Alfred Lin: why it's different to invest in Airbnb vs Uber

Lin calls Sequoia passing on Uber investment, 'A big failure on our part'

On Tuesday we hosted our second annual Post Seed (#postseedconf) event, co-hosted by Bullpen Capital and Venture51.

One of the keynote speakers who were proud to welcome is Alfred Lin, Partner at Sequoia Capital. He was interviewed by Vator's founder and CEO Bambi Francisco.

Some of Lin's most notable investments have been in the sharing economy. Lin was at Sequoia before Airbnb raised its Series A round of $7.2 million and he has now been involved with three investments in the company: its $200 million Series C, its $475 million Series D and it's $1.5 billion private equity round. Lin currently sits on the board of directors of Airbnb.

Lin invested in Uber for $30,000 during its seed round, and then $80,000 during Uber's Series A round, though he invested as an angel, not via Sequoia. In fact, Sequoia turned down the company for its Series A round.

"That was a big failure on our part," Lin admitted.

"I think sometimes we were too smart for our own good, and that's an example of being too smart for our own good. We looked at the market; first of all, we looked at the service and we loved it. So it was a product and service that we loved. Wen looked at the entrepreneur and he was obviously relentless. What we got stuck on was the market, and the original pitch during the Series A was that it was going to be a  black car service. We did not dream with what Travis and the founders on what this could be. And I think if we had dreamed with him that this could transform transportation I think it would have been easier than if we were thinking about it as a black car service," he said.

Lin would not say if it was Kalanick who was talking about it as a black car service, or if he was trying to express that broader vision at the time.

"It was five years ago and both sides rewrite history, to some degree. We left thinking that it was going to be a black car service, and that it was going to be very hard to get into taxi. He probably said he was going into black car because it was unregulated, and taxis are regulated. He didn't have a solution, but he certainly was thinking broader."

Francisco asked Lin to respond to what Peter Thiel has said about Uber. Thiel, who is an investor in Lyft, told CNBC in September of last year that Uber is overvalued, while Airbnb, another company that Thiel has invested in, is undervalued, but only because the latter does not conform to the habits of people in Silicon Valley.

"What is the opportunity? It's $40 billion, why shouldn't it be $100 billion?" she asked.

"I have a lot of respect for Peter Thiel. He views it as a commodity service, that doesn't really have a powerful network effect, it's a street fight for every single city that they go into. If take that point of view, then maybe it is a commodity. But if you take the point of view that their traction has shown they have some secret formula that has made them able to go into markets where others have been dominant and execute," said Lin.

"Then you start thinking, 'Maybe they won't have a global brand, a global network,' which then allows you to think about other thing that can happen. This could transform transportation, it could transform logistics. That's the dream scenario. I don't know where the end game will come out. I certainly hope they're successful."

There are a lot of companies that you could write off as commodity companies, but they have figured out the playbook that no one else has, he noted.

"E-commerce is one of those areas. Amazon is worth multiple hundreds of billions now, and you could have said its a  book business, or its in a competitive market, or it's a low commodity value, moving products from point A to point B, taking orders on its website, and getting suppliers to sign up. It's not a zero to one company, as Peter Thiel thought. So does that make it not a good investment? If it turns out to be so competitive that you can't establish marketshare, then maybe it's not a good investment. Amazon certainly figured out leadership, Uber seems to be figuring out leadership, at least in the United States. The jury is still out on if they can be global, so I guess we'll see."

Later, Lin was asked the difference between Airbnb and Uber. Namely, why Sequoia invested in one and not the other.

"I wasn't at the firm when they invested in Airbnb, I came on a little later. But if you asked the partnership they would have said that came with a much more prepared line, because they were looking at the vacation rental market for a lot longer, and were seeing how that would work," he said.

"Airbnb also has this interestng sort of phenominon that most people don't talk about. It's one the rare global network effect companies. And so that something we had to wrap our minds around. It's a propiratary thing, and one of things we always look for in companies we invest in some sort of propartary advantage to win. Either technology advantages, it could be network effects, it could be a distruptive business model. And to bring the technology to bear on a service like a bed and breakfast, which lots more people, I think, would use, is very interesting."

So then why, Francisco asked, is Airbnb valued at $25 billion and Uber valued at $40 billion?

"I don't know if it's as easy to explain valuations rationally, but Airbnb will continue to grow at this pace. It's a little harder for Airbnb to buy supply. They can't buy supply. When you rent out your room, it's a lot harder than to get people to do that than to drive cars. So the growth rates are very healthy."