Shortly after moving to San Francisco in October 2007, roommates and former schoolmates Brian Chesky and Joe Gebbia could not afford the rent for their loft apartment. Chesky and Gebbia came up with the idea of putting an air mattress in their living room and turning it into a bed and breakfast. The goal at first was just "to make a few bucks". In February 2008, Nathan Blecharczyk, Chesky's former roommate, joined as the Chief Technology Officer and the third co-founder of the new venture, which they named AirBed & Breakfast. They put together a website which offered short-term living quarters, breakfast, and a unique business networking opportunity for those who were unable to book a hotel in the saturated market. The site Airbedandbreakfast.com officially launched on August 11, 2008. The founders had their first customers in town in the summer of 2008, during the Industrial Design Conference held by Industrial Designers Society of America, where travelers had a hard time finding lodging in the city.
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To help fund the site, the founders created special edition breakfast cereals, with presidential candidates Barack Obama and John McCain as the inspiration for "Obama O's" and "Cap'n McCains". In two months, 800 boxes of cereal were sold at $40 each, which generated more than $30,000 for the company's incubation. It also got the company noticed by computer programmer Paul Graham, who invited the founders to the January 2009 winter training session of his startup incubator, Y Combinator, which provided them with training and $20,000 in funding in exchange for a small interest in the company. With the website already built, they used the $20,000 Y-Combinator investment to fly to New York City to meet users and promote the site. They returned to San Francisco with a profitable business model to present to West Coast investors. By March 2009, the site had 10,000 users and 2,500 listings.