel investors want to see here as "impressive" before being convinced to invest to fund real product / platform development. I'm guessing / hoping it will cost me $1 of ad spend / signup (20 cent ads, 1 in 5 ad clicks = a signup)? I'm not looking to burn $5,000 here...but $500 would be reasonable.
Regarding the 1st people to hire, i'll need a web developer and a mobile app developer to help build the product. i can't do this without funding...so at what point do i raise capital for this, and how much runway should i raise for....18 months? (salary for 3 people for 18 months is ~ 500k + i'll need to spend at least 50k-100k on advertising to kickstart growth..so my first raise will need to be at least ~600k).
I guess this makes sense regarding how Sequoia same up with 600k for 10% of AirBnB when they did the 1st seed...so i would gladly take that deal if i could.
Besides the 1st 2 software developers, who else are the 1st round of hires that i'll need to make?
1) just because people sign up on a landing page doesn't mean there is demand or that they'll pay for a service like that. they might do it, you just don't know.
2) the value of such a proposition is the technology and AI working in the background, not the idea. as you know, there were many such services before for parking spaces, cars, spare rooms, cleaning services, pet services and more. Most of them didn't end up being AirBnB.
3) the tricky part is getting funding based on an idea, and not based on a product. If someone came to us with a pitch deck and x amount of emails and no traction and no product, they would certainly not get a check from us.
4) this is a competitive space, many areas are either in development or in-market already. given the ongoing pandemic it is also difficult to estimate how many people would actually use the service(s) offered from others.
5) then there is the regulatory, compliance and legal/insurance bits; are there any local orders preventing or limiting reach for this product, etc
6) have the founder/the team done something comparable before? do they have the technical, legal, managerial and fundraising experience to pull this off?
I think the most relevant part is that you are a SW dev - this is a huge advantage. Many founders don't necessarily have the tech background.
regarding #3....if AirBnB came to you before Sequoia invested their 600k, you are saying you would not invest?
If the product was working/live, the team present, and no other issues - then we might have invested. But we wouldn't do pre-seed rounds or spend 600K for power point. Others might though. (this is my firms opinion, not mine. however, I work for the firm and can't change the rules)
i read that AirBnB was only making $200 / week (no, not missing a comma there) when Sequoia invested. I'm confident i can get to that pretty easily. Its hard to know if i'll grow to similar marketshare as AirBnB in my market in 5-10 years...but at this early stage, of course nobody can predict the future...but with what seems to be an opportunity to invest in what might be the next airBnB, and hundreds of VC firms each with hundreds of millions to invest, with the stated goal of finding the next airBnB....it is frustrating that people who are indeed tasked with finding the next airBnB are so resistant.
i know "thats just the way it is" but its still frustrating from where i'm sitting....where the VC is supposed to make my life easier...not harder.
Optio labore et dolor occaecati voluptas sed sapiente. Ea inventore aut repellat unde quo reiciendis voluptas. Voluptas recusandae est et non. Asperiores iusto tempore ea ipsam voluptatibus omnis aperiam dolores. Nostrum veritatis nihil voluptatem autem molestiae. Quis voluptatem saepe optio consequuntur.
Quo unde voluptatum enim sed consequatur nam numquam. Totam eum similique explicabo sit laudantium rem itaque. Quam quaerat nihil iste. Incidunt soluta dolorem enim quaerat est. Iusto nesciunt magnam iste. Ullam neque placeat incidunt est blanditiis repellendus doloribus.
Nisi omnis voluptatum consectetur animi rem impedit mollitia. Assumenda incidunt eveniet possimus facere ut. Aut nobis vel laudantium sed quae nihil quos nobis.
Ut perferendis rerum in et. Voluptatibus ad hic quo quisquam deleniti cumque illo. Excepturi enim dolorem non vitae.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...