So here's the story of how we missed Airbnb, one of the best startups to come our way in the past few years.

The Airbnb founders came out of the winter 2009 Y Combinator class. They came to see us during their time at YC. They told us about a great stunt they pulled at the Democratic Convention in Denver (in which Obama was nominated). They bought a bulk supply of generic cheerios and made up these cereal boxes to generate seed capital for their startup. Here's how one of the founders Joe Gebbia describes it:

We made 500 of each (Obama O's and Cap'n McCains). They were a numbered edition on the top of each box, and sold for $40 each. The Obama O's sold out, netting the funds we needed to keep Airbnb alive. The Cap'n McCains... they didn't sell quite as well, and we ended up eating them to save money on food.

I asked them if they'd leave a box of the cereal for us and it has been sitting in our conference room ever since. Whenever someone tells me that they can't figure out how to raise the first $25,000 they need to get their company started I stand up, walk over to the cereal box, and tell this story. It is a story of pure unadulterated hustle. And I love it.

At that time, Airbnb was a marketplace for air mattresses on the floors of people's apartments. Thus the name. They had ideas for taking on other listings but they had not yet made much progress on them.

We couldn't wrap our heads around air mattresses on the living room floors as the next hotel room and did not chase the deal. Others saw the amazing team that we saw, funded them, and the rest is history. Airbnb is well on its way to building the "eBay of spaces." I'm pretty sure it will be a billion dollar business in time.

We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do. I am proud that our portfolio is full of companies where we saw the vision before other investors did and backed a great team. But we don't always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.

Airbnb - AVC