> at least some of this money will be used to pay off initial investors

This is almost certainly NOT happening.

No sane company sells prefs with 1x liquidation preferences to pay back investors at, relatively speaking, 0.05x. When companies want to help early investors out they facilitate a secondary transaction. These $850MM are, in all likelihood, going straight to the balance sheet.

yes, but this $30B valuation certainly helps facilitate a lot of secondary transactions.

Could you explain what 1x liquidation preferences are and why would be on .05x if they were paying out early investors?

If this round had 1x preference then if AirBNB today sold for $850M then all the money goes to the investors.

> These $850MM are, in all likelihood, going straight to the balance sheet.

That's not what Groupon did.

> at least some of this money will be used to pay off initial investors with a nice profit.

To clarify, do you mean some of the money will be used to buy back shares from early investors giving them a nice profit?

The money being invested by new investors is being exchanged for shares of the company. Rather than creating new shares, at least some of these shares are likely coming from existing investors who bought them at a lower price at an earlier time.

Why would you assume that? Typically the company would just issue a new series of preferred stock.

I'm not sure thats entirely true typically a late round of funding will be some combination of folks taking money off the table and new stock.

There's nothing very "typical" about a 850M raise at 30B. But Groupon infamously raised "Like, A Billion Dollars" of which only about 15% went into the company.

" Ponzi scheme (also a Ponzi game or aPonzi)[1] is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources." --Wikipedia

"The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants.[1] A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price.[2][3][4] In other words, one may pay a price that seems "foolishly" high because one may rationally have the expectation that the item can be resold to a "greater fool" later."

:-)

That implies that their stock price will plummet after they IPO. You'll be able to make a fortune shorting their stock.

It may drop briefly initially, but as we saw with Linked-in, Facebook, or Google, zillow, if the fundamentals are strong, prices will keep rising. No free lunch shorting these.

My point was that it would be if Airbnb's fundraising were truly a pyramid scheme, which it obviously is not.