Airbnb, which operates a popular online rental platform, reportedly is close to snagging a massive round of capital, led by TPG Capital. According to the Wall Street Journal, the amount is likely to be between $400 million and $500 million at a valuation of more than $10 billion.
Surges in social stocks such as Facebook (FB), LinkedIn (LNKD), Twitter (TWTR) and Pandora (P) has startups capitalizing on the frothy markets for financing. The most recent case in point: Tango just announced a $280 million round of funding, with much of the money coming from Chinese e-commerce site Alibaba.
As for Airbnb, its meteoric rise was far from guaranteed. When the company got its start back in 2007, it was focused on providing short-term stays for people who couldn’t find hotel rooms around big conferences. Often it meant sleeping on a couch or an air mattress, but … well, it was something.
How humble were its beginnings? To raise capital for Airbnb, the founders actually sold breakfast cereal boxes for the 2008 election, such as “Obama O’s” and Cap’n McCains.” All in all, they brought in over $30,000 — just enough to keep the lights on.
But by early 2009, fortunes began to change at Airbnb. It was no longer about just sharing air mattresses — people were able to rent out homes or apartments for a fee, and business boomed.
Given the nature of the business, Airbnb has had to endure its share of controversy. For example, there have been numerous instances of renters trashing apartments and homes. One of the latest incidents included a raucus sex party that caused $86,000 in damages! But to its credit, Airbnb was quick to react on this front, offering compensation and alternative accommodations.
Perhaps the biggest issue facing Airbnb is regulation; in some cities, including New York, there are concerns that Airbnb is siphoning off lucrative taxes from hotels.
And it’s likely no small amount, considering Airbnb has taken a nice little slice of the hotel market. As of late last year, Airbnb featured more than 550,000 listings for properties, and the company facilitated about 5 million stays.
Looking forward, Airbnb is looking to provide additional services; cleaning services are one of the company’s most recent initiatives.
Considering Airbnb’s momentum, I wouldn’t rule out the possibility of an IPO — and maybe even soon. Online marketplaces often have excellent margins, as seen with companies such as eBay (EBAY). And given the appetite for tech IPOs in 2014, the timing couldn’t be any better.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.