Two Founder-Run Unicorns Ready IPOs

DoorDash's Tony Xu won the food delivery wars. He's just getting started. Airbnb's Brian Chesky needs to prove he has another magical trick up his sleeve.

I feel kind of bad for Brian Chesky and Tony Xu. This was supposed to be their year. But the pandemic hit. Now they’re preparing to take their companies, Airbnb and DoorDash, public before the end of the year, crisis be damned.

Still, even with the election behind us, the President of the United States won’t relinquish the spotlight. Airbnb reportedly pushed their filing off to next week, as if that would get the IPO coverage out from under Trump’s democracy-destroying news vortex. Honestly, though, the media isn’t enamored with boy genius founders these days anyway. Would they have gotten rhapsodizing coverage if things were calmer? Chesky, 39, and Xu, 36, have grown up. These IPOs are transactions, not victory laps.

I don’t feel bad for Alfred Lin who is on the board of both companies. He and his firm – Sequoia Capital – stand to make a killing on the two IPOs. Come to think of it, I guess Chesky and Xu will be pretty rich too. It’s going to be a good moment for Y Combinator, which backed both companies as well.

For all the talk of SPACs, there’s still a stable of IPO candidates waiting in the wings. Max Levchin’s Affirm could still go this year. Marqeta, Roblox, Qualtrics, and Databricks could all list next year. The markets are doing well, so everyone wants to rush to the exits before the house burns down – whether that’s via SPAC, direct listing, or IPO. So, you can understand Chesky and Xu’s urgency to take their companies public now. Even if they’re not going to get the undivided attention they might have hoped for, at least the market didn’t take a dive after the presidential election.

Both founders have come a long way. I know Chesky and Xu pretty well. I’ve talked to them many times over the years and have chronicled their ascents, sometimes too skeptically. In 2015, I called the food delivery market “overcrowded.” Then the following year, I reported that DoorDash was cutting its valuation aspirations. In retrospect, $1 billion would have been a steal. Of course, Xu outmaneuvered plenty of food delivery companies, which did get crowded out. Remember Munchery and Sprig? Meanwhile, rival Postmates never had to figure out profitability before selling to Uber for $2.65 billion. I underestimated investors’ deep pockets too. Now, Xu, who bet on a strategy of going outside in, with a suburbs-first model, is getting the last laugh. Postmates’ Bastian Lehmann was always the marketer, Xu, the operator.

Xu is the embodiment of the operationally ruthless, determined founder – though he’s smartly avoided the headline-grabbing drama of rivals like Travis Kalanick. Like the Uber co-founder, Xu seems his most alive debating the intricacies of how his marketplace works. Xu adamantly believed the company got its tipping policy right, despite the public outcry. But unlike Kalanick who didn’t know how to appease the public while doing what he wanted, Xu tweaked the policy enough to get the press off his back. Xu runs the company tightly. It’s Xu and his CFO, former Goldman banker-turned-Uber finance exec Prabir Adarkar, who will be talking to investors on the virtual roadshow.

If you’re looking to bet on a founder-led company to out-operate the old-guard, I’d pick Xu over Uber’s Dara Khosrowshahi. Uber has a big head start but consistently faces pressure to make cuts. Xu has benefited for years now from Uber’s timidity. While Uber board members pushed the company to consider its growing costs, DoorDash elbowed past them in the U.S. food delivery. Even as a public company, DoorDash’s shareholders will be betting on growth. And there’s plenty of room. As long as the economics of the food delivery business actually work (which I absolutely do not have the data to certify), I’d bet on Xu to out-execute. DoorDash, valued this year at $16 billion, seems to be a company where operations and engineering come first. Xu isn’t burdened by a crazy self-driving car program, flying car flirtations, or a ride sharing business that’s been devastated in the pandemic. He doesn’t have to simultaneously prove to investors that ride sharing can be profitable while growing food delivery. That said, if coming out of this crisis, Xu could somehow convince the Lyft founders that a merger makes sense, you’d want Xu at the top of the org chart.

Over at Airbnb, Chesky is an interesting case. He’s an excellent showman. He’s probably the closest person in Silicon Valley right now to creating Steve Jobs’ reality distortion field. Chesky is great at selling a narrative, which is the perfect attribute for a leader who has to convince you that independently operated listings on Airbnb should be thought about any differently than similar listings on Booking.com.

Back in 2015, Chesky’s investors convinced him to hire the former Blackstone CFO Laurence Tosi, which ended up being a big distraction. L.T. pushed the company toward travel broadly construed, while Chesky has always had a fondness for sticking to what makes Airbnb unique. The two had a falling out and L.T. left.

This year, when the pandemic struck, Chesky seized the crisis as a time to double-down on the things he liked about Airbnb, while moving away from luxury services and hotels.

The ultimate test for Chesky’s genius will be experiences. Since 2016, the company has worked on a product to sell you activities along with your stay. It’s continually seemed a better idea than business. Chesky seems to reaffirm his commitment to the service every year, but we’ve yet to see proof that it can work at a meaningful scale. Maybe the prospectus will change that. But these magical trips are Chesky’s white whale. I’m skeptical that he can catch it.

The other thing that gives me pause about Airbnb is that Chris Lehane, the company’s excellent top communications and policy executive is seen as the most influential person at the company besides Chesky, according to a wonderful profile in The Information. It’s a problem for both Uber and Airbnb honestly. The ascendancy of talented crisis managers over product and engineering executives would seem to signal that the companies are in a stage where beating back regulatory challenges are more important than out-innovating their competitors. That’s not a strong case for growth.

DoorDash and Airbnb’s IPO filings will also give us a better sense for how they’ve fared in the pandemic. My impression is that DoorDash has been able to onboard a lot of new customers because of the lockdown. The question will be how many of them stick around once life goes back to normal. On the Airbnb side, international travel was devastated in the crisis and Airbnb raised debt to get it through the storm. The short-term question is, to what extent are months-long domestic rentals making up for the lack of foreign vacationers? Long-term, the question is, do people prefer Airbnb listings in a more paranoid world where hotels feel overcrowded? I think so.

Ultimately, Airbnb has always had a business model that made investors salivate, while food delivery has been a low-margin headache that made investors worry. Unfortunately for Chesky, that wonderful marketplace business model has already been priced in. Can Airbnb grow beyond it? For Xu, he’s faced skeptics all along. I don’t know what the company’s financials will show in terms of margins, but in the food delivery land grab, he’s shown himself more than adept.