Sequoia Capital’s Alfred Lin On Why Uber’s Valuation Is Twice That Of Airbnb’s

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Screen Shot 2015-12-01 at 3.40.12 PM.pngToday, at the Post-Seed conference in San Francisco, Alfred Lin, the former COO and CFO of Zappos and now a Sequoia Capital partner, was asked a variety of on-stage questions about the current market.

Among them was whether Lin thinks it’s a good time to start a fund. “Probably not,” he said. “Valuations are high. But it doesn’t matter if you’re [thinking] long term,” he said. “If you’re building something enduring, you’re going to face lots of ups and downs anyway and you might as well start today.” As he noted, “It only gets more competitive in this world” of investing.

Lin was also asked about the changing landscape and talked about the slowdown he expects next year, prompted by rate changes that the Federal Reserve is expected to enact shortly. “With interest rates close to zero, you can’t make money in the bond market,” he said. “So the bond people now invest in stocks, and people who invest in stocks invest in private growth rounds . . . and VCs invest in seed deals.” That’ll all change when the Fed starts raising rates, which Lin anticipates it may do “maybe even once a quarter.” Once that happens, he said, “There will be less money chasing companies all the way down the spectrum.”

Lin was also asked to take a look back and address some of Sequoia’s most impactful decisions in recent years. He was asked, for example, why Sequoia invested in the accommodations marketplace Airbnb but passed on the ride-sharing company Uber.

Lin – who invested personally in Uber, having written the company an early, $30,000 check — was candid, calling Sequoia’s decision not to fund Uber a “big failure on our part. Sometimes, we’re too smart for our own good.” Though the team “looked at the service and loved it . . . [and] looked at [CEO Travis Kalanick, who is] obviously a relentless, original thinker . . . we got stuck on market. We thought it would be a black car service. We didn’t dream with him about what it could be, that it could transform transportation.”

As for what prompted Sequoia in 2009 to lead a $600,000 seed round in Airbnb — another company that plenty of VCs now kick themselves for passing on — Lin said he thinks the partnership “came with a more prepared mind. It’d been looking at the vacation rental market much longer.”

Lin also noted that Airbnb is “a very rare, global network effects company, and that’s something we got our minds around as a proprietary defensible advantage.”

Lin was then asked by interviewer Bambi Francisco — whose company, Vator, helped organize the conference —  why it is that Airbnb’s valuation has been holding steady at $25 billion while Uber’s has soared to between $50 billion and $70 billion (depending on the day and the investor you ask).

Lin, who joined the board of Airbnb back in 2013, said it was simply harder for Airbnb to buy inventory. At the end of the day, fewer people can be convinced to rent out a room in their home than persuaded to drive for Uber, he said. As a result, Airbnb is “growing more slowly.”

Indeed, Airbnb generated $340 million of revenue in the third quarter on bookings of $2.2 billion, according to report last month from the WSJ. Meanwhile, according to leaked investor document published in August by Reuters, Uber’s ride-share bookings were on track to grow to $10.84 billion this year and $26.12 billion next.

It’s seemingly a sensitive issue, the differences in the growth of the two Internet high-fliers. Last month, at a marketing conference in Orlando, Fla., Airbnb CMO Jonathan Mildenhall was asked what his company has learned from watching Uber expand around the world, and he seemed to disparage its tactics.

His answer: “They have their own way of seeking growth . . .I think for us, our community and the humanity of our community actually drives a lot of the things that what we do. So we approach any kind of awkward situation or any challenge with a lot of empathy and a lot of open collaboration. And so, we don’t want to kind of bulldoze our way into success. We actually want to partner our way into success.”