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Evan Spiegel's Email Memo

178 points by tomashertus 12y ago

tomashertus 12y ago
What do you think about his view of the market? Anyway he kind of surprised me with his attitude towards building large company. Seems like he has vision to turn Snapchat into the platform(buzzword alert). Anyway his opinion is very mature.
- hellbanner 12y ago
  They've put in payment sending -- I think FB does this too. Also have advertised spots. They're definitely trying to expand.
- karlkatzke 12y ago
  I don't know much about anything and generally share his view of the market... That there is a correction coming, and it will hit tech.
hellbanner 12y ago
"For Snapchat to capitalize on market conditions in next 3 years, it is imperative that we become a revenue-generating company," .. no shit, sherlock.
- bedhead 12y ago
  Actually, this comment is stupid and more broadly indicative of why we have today's current tech bubble: not a second of thought about profit. Revenue is the goal, no consideration to the underlying business model. God forbid one of these companies try to make money.
  - robszumski 12y ago
    Surely some form of revenue comes before profit, right? I think he's just staying focused on one piece of the puzzle at a time.
kylelibra 12y ago
Here's his response to the leak: https://twitter.com/evanspiegel/status/545308400829997056 https://twitter.com/evanspiegel/status/545308400829997056
- minimaxir 12y ago
  The memo is ironic, due to Snapchat's infamous disregard for privacy measures. (E.g. SnapHack)
  - higherpurpose 12y ago
    And the Snappening.
    - josu 12y ago
      That wasn't Snapchat's fault, was it? AFAIK a third party was the one that messed up, or did I eat the Snapchat PR bullshit?
      - harryh 12y ago
        On one hand no, it was definitely a 3rd party that allowed sent snaps to be permanently saved. On the other hand, perhaps Snapchat is making an unreasonable promise to their users (send data to someone else that will be auto-deleted) that is fundamentally impossible to enforce. It depends on your point of view.
- ChuckMcM 12y ago
  I was wondering about that, such an exposure doesn't seem to help the guy's cause. So how did it get out? Ok closer read, because Sony Hack. Wow, that is really sad.
  - fossuser 12y ago
    Paradoxically I think it will help him. The leaks to this point have showed him as obnoxious, careless etc. This one shows him as focused, driven and smart (the details don't really matter anymore and will likely be forgotten anyway). While I think most people who have experience dealing with the media probably assumed this was the case, now most people will see it without any surrounding PR. Overall though probably won't sway things too much either way. (Not that the media is always wrong, sometimes they're probably right, i.e. clinkle)
npalli 12y ago
1. His views on the general tech market are somewhat banal (though impressive for someone who was only 23 at the time). It is your standard zerohedge analysis that fed is printing money and it is causing a tech bubble. Can anyone track and connect the dots from fed bond buying to increase in Facebook share price? I don’t think anyone knows. 2. His comments on facebook are much more fascinating though. One thing I did not understand is where all the mobile money on facebook is coming from. Looks like it is from app installs (don’t think FB breaks it out) which in turn is created by VC funding bubble. The VC's fund because they see mobile on Facebook is taking off. Close the loop, classic bubble. So the whole scheme is likely to end pretty badly for facebook (sounds plausible). PG talked about the dot com bubble and the impact of VC funded ad buying that led to increasing market cap for yahoo until it burst “By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"” http://www.paulgraham.com/yahoo.html http://www.paulgraham.com/yahoo.html Edit: I should have guessed, people are more interested in supplying ready made narratives from the past five years for point 1 (which is not that interesting) than point 2. SMH. Some cool narratives are being provided which I heard almost verbatim at various points in the past five years that “explained” how -- 1. We will have world wide inflation of epic proportions (reality: world is fighting deflation all over) 2. ECB is doing a great job compared to the fed continuing with QE2 in 2011 (reality: recession in Europe vs the US) 3. Gold will soar through the roof (reality: slump) 4. Oil prices will rise forerver (until they collapsed) 5. House prices in China will go to sky (until they stopped doing) 6. Apple was up 100% in late 2012 (until it collapsed by half six months later) Etc etc. I would have thought some humility would have set in the “FED is printing, things are inflated to sky crowd”. Nope, just doubling down. Always stay with the narrative explain something else until we get it right ☺. At least I admit I don't know how things work :-). Consider, there are $20 Trillion dollars of SWF’s in the world investing all over. What is the impact of these as opposed to QE?
- cloakandswagger 12y ago
guelo 12y ago
What is the legality of Business Insider publishing what amounts to stolen trade secrets?
- dmaz 12y ago
  Protected by the First Amendment - http://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/12/15/can-sony-sue-media-outlets-who-publish-the-stolen-sony-documents/ http://www.washingtonpost.com/news/volokh-conspiracy/wp/2014...
  - k-mcgrady 12y ago
    Is that still applicable considering Sony is a Japanese company?
    - andrewfong 12y ago
      Unless Business Insider has Japanese assets or employees that Sony could go after under Japanese law, yes.
      - k-mcgrady 12y ago
        Ok, so they could sue non-US sites reposting the hacked information I guess.
    - cylinder 12y ago
      They are not a "Japanese company." Sony is a massive corporation in the US. Any company that wants to do business in the US needs to setup US-registered entities. There is no question of jurisdiction here.
glifchits 12y ago
Though this seems obvious in retrospect, this is an interesting insight: VC dollars are being spent on user acquisition despite unknown LTV of users ... I think some of the tech "bubble" is being driven by speculation in what customer lifetime value could be. There would need to be some pretty devastating event for investors to no longer believe that having millions of users doesn't have potential for a lot of value. It would have to be a fairly counter intuitive epiphany.
- Mandatum 12y ago
  As soon as FB Messenger or WhatsApp introduce a "view once" feature to their products I'd instantly stop using Snapchat.
  - dkrich 12y ago
    I'd wager that that'd only hold if all (or a lot) of your Snapchat contacts did the same. I think people often overestimate people's unwillingness to use multiple apps while underestimating their unwillingness to switch to a different version of the same app.
  - qq66 12y ago
    Do you use Facebook Poke?
    - vxNsr 12y ago
      See that's a seperate app that exists on one platform, while FB Messenger is cross platform and already used by most people, so adding one feature (while anathema to the way companies are doing this atm, opting to make each feature an app) would instantly overtake a lot of the value of snapchat.
- applecore 12y ago
  There doesn't have to be any material change, “devastating event,” or even an underlying reason for people to change their views. Reflexivity theory contends that user acquisition costs and other prices are just as influenced by the perception of other people's thinking as anything else. Since participants in the market usually have a distorted view of reality, prices are pretty much indeterminate and unpredictable.
ricardobeat 12y ago
For some reason I found this hilarious: "Going from a college frat boy to the CEO of today's hottest new startup isn't easy."
- deleted 12y ago
  [deleted]
- rhizome 12y ago
  Because it's easier than any other way.
suyash 12y ago
Snapchat is a child of a bubble, my doubts are confirmed, it has no real revenue.
onedev 12y ago
I think that the people at Snapchat do realize how fucked they are. That's why they're making a spree of acquisitions and media deals to try to stay prepared.
- nostrademons 12y ago
  Every startup is completely fucked until they start raking in money through a sustainable business model. The ones that get there are the ones that proactively take steps to avoid being fucked.
michaelochurch 12y ago
Ugh. This is thinly-veiled native advertising for the persona of a 24-year-old executive, presumably as insurance for him against possible business issues (read: building up his personal reputation to prepare for Snapchat headwinds). Anyone who can't see that is delusional. I almost wonder if he paid to have "I'd rather not burn another $100mm of OPM [other peoples' money] before we find out whether or not we have a business" leaked so he can present himself as frugal, should the chips go down in the next year or two, and people accuse him of being the opposite. If that email is "very impressive", then I'm Jesus H. Christ. Any lepers need cured? First, he's a bad writer. He'd barely get a C in a freshman English class, and that's with grade inflation. He doesn't know where to place commas or how to use punctuation. (That doesn't make his business emails unusual for the genre, but it rules out calling him "impressive".) Second, the only thing that is impressive or unusual (for that age) about his communication style is that, yes, he has an above-average level of confidence, and most 23-year-olds from middle-class backgrounds are still scared of their bosses, not talking about a business like they run the place. But who wouldn't have that confidence, after having so much handed to him? This isn't damaging like his frat-boy communications but it's not really interesting. Sure, he knows some things about the business that he's the CEO of, but if he were 30 or 40 and wrote that email, people would be underwhelmed at his mediocrity, expecting better. This bizarre age-curving is irritating because (a) what should really matter is where people are, and where they're headed, not whether they're 24 or 67 or 38+√(-163), and (b) because so much early success in the Valley is manufactured and delivered via connections rather than merit. (Silicon Valley's ageism is an expression of its classism.) Given that a 40-year-old CEO who wrote an email like that would (and rightfully) be considered somewhat off-the-ball, we should apply the same standard to Mr. Spiegel.
- onedev 12y ago
  Michael, you should have a news segment kinda like John Oliver's. I'd watch the hell out of it. Maybe you can call it "Tales of Valleyistan".
  - michaelochurch 12y ago
    I did some open-mic stand-up (not very successfully) in my early 20s. I wasn't good back then; maybe I'd be better these days, but I have a million other things to do. The one joke of mine (I think? It may have been independently discovered, though) that has seen some dissemination is "I stopped doing that years ago" (as in, said after someone describes something really creepy, offensive, or off-the-wall). The joke may have been ruined by Evan Spiegel using it after reading a certain controversial Rolling Stone article, though.
einrealist 12y ago
I think, his summary is somewhat realistic. But that also applies to his own company. My base line: Valuation of (consumer) software products is still hard. And given the current monetary politics, it is even harder to tell what a reasonable valuation looks like. It is a gamble, as usual. But at least he has a business and is propably doing his best to keep it, along with the souls in it. Good luck.
danhak 12y ago
> [Snapchat] is valuable because it has fundamentally changed the nature of digital communication in <2 years and will continue to do so for the life of the Company (may it be long and prosperous).
mathattack 12y ago
I think it takes a lot of courage to say "No, you can value us at $800 million instead of a billion." There are reasons to do that, but it means some money is being left on the table either via dilution or lower capital raise. There's a secondary question (can someone answer?) of is it tax advantageous to do this? Does it benefit the first a lot to issue options at a cheaper price?
- titanomachy 12y ago
  That's what they were discussing in the emails regarding 409(a)... from what I understand, the taxable-benefit value of options is determined by the IRS's fair market valuation of the company. So the same options contract becomes more valuable (and more taxable) as the company becomes plausibly more valuable. Spiegel's response indicates that he's unconcerned by this, though, so maybe options aren't a huge part of their compensation package.
  - zaroth 12y ago
    IRS requires paying taxes as restricted stock vests (or up front if you so-elect) based on the fair market value of the stock. Or, if options, based on the intrinsic + time-value of the option. So maintaining a low common stock valuation becomes a crucial exercise if you want to actually be able to issue any meaningful number of shares to your employees. You can value investor preferred shares at a significant markup to your common stock by giving a non-participating liquidation preference. So you can raise $50m at $800m and not completely wreck the next round of options. It's called the "Thin Common" strategy. The idea is I sold X shares for $50mm, but since they also got a $50mm preference as part of the deal, the common share value is still no-where near $50mm / X. What Spiegel is saying, which is spot-on, is that having revenue will encourage a Section 409a valuation based on discounted cash-flow for common stock which will be minuscule compared to the investor value on preferred shares. 409a is about gaining a safe-harbor where your valuation is presumed reasonable and harder for the IRS to contest. This allows them to keep moving shares into employees hands at a reasonable rate, or if options, then issuing them without an impossibly high strike price. The problem Mitch is pointing out is the Facebook offer also plays into the 409a to some extent. If someone offers you $3 billion cash, it's hard to claim you are worth less than $3 billion. If you are issuing restricted stock, or RSUs, you have to price them at fair market value, and either the employee PAYS you that money, or the value of the shares is taxable income as they vest. If your valuation is too high, any modest stock grant (remember they are only 30 employees) requires someone to pay ~40% of that amount in cash as taxes. So it becomes quickly impossible to give a meaningful number of shares -- the tax consequence is just too immense. For example, lets say they issue 1% of their shares to their 30 employees next year. They have a 409a valuation based on $0 revenue, 13 months of runway, and a plan to hopefully possibly achieve $20mm of revenue in the next 12 months. Their accountant says that equals $200mm common stock value, so they owe taxes on $2mm of income. Not so bad. But if the IRS comes back and says, wait just a minute, those shares were worth $3 billion at the time, you owe us $15mm in taxes and another $30mm in penalties.... Anyone who STARTED at Snapchat early on would have received shares at PAR value, and if they were restricted, would have done an 83(b) election to pay tax up-front at the current value, instead of paying tax at the market value as they vested over time. If anyone at Snapchat has significant vesting shares and did NOT do the 83(b) election to pay tax at an early-days valuation, they are now totally fucked, because every month they vest more shares, they owe millions of dollars to the IRS and they have no liquidity with which to pay the tax man. The system is stupidly broken. The way I would do it is that freshly minted common stock should transfer tax-free until a subsequent transfer or sale (not including transfers through probate). Then the full value should be taxed at short or long-term capital gain. There's absolutely no reason to tax, or even attempt to value, the initial issuance of unregistered and non-transferable securities of a private company. Simply wait till they are first sold, or otherwise encumbered, and collect taxes from the market value at that time. Registered stock could remain under the current rules. In a sense, even declining an offer from Facebook cuts off new hires from obtaining reasonably priced shares, thwarting Snapchat's ability to hire and retain the best talent. It's an interesting "damned if you don't" scenario.
afar 12y ago
I thought his comments about available capital (specifically) to social communication companies was interesting. There was so much homogeneity in tech in '99/'01. So many companies doing very similar things. I guess I'm wondering: Are we (the tech market) sufficiently diversified in what our companies do? Enough to see segments of the industry pop but not the entirety?
roymurdock 12y ago
I place a lot of value on Spiegel's view of the market. As the CEO of one of the "hottest" startups in the past couple of years, I think he has access to a lot of people and information that most of us don't. I'm a believer in semi-strong market efficiency to be sure. If he is turning down valuation money, he is also explicitly acknowledging that the fundamentals of the company simply don't justify the leverage of taking on additional investments. He uses startup era Facebook to inform many of his decisions. Monetization is where Snapchat is finally breaking from Facebook's precedent, allowing the user to opt into ads disguised as high-quality content, and adding a money-sending service by partnering with square. Personally, I find this strategy a lot more effective than Facebook's attempts: jamming ads down users' throats, auto-play videos, breaking messenger off of the main Facebook app, selling robot clicks and false engagement, etc. Should be interesting to see how Spiegel is planning to ride out the readjustment that he is predicting.
- morky 12y ago
  Yeah agree with this, FB model is old school.
  - cbsmith 12y ago
    ...though paying off handsomely.
- dredmorbius 12y ago
  Yep. I also found that quite interesting. It's quite similar to my own view ... let's see, an October 12 variant: Twitter, and much of the rest of the Web 2.0 / dot com firms mostly are solving the problem of "where can we invest all of this free money the Federal Reserve is pumping out while real financial returns are so low. The fact that much of the business model supported by these ventures is effectively advertising, and that a lion's share of the advertising is itself FIRE (Finance, Insurance, Real Estate) sector -- also bolstered by easy money / liquidity / QE2, or electronics goods, dittos, makes me think that this is all one hell of a massive bubble. At some time it's going to pop, and it's going to be all kinds of ugly -- the dot-com bust will look like salad days in comparison. (Comment on the post in question) https://plus.google.com/104119855035793551431/posts/QQrWKvBxKRz https://plus.google.com/104119855035793551431/posts/QQrWKvBx... So, yes, Spiegel's comments on the Fed and money are pretty interesting. Not sure if it's confirmation bias on my part or just confirmation.
no_future 12y ago
Why is everyone(including business journalists who should know better) screaming about a "tech bubble"? There has only ever been one, and the conditions under which it happened were much different than today's, and if you actually look at the hard numbers right now a bubble seems laughable. People who actually know what they're talking about(investors like Mark Cuban) have said there definitely isn't a bubble.

178 points by tomashertus 12y ago

What do you think about his view of the market? Anyway he kind of surprised me with his attitude towards building large company. Seems like he has vision to turn Snapchat into the platform(buzzword alert). Anyway his opinion is very mature.

hellbanner 12y ago
They've put in payment sending -- I think FB does this too. Also have advertised spots. They're definitely trying to expand.
karlkatzke 12y ago
I don't know much about anything and generally share his view of the market... That there is a correction coming, and it will hit tech.

hellbanner 12y ago

"For Snapchat to capitalize on market conditions in next 3 years, it is imperative that we become a revenue-generating company," .. no shit, sherlock.

bedhead 12y ago
Actually, this comment is stupid and more broadly indicative of why we have today's current tech bubble: not a second of thought about profit. Revenue is the goal, no consideration to the underlying business model. God forbid one of these companies try to make money.
- robszumski 12y ago
  Surely some form of revenue comes before profit, right? I think he's just staying focused on one piece of the puzzle at a time.

kylelibra 12y ago

Here's his response to the leak: https://twitter.com/evanspiegel/status/545308400829997056 https://twitter.com/evanspiegel/status/545308400829997056

minimaxir 12y ago
The memo is ironic, due to Snapchat's infamous disregard for privacy measures. (E.g. SnapHack)
- higherpurpose 12y ago
  And the Snappening.
  - josu 12y ago
    That wasn't Snapchat's fault, was it? AFAIK a third party was the one that messed up, or did I eat the Snapchat PR bullshit?
    - harryh 12y ago
      On one hand no, it was definitely a 3rd party that allowed sent snaps to be permanently saved. On the other hand, perhaps Snapchat is making an unreasonable promise to their users (send data to someone else that will be auto-deleted) that is fundamentally impossible to enforce. It depends on your point of view.
ChuckMcM 12y ago
I was wondering about that, such an exposure doesn't seem to help the guy's cause. So how did it get out? Ok closer read, because Sony Hack. Wow, that is really sad.
- fossuser 12y ago
  Paradoxically I think it will help him. The leaks to this point have showed him as obnoxious, careless etc. This one shows him as focused, driven and smart (the details don't really matter anymore and will likely be forgotten anyway). While I think most people who have experience dealing with the media probably assumed this was the case, now most people will see it without any surrounding PR. Overall though probably won't sway things too much either way. (Not that the media is always wrong, sometimes they're probably right, i.e. clinkle)

npalli 12y ago

1. His views on the general tech market are somewhat banal (though impressive for someone who was only 23 at the time). It is your standard zerohedge analysis that fed is printing money and it is causing a tech bubble. Can anyone track and connect the dots from fed bond buying to increase in Facebook share price? I don’t think anyone knows. 2. His comments on facebook are much more fascinating though. One thing I did not understand is where all the mobile money on facebook is coming from. Looks like it is from app installs (don’t think FB breaks it out) which in turn is created by VC funding bubble. The VC's fund because they see mobile on Facebook is taking off. Close the loop, classic bubble. So the whole scheme is likely to end pretty badly for facebook (sounds plausible). PG talked about the dot com bubble and the impact of VC funded ad buying that led to increasing market cap for yahoo until it burst “By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"” http://www.paulgraham.com/yahoo.html http://www.paulgraham.com/yahoo.html Edit: I should have guessed, people are more interested in supplying ready made narratives from the past five years for point 1 (which is not that interesting) than point 2. SMH. Some cool narratives are being provided which I heard almost verbatim at various points in the past five years that “explained” how -- 1. We will have world wide inflation of epic proportions (reality: world is fighting deflation all over) 2. ECB is doing a great job compared to the fed continuing with QE2 in 2011 (reality: recession in Europe vs the US) 3. Gold will soar through the roof (reality: slump) 4. Oil prices will rise forerver (until they collapsed) 5. House prices in China will go to sky (until they stopped doing) 6. Apple was up 100% in late 2012 (until it collapsed by half six months later) Etc etc. I would have thought some humility would have set in the “FED is printing, things are inflated to sky crowd”. Nope, just doubling down. Always stay with the narrative explain something else until we get it right ☺. At least I admit I don't know how things work :-). Consider, there are $20 Trillion dollars of SWF’s in the world investing all over. What is the impact of these as opposed to QE?

cloakandswagger 12y ago

guelo 12y ago

What is the legality of Business Insider publishing what amounts to stolen trade secrets?

dmaz 12y ago
Protected by the First Amendment - http://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/12/15/can-sony-sue-media-outlets-who-publish-the-stolen-sony-documents/ http://www.washingtonpost.com/news/volokh-conspiracy/wp/2014...
- k-mcgrady 12y ago
  Is that still applicable considering Sony is a Japanese company?
  - andrewfong 12y ago
    Unless Business Insider has Japanese assets or employees that Sony could go after under Japanese law, yes.
    - k-mcgrady 12y ago
      Ok, so they could sue non-US sites reposting the hacked information I guess.
  - cylinder 12y ago
    They are not a "Japanese company." Sony is a massive corporation in the US. Any company that wants to do business in the US needs to setup US-registered entities. There is no question of jurisdiction here.

glifchits 12y ago

Though this seems obvious in retrospect, this is an interesting insight: VC dollars are being spent on user acquisition despite unknown LTV of users ... I think some of the tech "bubble" is being driven by speculation in what customer lifetime value could be. There would need to be some pretty devastating event for investors to no longer believe that having millions of users doesn't have potential for a lot of value. It would have to be a fairly counter intuitive epiphany.

Mandatum 12y ago
As soon as FB Messenger or WhatsApp introduce a "view once" feature to their products I'd instantly stop using Snapchat.
- dkrich 12y ago
  I'd wager that that'd only hold if all (or a lot) of your Snapchat contacts did the same. I think people often overestimate people's unwillingness to use multiple apps while underestimating their unwillingness to switch to a different version of the same app.
- qq66 12y ago
  Do you use Facebook Poke?
  - vxNsr 12y ago
    See that's a seperate app that exists on one platform, while FB Messenger is cross platform and already used by most people, so adding one feature (while anathema to the way companies are doing this atm, opting to make each feature an app) would instantly overtake a lot of the value of snapchat.
applecore 12y ago
There doesn't have to be any material change, “devastating event,” or even an underlying reason for people to change their views. Reflexivity theory contends that user acquisition costs and other prices are just as influenced by the perception of other people's thinking as anything else. Since participants in the market usually have a distorted view of reality, prices are pretty much indeterminate and unpredictable.

ricardobeat 12y ago

For some reason I found this hilarious: "Going from a college frat boy to the CEO of today's hottest new startup isn't easy."

deleted 12y ago
[deleted]
rhizome 12y ago
Because it's easier than any other way.

suyash 12y ago

Snapchat is a child of a bubble, my doubts are confirmed, it has no real revenue.

onedev 12y ago

I think that the people at Snapchat do realize how fucked they are. That's why they're making a spree of acquisitions and media deals to try to stay prepared.

nostrademons 12y ago
Every startup is completely fucked until they start raking in money through a sustainable business model. The ones that get there are the ones that proactively take steps to avoid being fucked.

michaelochurch 12y ago

Ugh. This is thinly-veiled native advertising for the persona of a 24-year-old executive, presumably as insurance for him against possible business issues (read: building up his personal reputation to prepare for Snapchat headwinds). Anyone who can't see that is delusional. I almost wonder if he paid to have "I'd rather not burn another $100mm of OPM [other peoples' money] before we find out whether or not we have a business" leaked so he can present himself as frugal, should the chips go down in the next year or two, and people accuse him of being the opposite. If that email is "very impressive", then I'm Jesus H. Christ. Any lepers need cured? First, he's a bad writer. He'd barely get a C in a freshman English class, and that's with grade inflation. He doesn't know where to place commas or how to use punctuation. (That doesn't make his business emails unusual for the genre, but it rules out calling him "impressive".) Second, the only thing that is impressive or unusual (for that age) about his communication style is that, yes, he has an above-average level of confidence, and most 23-year-olds from middle-class backgrounds are still scared of their bosses, not talking about a business like they run the place. But who wouldn't have that confidence, after having so much handed to him? This isn't damaging like his frat-boy communications but it's not really interesting. Sure, he knows some things about the business that he's the CEO of, but if he were 30 or 40 and wrote that email, people would be underwhelmed at his mediocrity, expecting better. This bizarre age-curving is irritating because (a) what should really matter is where people are, and where they're headed, not whether they're 24 or 67 or 38+√(-163), and (b) because so much early success in the Valley is manufactured and delivered via connections rather than merit. (Silicon Valley's ageism is an expression of its classism.) Given that a 40-year-old CEO who wrote an email like that would (and rightfully) be considered somewhat off-the-ball, we should apply the same standard to Mr. Spiegel.

onedev 12y ago
Michael, you should have a news segment kinda like John Oliver's. I'd watch the hell out of it. Maybe you can call it "Tales of Valleyistan".
- michaelochurch 12y ago
  I did some open-mic stand-up (not very successfully) in my early 20s. I wasn't good back then; maybe I'd be better these days, but I have a million other things to do. The one joke of mine (I think? It may have been independently discovered, though) that has seen some dissemination is "I stopped doing that years ago" (as in, said after someone describes something really creepy, offensive, or off-the-wall). The joke may have been ruined by Evan Spiegel using it after reading a certain controversial Rolling Stone article, though.

einrealist 12y ago

I think, his summary is somewhat realistic. But that also applies to his own company. My base line: Valuation of (consumer) software products is still hard. And given the current monetary politics, it is even harder to tell what a reasonable valuation looks like. It is a gamble, as usual. But at least he has a business and is propably doing his best to keep it, along with the souls in it. Good luck.

danhak 12y ago

> [Snapchat] is valuable because it has fundamentally changed the nature of digital communication in <2 years and will continue to do so for the life of the Company (may it be long and prosperous).

mathattack 12y ago

I think it takes a lot of courage to say "No, you can value us at $800 million instead of a billion." There are reasons to do that, but it means some money is being left on the table either via dilution or lower capital raise. There's a secondary question (can someone answer?) of is it tax advantageous to do this? Does it benefit the first a lot to issue options at a cheaper price?

titanomachy 12y ago
That's what they were discussing in the emails regarding 409(a)... from what I understand, the taxable-benefit value of options is determined by the IRS's fair market valuation of the company. So the same options contract becomes more valuable (and more taxable) as the company becomes plausibly more valuable. Spiegel's response indicates that he's unconcerned by this, though, so maybe options aren't a huge part of their compensation package.
- zaroth 12y ago
  IRS requires paying taxes as restricted stock vests (or up front if you so-elect) based on the fair market value of the stock. Or, if options, based on the intrinsic + time-value of the option. So maintaining a low common stock valuation becomes a crucial exercise if you want to actually be able to issue any meaningful number of shares to your employees. You can value investor preferred shares at a significant markup to your common stock by giving a non-participating liquidation preference. So you can raise $50m at $800m and not completely wreck the next round of options. It's called the "Thin Common" strategy. The idea is I sold X shares for $50mm, but since they also got a $50mm preference as part of the deal, the common share value is still no-where near $50mm / X. What Spiegel is saying, which is spot-on, is that having revenue will encourage a Section 409a valuation based on discounted cash-flow for common stock which will be minuscule compared to the investor value on preferred shares. 409a is about gaining a safe-harbor where your valuation is presumed reasonable and harder for the IRS to contest. This allows them to keep moving shares into employees hands at a reasonable rate, or if options, then issuing them without an impossibly high strike price. The problem Mitch is pointing out is the Facebook offer also plays into the 409a to some extent. If someone offers you $3 billion cash, it's hard to claim you are worth less than $3 billion. If you are issuing restricted stock, or RSUs, you have to price them at fair market value, and either the employee PAYS you that money, or the value of the shares is taxable income as they vest. If your valuation is too high, any modest stock grant (remember they are only 30 employees) requires someone to pay ~40% of that amount in cash as taxes. So it becomes quickly impossible to give a meaningful number of shares -- the tax consequence is just too immense. For example, lets say they issue 1% of their shares to their 30 employees next year. They have a 409a valuation based on $0 revenue, 13 months of runway, and a plan to hopefully possibly achieve $20mm of revenue in the next 12 months. Their accountant says that equals $200mm common stock value, so they owe taxes on $2mm of income. Not so bad. But if the IRS comes back and says, wait just a minute, those shares were worth $3 billion at the time, you owe us $15mm in taxes and another $30mm in penalties.... Anyone who STARTED at Snapchat early on would have received shares at PAR value, and if they were restricted, would have done an 83(b) election to pay tax up-front at the current value, instead of paying tax at the market value as they vested over time. If anyone at Snapchat has significant vesting shares and did NOT do the 83(b) election to pay tax at an early-days valuation, they are now totally fucked, because every month they vest more shares, they owe millions of dollars to the IRS and they have no liquidity with which to pay the tax man. The system is stupidly broken. The way I would do it is that freshly minted common stock should transfer tax-free until a subsequent transfer or sale (not including transfers through probate). Then the full value should be taxed at short or long-term capital gain. There's absolutely no reason to tax, or even attempt to value, the initial issuance of unregistered and non-transferable securities of a private company. Simply wait till they are first sold, or otherwise encumbered, and collect taxes from the market value at that time. Registered stock could remain under the current rules. In a sense, even declining an offer from Facebook cuts off new hires from obtaining reasonably priced shares, thwarting Snapchat's ability to hire and retain the best talent. It's an interesting "damned if you don't" scenario.

afar 12y ago

I thought his comments about available capital (specifically) to social communication companies was interesting. There was so much homogeneity in tech in '99/'01. So many companies doing very similar things. I guess I'm wondering: Are we (the tech market) sufficiently diversified in what our companies do? Enough to see segments of the industry pop but not the entirety?

roymurdock 12y ago

I place a lot of value on Spiegel's view of the market. As the CEO of one of the "hottest" startups in the past couple of years, I think he has access to a lot of people and information that most of us don't. I'm a believer in semi-strong market efficiency to be sure. If he is turning down valuation money, he is also explicitly acknowledging that the fundamentals of the company simply don't justify the leverage of taking on additional investments. He uses startup era Facebook to inform many of his decisions. Monetization is where Snapchat is finally breaking from Facebook's precedent, allowing the user to opt into ads disguised as high-quality content, and adding a money-sending service by partnering with square. Personally, I find this strategy a lot more effective than Facebook's attempts: jamming ads down users' throats, auto-play videos, breaking messenger off of the main Facebook app, selling robot clicks and false engagement, etc. Should be interesting to see how Spiegel is planning to ride out the readjustment that he is predicting.

morky 12y ago
Yeah agree with this, FB model is old school.
- cbsmith 12y ago
  ...though paying off handsomely.
dredmorbius 12y ago
Yep. I also found that quite interesting. It's quite similar to my own view ... let's see, an October 12 variant: Twitter, and much of the rest of the Web 2.0 / dot com firms mostly are solving the problem of "where can we invest all of this free money the Federal Reserve is pumping out while real financial returns are so low. The fact that much of the business model supported by these ventures is effectively advertising, and that a lion's share of the advertising is itself FIRE (Finance, Insurance, Real Estate) sector -- also bolstered by easy money / liquidity / QE2, or electronics goods, dittos, makes me think that this is all one hell of a massive bubble. At some time it's going to pop, and it's going to be all kinds of ugly -- the dot-com bust will look like salad days in comparison. (Comment on the post in question) https://plus.google.com/104119855035793551431/posts/QQrWKvBxKRz https://plus.google.com/104119855035793551431/posts/QQrWKvBx... So, yes, Spiegel's comments on the Fed and money are pretty interesting. Not sure if it's confirmation bias on my part or just confirmation.

no_future 12y ago

Why is everyone(including business journalists who should know better) screaming about a "tech bubble"? There has only ever been one, and the conditions under which it happened were much different than today's, and if you actually look at the hard numbers right now a bubble seems laughable. People who actually know what they're talking about(investors like Mark Cuban) have said there definitely isn't a bubble.