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Snapchat has raised $485M more from 23 investors

74 points by drum 12y ago

elberto34 12y ago
This talk of bubbles reminds me of 2007 when everyone, including all the experts, was certain Facebook was a bubble at a valuation of $15 billion after Microsoft invested; now it's worth $200+ billion. Then in 2012 after Facebook's hugely publicized botched IPO and Nasdaq error, all the experts again said the web 2.0 bubble had burst; the stock price and earnings have since doubled. Unlike the big blowups of Friendster, Myspace, Digg, etc..these post-2008 web 2.0 valuations have proven to be extremely sticky. Pinterest, Twitter, Dropbox, Air B&B, Tinder, Snapchat, Whatsapp, Uber, Instagram...all keep going up with no end in sight, year after year until either IPO (which finally creates volatility) or buyout. There's hardly any big failures or blowups, except perhaps Zynga and Groupon (although it's still worth $5 billion). My prediction is these web 2.0 valuations will keep rising for many years to come because that is the path of least resistance, and the investor demand and user growth for these companies is seemingly unquenchable. The unending web 2.0 boom and unending wrong predictions about its demise show how these 'obvious' parallels to the old tech bubble of 1995-2000 are just so wrong. There's more at play here, such as the investor flight to quality (more money chasing fewer companies), huge user growth, huge monetization potential from smartphone engagement, the very large millennial population that use these services, and ability of these web 2.0 companies to carve out niche dominance and then keep it. Within the next year or two, we're probably going to see Uber being worth $100 billion before IPO, Snaphat $50 billion, Tinder $10 billion, Air B&B $50 billion, etc. Take every valuation and quadruple it. Back in the 90's, $100 million was a big deal; now that's just a rounding error or the equity of just a single early employee. Insane, but very prosperous times we're living in. And it's got a long way to go.
- Klinky 12y ago
  There were plenty of cheerleaders back in the late 90s too, saying it's just the beginning. Most of the social companies have yet to really show they can be profitable other than being bought out. Valuations are often grossly overinflated. AirBnB and Uber are both skirting regulations and pushing risks onto their userbase. Regulations or a few continued instances of bad PR could pop their valuation bubble in an instant. Compare companies overinflated valuations with how much they are actually being sold for or how much they're getting through IPOs.
  - flyinglizard 12y ago
    I feel like Airbnb and Uber are both large and popular enough, at this point, to push regulation in the direction they see fit. Anyone standing in their path will be labeled protector of the old monopolies and anti-consumer.
    - desdiv 12y ago
      Regulation change doesn't benefit only Uber though. It benefits all current riding sharing companies, as well as any future ones that might join the fray. In that sense, regulation change doesn't increase Uber's intrinsic value at all. If Google, for example, joins the ride sharing game then Uber will be in serious trouble.
      - chambo622 12y ago
        Google Ventures is a major investor in Uber - does Google often invest in companies that they go on to compete with?
        blister 12y ago
        If they can build an entire fleet of automated cars? Abso-freaking-lutely. How much would you be willing to pay annually to not have to own a car but have one available at your fingertips at any time? My car payment + insurance comes to be about $7000/year. Throw in gas prices and we're probably at around $10,000 per year for my vehicle. Factor in my girlfriend and our household is at around $20k. If Google can charge me $10k-$15k annually to not own a car but be able to have it available all the time? What's $10k * 137,000,000? [1] At those levels, the failed Uber experiment can be a whimsical write-off. Or perhaps it's a strategic venture to handle some of these pesky regulations we're always talking about Uber fighting. I don't want to own a car. I just want to have the freedom to be mobile at a moments notice. [1]: http://cars.lovetoknow.com/Car_Ownership_Statistics http://cars.lovetoknow.com/Car_Ownership_Statistics
    - danieltillett 12y ago
      The problem is the underlying market for Uber (taxi and hire cars) can't generate enough profit to support their current valuation. When you add in that Uber and similar companies are destroying the monopoly rents that the industry was enjoying then the problem is even worse.
- _almosnow 12y ago
  I agree with you but I think Uber will devaluate to some extent and I don't see Tinder surviving...
- aswanson 12y ago
  The mainstream narrative, by definition, is always wrong with respect to investing, whether it be skills, tech bubbles, etc. The best thing to be is against consensus and correct, as fb was back in '06 when it was clear to everyone from middle schoolers to rupert murdoch that myspace was the ultimate in social networking. So, what say you about the future?
- cantfindmylogin 12y ago
  I believe what you're saying is "this time is different." No, it isn't.[1] In the ascent phase of the bubble, everyone but uber-bulls is proven wrong. But what matters is whether what is happening today in terms of valuations and capital raising/spending is sustainable. I believe it isn't. AirBnB or Uber or what have you may be a great business, but a great business can be a lousy investment at the wrong price. So you may continue be right, in the sense that share prices may keep going up, but that doesn't mean investors participating at these levels--or at the quadruple levels you forecast that may indeed come to pass--are being rational. What's happening now doesn't have to be exactly like it was in 1999, just like what happened in 1999 wasn't exactly like the Nifty Fifty stock bubble of the late 1960s. PS I had a front-row seat in 1999, as I worked for a well-known VC firm on Sand Hill (still there, still well-known). [1] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371
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- danieltillett 12y ago
  The current boom is the classic case of the market can stay irrational longer than you can stay solvent. While I agree that the valuations are detached from reality, there is no way I would attempt to try and short any of these "new darlings".
- tim333 12y ago
  >after Facebook's hugely publicized botched IPO and Nasdaq error, all the experts again said the web 2.0 bubble had burst I'd dispute Facebook's IPO was botched if you are treating it as a real business rather than a bubble stock. With a real business you may as well sell stock for what buyers will pay and if the price subsequently fluctuates then that's what stock prices do. The idea that flotations must be underpriced so you can give the impression of price growth and get more investors later is more of a Ponzi scheme way of doing things.
  - pbh101 12y ago
    While I can't speak to the intent of the grandparent, independent of pricing strategies, Facebook's IPO was botched at the execution level: NASDAQ fell over under the load and transactions were a big mess [1]. [1] http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-friendly-with-nasdaq/ http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-... EDIT: upon re-reading, sounds like this is exactly what the GP was referring to.
- chrdlu 12y ago
  I completely agree with the more money chasing fewer companies idea. I think this interview with Marc Andreessen explains why there is more money for fewer companies: http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-andreessen-explains-why http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a... The average investor loses in this scenario. Back in the day, retail investors could invest in the growth of companies. These days, the companies don't IPO until they've already grown to be very large. Definitely doesn't help the wealth gap
  - mattbarrie 12y ago
    I wrote a response to that https://www.linkedin.com/pulse/20140801044817-921366-marc-andreessen-is-wrong-the-ipo-isn-t-dying https://www.linkedin.com/pulse/20140801044817-921366-marc-an...
mehwoot 12y ago
Snapchat originally set out to raise $40 million, but demand for the round skyrocketed, and it decided to shoot for an ambitious $900 million instead. When that didn’t work out, it dialled it back to $500 million. Mind boggling.
- schuman 12y ago
  yeah, we're looking to buy 400 man-years of labor. or 9,000. but we'll settle for 5,000.
- sadgit 12y ago
  On what does a software company spend half a billion dollars?
  - mc808 12y ago
    Other software companies. Lawyers.
  - SapphireSun 12y ago
    Marketing, enterprise sales? Also, snapcash.
  - krschultz 12y ago
    Marketing.
    - robbiemitchell 12y ago
      You don't spend heavy marketing dollars on a free app. (Not in the way most people would define "marketing", anyway.)
  - rev_bird 12y ago
    This is what I was thinking. And they wanted even more than that! I can't fathom what $900 million would buy, but it seems like at a certain point, it'd be in their interests to stop giving away equity, no? $900 million is a big chunk of a company pretty much regardless of valuation.
moab 12y ago
I'm incredibly curious about how they're planning on monetizing, considering that that recent stab at pushing micropayments was a major flop. Ads that aren't full-fledged 'snaps' (and don't feel spontaneous) seem like a sure way of pissing off their userbase. Stories seem like an effort to push for fb's ads strategies, but whether this will pick up and become a real competitor is questionable. Props to them for not getting acquired though, and pushing on.
- aswanson 12y ago
  It doesnt matter. As forrest pointed out, users are king, monetization can be delayed to infinity as long as someone with billions of dollars wants said users. Snapchat is far more engaging with younger users than fb, and fb is valued over 100 mmm. As I said awhile ago, rock on, Spiegel and Murphy.
  - RandallBrown 12y ago
    Yeah, but Facebook is valued that much because it actually makes a lot of money right? Has Snapchat made a dollar?
- trhway 12y ago
  >I'm incredibly curious about how they're planning on monetizing they have just got 485M - sounds like a successful monetization to me :)
  - bramgg 12y ago
    Isn't that bubble logic?
- zht 12y ago
  I'm curious, can you point to some numbers regarding micropayments in Snapchat being a flop?
forrestthewoods 12y ago
My rule of thumb for awhile has been that if you can get one hundred million users (100,000,000) you can sell your company for one billion dollars ($1,000,000,000). It doesn't matter if you have any revenue or not, 100m users = 1b dollars. Snapchat is at 200m users, but has doubled since August. If you think it's headed for 500m users then 10b is only a 2x premium for an unusually large pool of users in one place. WhatsApp sold for 18b with 500m users. It was headed for 1b users so 18b is a similar 2x premium. At first I thought the math didn't work but I guess it does. Users are king. Engaged users are directly convertible to money.
- flyinglizard 12y ago
  First, not all users are equal. It could be that the userbase of Snapchat is especially important (being young trendsetters) rather than the mass of users joining because all their friends are there. Second, when Facebook bought WhatsApp, it wasn't for monetization but for taking a threat off the market. WhatsApp and Facebook compete for the time of the same users; I don't think you could ever put the actual financial value of WhatsApp at $20b; but it could very well interfere with the plans of your $100b+ business which goes after the time and networking effect of the same users. I feel like at this point Snapchat and Facebook are playing chicken. This will end up as an acquisition deal. Snapchat could never monetize to warrant that valuation, while Facebook would pay a lot of money to, again, win the engagement of these users slipping away from its platform. There aren't too many ways Snapchat could translate its paper value into cash: only an IPO (not a chance, they're not IPO material) or an acquisition by Google, Microsoft or Facebook (others aren't big enough for placing this bet, and Apple doesn't seem to care enough about services to make such an acquisition, especially with the slightly shady element of the Snapchat concept). So Snapchat and its investors will come together to push the value higher and higher until one of the tech giants break and buys the thing. I doubt Snapchat remain an independent entity while justifying this valuation. They are in competition with the next big thing.
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- AndrewKemendo 12y ago
  Engaged users are directly convertible to money. I don't see how this is a given. Monetization is no simple task, otherwise Snapchat etc... would have a fairly straightforward way of implementing it without disrupting the core business. Last I checked there is no good strategy and the in-app purchases doesn't seem to be working that well outside of games. The idea of push ads like they are doing with their snapchat self-promotion stuff is a recipe for disaster from unsolicited companies.
_almosnow 12y ago
I like Snapchat, I still can't grasp their plan to become the next great thing but at least they have a lot of users and their users 'don't want to leave'. I always thought that Facebook were too big to fail, like in no one would close their account because of what they've invested there (friends, pics, etc...); yet, people are leaving it at an unprecedented rate. I remember Facebook desertion not being much more than a statistic even a year ago, now it's pretty common to encounter people that don't have an account there anymore. I think that the bandwagon effect that is behind the growth of online communities is a double-edged sword; once the trend shifts to users leaving, the more they leave the more users are likely to leave later and everyone snowballs out until there is no one left. Fortunately for Facebook, many of those peers left because of WhatsApp/Instagram, so business' still in the family... for now, albeit much less profitable. Sooner than later, FB will be gone and its place will have to be filled up by something else. Snapchat has a seat reserved in the post-FB era and apparently that is worth at least $20B. Anyway, derailing the discussion a little, I'd like to hear what you'd think if 'Core Facebook' went out of business right now (but not WhatsApp/Instagram). Would you consider it a success or a flop? Was it a profitable endeavour or not?
- dopamean 12y ago
  I don't have a Facebook account but I do have WhatsApp and Instagram. I'd use a Facebook standalone messenger that didn't require a Facebook account to communicate with those that do if such a thing existed. I closed my FB account a year ago and I don't miss it at all. Sure there are times where someone asks if I saw something and it was only posted to FB but that is so rare now. I imagine that one day I'd use many Facebook properties without ever encountering the news feed.
  - mingfli 12y ago
    I'm pretty certain you can have a Messenger account with just a phone number, no FB account required.
- onewaystreet 12y ago
  > people are leaving it at an unprecedented rate. [citation needed] (Even among teens Facebook's growth has not slowed much, let alone unprecedentedly.)
joeblau 12y ago
It seems like Yahoo! makes more money investing in other companies than it does as a company. They seem to invest lots of startups, including this one, that end up being huge.
olalonde 12y ago
I have never used Snapchat so I might be off here but if I understand correctly, its main distinguishing feature is the ephemeral nature of content shared with it. I find the concept of imposing artificial constraints on apps/interactions fascinating. Twitter was arguably the one to popularise the idea with its 140 character limit (perhaps by accident, the limit was initially there to support SMS) and now Snapchat (ephemeral posts). Are there any other apps that play on this theme? Makes me wonder if there are other apps out there waiting to be "constrained". Here's some dumb ideas off the top of my head. What about a social network where you can only have 10 friends? What about an email inbox where you are limited to receiving X emails/hour (perhaps senders could bid on delivery priority?). What about a HN where you are only allowed to comment once a week? What about a continuous delivery system where you are blocked from releasing after you reach a quota of defects (I heard Google uses such a quota system internally)? What about a package repository which rejects packages with over 150 lines of code or some other quality metrics?
- sheetjs 12y ago
  > What about a social network where you can only have 10 friends? Path (https://path.com/ https://path.com/) originally started as a social network where you could only have 150 friends
  - hboon 12y ago
    The limit was originally 50, then they changed it to 150 (and then 500?) and then removed totally.
    - 13 12y ago
      That's unfortunate, I quite liked the concept of limiting the size of your social graph to one you can actually manage.
      - ma2rten 12y ago
        Seems like good idea in theory, but what if you have 50 friends and you want to add a new one? The network will force you to delete one friend.
auganov 12y ago
As long as Snapchat has a good case for maintaining the monopoly on ephemeral messaging the valuation is pretty reasonable. It's the best thing since IM and nobody else seems to get it. FB messenger could shake things up, but they seem reluctant. It's hard for any social/messaging incumbent to do it without cannibalizing their existing user activity. And they have 2 patents which may or may not be valid. My prediction is 1B users by 2016.
nnain 12y ago
It's still difficult for people sitting outside North America to make sense of these high valuations. To me, dropbox and youtube were even interesting case studies. It all seems quite simple now, but in the initial stages, people wondered how they are going to make enough revenues to recover the infrastructure costs. But I have begun to see a clear trend in how the Social Apps, Sharing (Rental) Economy apps, and Ecommerce are behaving at different places across the globe. 100 Million users of a social app in US (followed by other western countries) are several times more revenue generating than the developing countries. The one metric that matters here is the Average Revenue per User (ARPU). Mobile advertising is growing in second and third world countries, but still lags behind. Not to say that users elsewhere are any less useful; Facebook has a huge focus on the Indian Market. Apps for rental(sharing) economy, Uber et al, work more evenly everywhere, since they bring a straight cut out on the amount paid. The segment that seems to works most at par globally has to be Ecommmerce. Amazon committed a $2Bn investment in India in 2014, as Flipkart got over 1.5Bn in funding.
chad_strategic 12y ago
With interest rates near zero for the last 6 years, what is really the value of money?
- logicallee 12y ago
  could you elaborate or be more specific?
  - chad_strategic 12y ago
    Yes, The Federal Reserve has lent to banks since 2008 at a ~.15 interest rate. Banks then turn around and lend to you or business at a hire rate. The reason that you are not getting interest on your bank account is because the banks don't want your money when they can get it from the federal reserves at cheap rates. The federal reserves in 08 wanted consumers and business to spend money instead of keeping it in savings to spur the economy. (Let's not forget ~70% of GDP is consumer spending) Some will argue it has worked, others will argue it hasn't worked. Snapchat is an example of an unintended consequences of very low interest rates. http://en.wikipedia.org/wiki/Federal_Reserve_System http://en.wikipedia.org/wiki/Federal_Reserve_System http://en.wikipedia.org/wiki/John_Maynard_Keynes http://en.wikipedia.org/wiki/John_Maynard_Keynes
    - logicallee 12y ago
      I don't see what any part of this has to do with the VC economy and you have not elaborated. None of the $485M is coming from banks. VC's (the 23 investors) don't borrow money from banks to invest into Snapchat, and LP's (their investors) don't borrow money from banks to invest into the VC's. And anyway these funds were mostly raised years ago. So I just don't see even a third-level connection (which would add years to the effect becoming visible.) Snapchat isn't something everyday individuals or banks are investing in - these are investments by VC's with funds already set aside for this purpose. If there's a closer connection with low interest rates, you haven't made it clear to me.
      - chad_strategic 12y ago
tonyjstark 12y ago
I always thought if you raise money the investors want the money back in the end. Maybe they want even more than they invested. So if a company raises more money than some of the old players of the game who actually having big revenues one has to think how much revenue the inverstors expect from this company in the next years. It seems like everybody only bets on Snapchat being bought by a bigger player which is a strange model of buisness case because there is no value but only assumptions generated. I believe (and that is very subjective) that that kind of investing is sickening the whole industry, it feels more like some sort of speculation which caused already problems in the banking sector. But it will be fine as long as the majority plays along. I found myself feeling rather conservative when I think about a valuation of one of those startups comparing them to other companies and for me that doesn't work out. Maybe it's because the whole market changed the last few years but maybe it's the b-word. I look forward to find out.
DigitalSea 12y ago
Honestly, I am surprised Snapchat is still around. I never receive or send Snapchats to my friends any more. About one year ago me and my friends used the app on a daily basis, it was fun and you could send funny things, now it is mostly dead whenever I do check it. It was only ever a trend. They should have sold it when they had the chance to sell to Facebook, because if the numbers are to be believed, they're not doing that well. Eventually we will see Snapchat either pivot or die.
- prezjordan 12y ago
  I think you're completely wrong here. My 7th grade cousin is on it every minute of every day (battery-permitting). So are all of his friends. I don't think you're the target audience (but I don't know how old you are, sorry!). Truth is, pre/young teens are all over Snapchat and Instagram, and I don't really see an end in sight.
barnacs 12y ago
Let's waste an enormous amount of resources to create Yet Another Messaging App. That's exactly what the industry and humanity in general needs to advance!
- ulfw 12y ago
  Yea but but... this one is different. It it... well... it deletes the messages automagically too! Well worth the billions, don't you think?
logn 12y ago
I wonder about the wisdom that hardware is cheap and programmers are expensive. "One source said that Snapchat has an over $30 million-per-year burn rate, and pays half of that to Google Apps Engine to host all its photos, though this number seems low to us."
logicallee 12y ago
will be interesting to see what happens when the rest of the VC's get back to their offices on Monday.
curiously 12y ago
The bubble has reached it's peak folks.
apunic 12y ago
Probably I am alone here but I think that Snapchat is the biggest innovation in the social space since Facebook and not just because of it's ephemeral nature. Let me elaborate and give my view why I think Snapchat is great and one of my most used apps. - To start, Snapchat changed my communication behavior heavily. Before Snapchat people used any kind of messengers when they had a clear intent to start an interaction with another person. With Snapchat you just send something. You do not want to start a conversation, often you just share what you do right now, how you feel and very often it's so close to what you are and not some polished something you would like to be. You share emotions in forms of pics also on Instagram and Facebook but this is different since the emotions you present there are highly curated, see below for more. - There are no 'likes' and this is wonderful. The existence of likes sets us under pressure. If we post something on Facebook and do not get a single like it's embarrassing and leads to postings which are only of outstanding nature painting a distorted picture of our life. Facebook is anything but not reflecting reality. - Sending and selecting a few contacts is so fast and I do not know one single app which has a slicker process. This again leads to so much more honest and personal messaging. Since I target on other platform many more people I have to take care about my postings. On Snapchat I can quickly select a bunch of people and leave those out who might be bored by a single snap. - The process of taking a picture is different than with the stock camera of a phone. You take a pic which is NOT saved—usually it's immediately saved and if you do not like it you have to go the the gallery, delete it and confirm again that you want to delete it. This is very annoying if you take selfies. Snapchat turned this around and once you find the right shot you can send and/or save it. Small thing but so convenient. - Features like slide-in filters, painting on the pic, amazing video calling are just nice amenities but again show that Snapchat's interface is just great and miles beyond other cluttered UIs. - One feature which I want to mention is putting text on pictures, no rocket science but again sometimes so funny and shows similarities to those meme generators. - Finally, the ephemeral thing is not the key feature but it's the brand and the DNA of Snapchat, everybody knows that there's no privacy, people can screenshot the snaps and share it, period. But it's about being oneself and understanding that the pictures are just 'throw-away products', no shiny thing kept forever. This again leads to a very honest snaps. Snapchat is not about looking good. I encourage everyone who doesn't 'understand' Snapchat's success to try it, it strengthens the relationship to close contacts and friends much more than other 'social app'.
sunasra 12y ago
Is it worth of it?. I dont think so.
mattbarrie 12y ago
Big raises like this are primarily secondary. Probably someone like lightspeed selling out (was mentioned in leaked email http://www.businessinsider.com.au/snapchat-ceo-evan-spiegels-email-memo-2014-12 http://www.businessinsider.com.au/snapchat-ceo-evan-spiegels...).
iloveluce 12y ago
Magic Leap raised $542M and I don't know of anyone that uses their product so there is also that http://www.campaignlive.com/article/google-puts-542m-augmented-reality-startup/1318362 http://www.campaignlive.com/article/google-puts-542m-augment...

74 points by drum 12y ago

This talk of bubbles reminds me of 2007 when everyone, including all the experts, was certain Facebook was a bubble at a valuation of $15 billion after Microsoft invested; now it's worth $200+ billion. Then in 2012 after Facebook's hugely publicized botched IPO and Nasdaq error, all the experts again said the web 2.0 bubble had burst; the stock price and earnings have since doubled. Unlike the big blowups of Friendster, Myspace, Digg, etc..these post-2008 web 2.0 valuations have proven to be extremely sticky. Pinterest, Twitter, Dropbox, Air B&B, Tinder, Snapchat, Whatsapp, Uber, Instagram...all keep going up with no end in sight, year after year until either IPO (which finally creates volatility) or buyout. There's hardly any big failures or blowups, except perhaps Zynga and Groupon (although it's still worth $5 billion). My prediction is these web 2.0 valuations will keep rising for many years to come because that is the path of least resistance, and the investor demand and user growth for these companies is seemingly unquenchable. The unending web 2.0 boom and unending wrong predictions about its demise show how these 'obvious' parallels to the old tech bubble of 1995-2000 are just so wrong. There's more at play here, such as the investor flight to quality (more money chasing fewer companies), huge user growth, huge monetization potential from smartphone engagement, the very large millennial population that use these services, and ability of these web 2.0 companies to carve out niche dominance and then keep it. Within the next year or two, we're probably going to see Uber being worth $100 billion before IPO, Snaphat $50 billion, Tinder $10 billion, Air B&B $50 billion, etc. Take every valuation and quadruple it. Back in the 90's, $100 million was a big deal; now that's just a rounding error or the equity of just a single early employee. Insane, but very prosperous times we're living in. And it's got a long way to go.

Klinky 12y ago
There were plenty of cheerleaders back in the late 90s too, saying it's just the beginning. Most of the social companies have yet to really show they can be profitable other than being bought out. Valuations are often grossly overinflated. AirBnB and Uber are both skirting regulations and pushing risks onto their userbase. Regulations or a few continued instances of bad PR could pop their valuation bubble in an instant. Compare companies overinflated valuations with how much they are actually being sold for or how much they're getting through IPOs.
- flyinglizard 12y ago
  I feel like Airbnb and Uber are both large and popular enough, at this point, to push regulation in the direction they see fit. Anyone standing in their path will be labeled protector of the old monopolies and anti-consumer.
  - desdiv 12y ago
    Regulation change doesn't benefit only Uber though. It benefits all current riding sharing companies, as well as any future ones that might join the fray. In that sense, regulation change doesn't increase Uber's intrinsic value at all. If Google, for example, joins the ride sharing game then Uber will be in serious trouble.
    - chambo622 12y ago
      Google Ventures is a major investor in Uber - does Google often invest in companies that they go on to compete with?
      - blister 12y ago
        If they can build an entire fleet of automated cars? Abso-freaking-lutely. How much would you be willing to pay annually to not have to own a car but have one available at your fingertips at any time? My car payment + insurance comes to be about $7000/year. Throw in gas prices and we're probably at around $10,000 per year for my vehicle. Factor in my girlfriend and our household is at around $20k. If Google can charge me $10k-$15k annually to not own a car but be able to have it available all the time? What's $10k * 137,000,000? [1] At those levels, the failed Uber experiment can be a whimsical write-off. Or perhaps it's a strategic venture to handle some of these pesky regulations we're always talking about Uber fighting. I don't want to own a car. I just want to have the freedom to be mobile at a moments notice. [1]: http://cars.lovetoknow.com/Car_Ownership_Statistics http://cars.lovetoknow.com/Car_Ownership_Statistics
  - danieltillett 12y ago
    The problem is the underlying market for Uber (taxi and hire cars) can't generate enough profit to support their current valuation. When you add in that Uber and similar companies are destroying the monopoly rents that the industry was enjoying then the problem is even worse.
_almosnow 12y ago
I agree with you but I think Uber will devaluate to some extent and I don't see Tinder surviving...
aswanson 12y ago
The mainstream narrative, by definition, is always wrong with respect to investing, whether it be skills, tech bubbles, etc. The best thing to be is against consensus and correct, as fb was back in '06 when it was clear to everyone from middle schoolers to rupert murdoch that myspace was the ultimate in social networking. So, what say you about the future?
cantfindmylogin 12y ago
I believe what you're saying is "this time is different." No, it isn't.[1] In the ascent phase of the bubble, everyone but uber-bulls is proven wrong. But what matters is whether what is happening today in terms of valuations and capital raising/spending is sustainable. I believe it isn't. AirBnB or Uber or what have you may be a great business, but a great business can be a lousy investment at the wrong price. So you may continue be right, in the sense that share prices may keep going up, but that doesn't mean investors participating at these levels--or at the quadruple levels you forecast that may indeed come to pass--are being rational. What's happening now doesn't have to be exactly like it was in 1999, just like what happened in 1999 wasn't exactly like the Nifty Fifty stock bubble of the late 1960s. PS I had a front-row seat in 1999, as I worked for a well-known VC firm on Sand Hill (still there, still well-known). [1] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=240371
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danieltillett 12y ago
The current boom is the classic case of the market can stay irrational longer than you can stay solvent. While I agree that the valuations are detached from reality, there is no way I would attempt to try and short any of these "new darlings".
tim333 12y ago
>after Facebook's hugely publicized botched IPO and Nasdaq error, all the experts again said the web 2.0 bubble had burst I'd dispute Facebook's IPO was botched if you are treating it as a real business rather than a bubble stock. With a real business you may as well sell stock for what buyers will pay and if the price subsequently fluctuates then that's what stock prices do. The idea that flotations must be underpriced so you can give the impression of price growth and get more investors later is more of a Ponzi scheme way of doing things.
- pbh101 12y ago
  While I can't speak to the intent of the grandparent, independent of pricing strategies, Facebook's IPO was botched at the execution level: NASDAQ fell over under the load and transactions were a big mess [1]. [1] http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-friendly-with-nasdaq/ http://dealbook.nytimes.com/2012/07/01/facebook-not-feeling-... EDIT: upon re-reading, sounds like this is exactly what the GP was referring to.
chrdlu 12y ago
I completely agree with the more money chasing fewer companies idea. I think this interview with Marc Andreessen explains why there is more money for fewer companies: http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-andreessen-explains-why http://www.vox.com/2014/6/26/5837638/the-ipo-is-dying-marc-a... The average investor loses in this scenario. Back in the day, retail investors could invest in the growth of companies. These days, the companies don't IPO until they've already grown to be very large. Definitely doesn't help the wealth gap
- mattbarrie 12y ago
  I wrote a response to that https://www.linkedin.com/pulse/20140801044817-921366-marc-andreessen-is-wrong-the-ipo-isn-t-dying https://www.linkedin.com/pulse/20140801044817-921366-marc-an...

mehwoot 12y ago

Snapchat originally set out to raise $40 million, but demand for the round skyrocketed, and it decided to shoot for an ambitious $900 million instead. When that didn’t work out, it dialled it back to $500 million. Mind boggling.

schuman 12y ago
yeah, we're looking to buy 400 man-years of labor. or 9,000. but we'll settle for 5,000.
sadgit 12y ago
On what does a software company spend half a billion dollars?
- mc808 12y ago
  Other software companies. Lawyers.
- SapphireSun 12y ago
  Marketing, enterprise sales? Also, snapcash.
- krschultz 12y ago
  Marketing.
  - robbiemitchell 12y ago
    You don't spend heavy marketing dollars on a free app. (Not in the way most people would define "marketing", anyway.)
- rev_bird 12y ago
  This is what I was thinking. And they wanted even more than that! I can't fathom what $900 million would buy, but it seems like at a certain point, it'd be in their interests to stop giving away equity, no? $900 million is a big chunk of a company pretty much regardless of valuation.

moab 12y ago

I'm incredibly curious about how they're planning on monetizing, considering that that recent stab at pushing micropayments was a major flop. Ads that aren't full-fledged 'snaps' (and don't feel spontaneous) seem like a sure way of pissing off their userbase. Stories seem like an effort to push for fb's ads strategies, but whether this will pick up and become a real competitor is questionable. Props to them for not getting acquired though, and pushing on.

aswanson 12y ago
It doesnt matter. As forrest pointed out, users are king, monetization can be delayed to infinity as long as someone with billions of dollars wants said users. Snapchat is far more engaging with younger users than fb, and fb is valued over 100 mmm. As I said awhile ago, rock on, Spiegel and Murphy.
- RandallBrown 12y ago
  Yeah, but Facebook is valued that much because it actually makes a lot of money right? Has Snapchat made a dollar?
trhway 12y ago
>I'm incredibly curious about how they're planning on monetizing they have just got 485M - sounds like a successful monetization to me :)
- bramgg 12y ago
  Isn't that bubble logic?
zht 12y ago
I'm curious, can you point to some numbers regarding micropayments in Snapchat being a flop?

forrestthewoods 12y ago

My rule of thumb for awhile has been that if you can get one hundred million users (100,000,000) you can sell your company for one billion dollars ($1,000,000,000). It doesn't matter if you have any revenue or not, 100m users = 1b dollars. Snapchat is at 200m users, but has doubled since August. If you think it's headed for 500m users then 10b is only a 2x premium for an unusually large pool of users in one place. WhatsApp sold for 18b with 500m users. It was headed for 1b users so 18b is a similar 2x premium. At first I thought the math didn't work but I guess it does. Users are king. Engaged users are directly convertible to money.

flyinglizard 12y ago
First, not all users are equal. It could be that the userbase of Snapchat is especially important (being young trendsetters) rather than the mass of users joining because all their friends are there. Second, when Facebook bought WhatsApp, it wasn't for monetization but for taking a threat off the market. WhatsApp and Facebook compete for the time of the same users; I don't think you could ever put the actual financial value of WhatsApp at $20b; but it could very well interfere with the plans of your $100b+ business which goes after the time and networking effect of the same users. I feel like at this point Snapchat and Facebook are playing chicken. This will end up as an acquisition deal. Snapchat could never monetize to warrant that valuation, while Facebook would pay a lot of money to, again, win the engagement of these users slipping away from its platform. There aren't too many ways Snapchat could translate its paper value into cash: only an IPO (not a chance, they're not IPO material) or an acquisition by Google, Microsoft or Facebook (others aren't big enough for placing this bet, and Apple doesn't seem to care enough about services to make such an acquisition, especially with the slightly shady element of the Snapchat concept). So Snapchat and its investors will come together to push the value higher and higher until one of the tech giants break and buys the thing. I doubt Snapchat remain an independent entity while justifying this valuation. They are in competition with the next big thing.
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AndrewKemendo 12y ago
Engaged users are directly convertible to money. I don't see how this is a given. Monetization is no simple task, otherwise Snapchat etc... would have a fairly straightforward way of implementing it without disrupting the core business. Last I checked there is no good strategy and the in-app purchases doesn't seem to be working that well outside of games. The idea of push ads like they are doing with their snapchat self-promotion stuff is a recipe for disaster from unsolicited companies.

_almosnow 12y ago

I like Snapchat, I still can't grasp their plan to become the next great thing but at least they have a lot of users and their users 'don't want to leave'. I always thought that Facebook were too big to fail, like in no one would close their account because of what they've invested there (friends, pics, etc...); yet, people are leaving it at an unprecedented rate. I remember Facebook desertion not being much more than a statistic even a year ago, now it's pretty common to encounter people that don't have an account there anymore. I think that the bandwagon effect that is behind the growth of online communities is a double-edged sword; once the trend shifts to users leaving, the more they leave the more users are likely to leave later and everyone snowballs out until there is no one left. Fortunately for Facebook, many of those peers left because of WhatsApp/Instagram, so business' still in the family... for now, albeit much less profitable. Sooner than later, FB will be gone and its place will have to be filled up by something else. Snapchat has a seat reserved in the post-FB era and apparently that is worth at least $20B. Anyway, derailing the discussion a little, I'd like to hear what you'd think if 'Core Facebook' went out of business right now (but not WhatsApp/Instagram). Would you consider it a success or a flop? Was it a profitable endeavour or not?

dopamean 12y ago
I don't have a Facebook account but I do have WhatsApp and Instagram. I'd use a Facebook standalone messenger that didn't require a Facebook account to communicate with those that do if such a thing existed. I closed my FB account a year ago and I don't miss it at all. Sure there are times where someone asks if I saw something and it was only posted to FB but that is so rare now. I imagine that one day I'd use many Facebook properties without ever encountering the news feed.
- mingfli 12y ago
  I'm pretty certain you can have a Messenger account with just a phone number, no FB account required.
onewaystreet 12y ago
> people are leaving it at an unprecedented rate. [citation needed] (Even among teens Facebook's growth has not slowed much, let alone unprecedentedly.)

joeblau 12y ago

It seems like Yahoo! makes more money investing in other companies than it does as a company. They seem to invest lots of startups, including this one, that end up being huge.

olalonde 12y ago

I have never used Snapchat so I might be off here but if I understand correctly, its main distinguishing feature is the ephemeral nature of content shared with it. I find the concept of imposing artificial constraints on apps/interactions fascinating. Twitter was arguably the one to popularise the idea with its 140 character limit (perhaps by accident, the limit was initially there to support SMS) and now Snapchat (ephemeral posts). Are there any other apps that play on this theme? Makes me wonder if there are other apps out there waiting to be "constrained". Here's some dumb ideas off the top of my head. What about a social network where you can only have 10 friends? What about an email inbox where you are limited to receiving X emails/hour (perhaps senders could bid on delivery priority?). What about a HN where you are only allowed to comment once a week? What about a continuous delivery system where you are blocked from releasing after you reach a quota of defects (I heard Google uses such a quota system internally)? What about a package repository which rejects packages with over 150 lines of code or some other quality metrics?

sheetjs 12y ago
> What about a social network where you can only have 10 friends? Path (https://path.com/ https://path.com/) originally started as a social network where you could only have 150 friends
- hboon 12y ago
  The limit was originally 50, then they changed it to 150 (and then 500?) and then removed totally.
  - 13 12y ago
    That's unfortunate, I quite liked the concept of limiting the size of your social graph to one you can actually manage.
    - ma2rten 12y ago
      Seems like good idea in theory, but what if you have 50 friends and you want to add a new one? The network will force you to delete one friend.

auganov 12y ago

As long as Snapchat has a good case for maintaining the monopoly on ephemeral messaging the valuation is pretty reasonable. It's the best thing since IM and nobody else seems to get it. FB messenger could shake things up, but they seem reluctant. It's hard for any social/messaging incumbent to do it without cannibalizing their existing user activity. And they have 2 patents which may or may not be valid. My prediction is 1B users by 2016.

nnain 12y ago

It's still difficult for people sitting outside North America to make sense of these high valuations. To me, dropbox and youtube were even interesting case studies. It all seems quite simple now, but in the initial stages, people wondered how they are going to make enough revenues to recover the infrastructure costs. But I have begun to see a clear trend in how the Social Apps, Sharing (Rental) Economy apps, and Ecommerce are behaving at different places across the globe. 100 Million users of a social app in US (followed by other western countries) are several times more revenue generating than the developing countries. The one metric that matters here is the Average Revenue per User (ARPU). Mobile advertising is growing in second and third world countries, but still lags behind. Not to say that users elsewhere are any less useful; Facebook has a huge focus on the Indian Market. Apps for rental(sharing) economy, Uber et al, work more evenly everywhere, since they bring a straight cut out on the amount paid. The segment that seems to works most at par globally has to be Ecommmerce. Amazon committed a $2Bn investment in India in 2014, as Flipkart got over 1.5Bn in funding.

chad_strategic 12y ago

With interest rates near zero for the last 6 years, what is really the value of money?

logicallee 12y ago
could you elaborate or be more specific?
- chad_strategic 12y ago
  Yes, The Federal Reserve has lent to banks since 2008 at a ~.15 interest rate. Banks then turn around and lend to you or business at a hire rate. The reason that you are not getting interest on your bank account is because the banks don't want your money when they can get it from the federal reserves at cheap rates. The federal reserves in 08 wanted consumers and business to spend money instead of keeping it in savings to spur the economy. (Let's not forget ~70% of GDP is consumer spending) Some will argue it has worked, others will argue it hasn't worked. Snapchat is an example of an unintended consequences of very low interest rates. http://en.wikipedia.org/wiki/Federal_Reserve_System http://en.wikipedia.org/wiki/Federal_Reserve_System http://en.wikipedia.org/wiki/John_Maynard_Keynes http://en.wikipedia.org/wiki/John_Maynard_Keynes
  - logicallee 12y ago
    I don't see what any part of this has to do with the VC economy and you have not elaborated. None of the $485M is coming from banks. VC's (the 23 investors) don't borrow money from banks to invest into Snapchat, and LP's (their investors) don't borrow money from banks to invest into the VC's. And anyway these funds were mostly raised years ago. So I just don't see even a third-level connection (which would add years to the effect becoming visible.) Snapchat isn't something everyday individuals or banks are investing in - these are investments by VC's with funds already set aside for this purpose. If there's a closer connection with low interest rates, you haven't made it clear to me.
    - chad_strategic 12y ago

tonyjstark 12y ago

I always thought if you raise money the investors want the money back in the end. Maybe they want even more than they invested. So if a company raises more money than some of the old players of the game who actually having big revenues one has to think how much revenue the inverstors expect from this company in the next years. It seems like everybody only bets on Snapchat being bought by a bigger player which is a strange model of buisness case because there is no value but only assumptions generated. I believe (and that is very subjective) that that kind of investing is sickening the whole industry, it feels more like some sort of speculation which caused already problems in the banking sector. But it will be fine as long as the majority plays along. I found myself feeling rather conservative when I think about a valuation of one of those startups comparing them to other companies and for me that doesn't work out. Maybe it's because the whole market changed the last few years but maybe it's the b-word. I look forward to find out.

DigitalSea 12y ago

Honestly, I am surprised Snapchat is still around. I never receive or send Snapchats to my friends any more. About one year ago me and my friends used the app on a daily basis, it was fun and you could send funny things, now it is mostly dead whenever I do check it. It was only ever a trend. They should have sold it when they had the chance to sell to Facebook, because if the numbers are to be believed, they're not doing that well. Eventually we will see Snapchat either pivot or die.

prezjordan 12y ago
I think you're completely wrong here. My 7th grade cousin is on it every minute of every day (battery-permitting). So are all of his friends. I don't think you're the target audience (but I don't know how old you are, sorry!). Truth is, pre/young teens are all over Snapchat and Instagram, and I don't really see an end in sight.

barnacs 12y ago

Let's waste an enormous amount of resources to create Yet Another Messaging App. That's exactly what the industry and humanity in general needs to advance!

ulfw 12y ago
Yea but but... this one is different. It it... well... it deletes the messages automagically too! Well worth the billions, don't you think?

logn 12y ago

I wonder about the wisdom that hardware is cheap and programmers are expensive. "One source said that Snapchat has an over $30 million-per-year burn rate, and pays half of that to Google Apps Engine to host all its photos, though this number seems low to us."

logicallee 12y ago

will be interesting to see what happens when the rest of the VC's get back to their offices on Monday.

curiously 12y ago

The bubble has reached it's peak folks.

apunic 12y ago

Probably I am alone here but I think that Snapchat is the biggest innovation in the social space since Facebook and not just because of it's ephemeral nature. Let me elaborate and give my view why I think Snapchat is great and one of my most used apps. - To start, Snapchat changed my communication behavior heavily. Before Snapchat people used any kind of messengers when they had a clear intent to start an interaction with another person. With Snapchat you just send something. You do not want to start a conversation, often you just share what you do right now, how you feel and very often it's so close to what you are and not some polished something you would like to be. You share emotions in forms of pics also on Instagram and Facebook but this is different since the emotions you present there are highly curated, see below for more. - There are no 'likes' and this is wonderful. The existence of likes sets us under pressure. If we post something on Facebook and do not get a single like it's embarrassing and leads to postings which are only of outstanding nature painting a distorted picture of our life. Facebook is anything but not reflecting reality. - Sending and selecting a few contacts is so fast and I do not know one single app which has a slicker process. This again leads to so much more honest and personal messaging. Since I target on other platform many more people I have to take care about my postings. On Snapchat I can quickly select a bunch of people and leave those out who might be bored by a single snap. - The process of taking a picture is different than with the stock camera of a phone. You take a pic which is NOT saved—usually it's immediately saved and if you do not like it you have to go the the gallery, delete it and confirm again that you want to delete it. This is very annoying if you take selfies. Snapchat turned this around and once you find the right shot you can send and/or save it. Small thing but so convenient. - Features like slide-in filters, painting on the pic, amazing video calling are just nice amenities but again show that Snapchat's interface is just great and miles beyond other cluttered UIs. - One feature which I want to mention is putting text on pictures, no rocket science but again sometimes so funny and shows similarities to those meme generators. - Finally, the ephemeral thing is not the key feature but it's the brand and the DNA of Snapchat, everybody knows that there's no privacy, people can screenshot the snaps and share it, period. But it's about being oneself and understanding that the pictures are just 'throw-away products', no shiny thing kept forever. This again leads to a very honest snaps. Snapchat is not about looking good. I encourage everyone who doesn't 'understand' Snapchat's success to try it, it strengthens the relationship to close contacts and friends much more than other 'social app'.

sunasra 12y ago

Is it worth of it?. I dont think so.

mattbarrie 12y ago

Big raises like this are primarily secondary. Probably someone like lightspeed selling out (was mentioned in leaked email http://www.businessinsider.com.au/snapchat-ceo-evan-spiegels-email-memo-2014-12 http://www.businessinsider.com.au/snapchat-ceo-evan-spiegels...).

iloveluce 12y ago

Magic Leap raised $542M and I don't know of anyone that uses their product so there is also that http://www.campaignlive.com/article/google-puts-542m-augmented-reality-startup/1318362 http://www.campaignlive.com/article/google-puts-542m-augment...