Kara Swisher has uncovered some startling terms in the latest AirBnB deal—a $112 million financing for one of the hottest companies around at a $1.2 billion valuation.AirBnB will use $22.5 million of the money raised to pay the company’s common-stock owners—primarily the founders—a humongous dividend.
Another $10 million of the deal will be used to buy stock from current holders, including, presumably, the founders.
So out of the $112 million raised, about $102 million will go to the company—and $22.5 million of this will immediately be paid out as a common dividend. $21 million of this dividend will go straight into the pockets of the founders.
Now, there’s nothing underhanded about this: AirBnb is a hot, successful company, the founders are smart to take something off the table, and the investors who are permitting this cash-out are adults who can make their own decisions.
But it’s still unusual and startling. And it shows how the world of technology finance is changing.
The normal way founders take some cash out prior to a full liquidity event is to sell some of their stock to new investors. By doing so, they get modestly diluted, in that they own less of the company than they did before they sold (and, therefore, have less voting control).
In this case, however, the founders are mostly not selling stock. They’re keeping their stock and paying themselves a cash dividend. This means that they keep their ownership stake and voting control. It also means that cash that would otherwise belong to the company—and all of the company’s shareholders—is being paid out to a select group.
There’s another company where a humongous amount of cash was recently paid out to early shareholders: Groupon. As a result of this payout, Groupon is running low on cash. AirBnB is not paying out anywhere near as much cash as Groupon did (not even in the same league—Groupon’s payout was close to $1 billion), but it’s still surprising to see the company pay out a dividend at all.
The dividend also disadvantages some other folks with a stake in AirBnB: Employees who have not yet exercised their stock options. To receive a common-stock dividend, you have to own common stock—owning an option to buy the common stock doesn’t count. So while AirBnB’s founders collect $21 million of dividends on the shares they own, AirBnB’s employees will likely have to sit and watch. Because to collect the dividends themselves, they would have to exercise their vested options and buy the stock. (It’s possible that AirBnB is allowing them to do this—we’ll update if we hear more).
In a tender offer, on the other hand, employees with vested stock options could just exercise the options and sell the stock in a simultaneous transaction. They would not have to come up with the cash to buy the stock and then hold the shares after receiving their dividend.
Kara Swisher’s information comes from an email a potential AirBnB investor, Chamath Palihapitiya, send to AirBnB’s CEO Brian Chesky. In the email, Chamath explained why he was passing on the round.