April 8, 2020

Breakingviews: Silver Lake bets virus won’t overstay

by Breakingviews.

Silver Lake is betting the coronavirus won’t overstay. The private equity firm is part of a group investing $1 billion in home-share app Airbnb. It also aims to raise $16 billion of fresh cash for its newest technology investment fund. One big question is how Covid-19 will change behavior, including in travel.

It’s an opportune time to put money in Airbnb if you believe in its future. Boss Brian Chesky has been planning to go public this year but is focusing on raising cash amid the hospitality industry collapse. The company said on Monday that Silver Lake and Sixth Street Partners would invest through a combination of debt and equity. That’s after lowering its internal valuation by 16% to $26 billion in early March, Reuters reported.

Silver Lake is on the hunt for other down rounds. It plans to start raising money for its sixth flagship buyout fund this quarter, according to Reuters, with stay-at-home orders in place in most U.S. states. Startups, like other small businesses, have been hit hard. Layoffs have occurred at scooter-sharing firm Bird, jobs marketplace ZipRecruiter and corporate travel company TripActions, to name just a few.

Some tech investments during the last financial crisis paid off. Ride-sharing app Uber Technologies, work-messaging firm Slack Technologies and mobile-payments company Square are among the companies that got their start in 2009. Uber was valued around $5 million in its seed round; it had a price tag of about $82 billion at its initial public offering last year. Its market capitalization has fallen to $45 billion, most recently dinged by the virus-related slump.

But the 2008 financial crisis didn’t fundamentally alter society. The pandemic is another story. Once cases subside, it’s unclear how much – and in what surroundings – people will want to travel, dine out and go shopping. Airbnb said one of its plans is to focus on long-term stays, such as student housing.

Silver Lake is a savvy tech investor. It led a group that made more than three times its $1.9 billion investment in online chat and phone service Skype when it sold to Microsoft for $8.5 billion in 2011. Alibaba and self-driving unit Waymo, which is part of Alphabet, are also in its portfolio. But picking winners now requires at least some luck predicting the post-viral future.

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