Speaking candidly here -- perhaps this is one of many (MANY) reasons why I will never be a billionaire entrepreneur, but I can wholeheartedly say that if Facebook came to my startup, no matter how popular, and said "here's 3bn, please give us your users" -- I would without question sign on the dotted line as fast as possible (and probably for A LOT less earlier in the game). And to be honest, I probably wouldn't care how badly they may maul my creation, I'm either:
a) sitting on a beach in Costa Rica
b) giving a completely different project a shot with my new found riches
Maybe I just completely lack vision, but what happens in two years when Snapchat likely isn't cool anymore and all the kids are onto the next thing. Where will the money be?
Only slightly related, but I'm sitting on a beach in Costa Rica right now. The Internet is fast, it's beautiful (although it just rained), and is cheaper than SF (where I'm from). You don't need a billion dollar company for A.
We just gave up living on the beach in the nicoya peninsula (samara) after 4 months. Bad internet access was a major part of that. The only options there were 3G and DSL. Max speeds were 3Mbs and the connection was unreliable. They are rolling out fiber in 2014 though so it should get better.
Cost of living was only slightly cheaper than Utah, where we are from. I'm sure it is less than California, but not nearly as cheap as we thought. We did hire a nanny and cook for a very good rate. Cars and US goods were very expensive.
Amazing and beautiful place though. I'll go again, just not to live.
I spent a month in CR last year, for such a small country it puts the UK to shame, I rarely found myself out of 3G coverage, even up in the cloud forest!.
Compare that to my usual South Coast train commute to London where I'm lucky if I get about 25% coverage for a 2 hour journey, and we're supposed to be a G8 nation!
On a side note, I've been working on my startup whilst travelling the states, Hawaiian Islands and backpacking through the Fijian Yasawa Islands and just got back to the UK. I'd highly recommend travelling to anyone looking to get something off the ground, I've always found it a cheaper alternative to paying rent in a fixed locality, there's nothing that beats just speaking to people from different backgrounds about your idea and getting their input.
I spent a while there out of college getting my priorities in order and loved it. I was pretty broke at the time but it was super easy to find beachfront hostels that were 5-6 bucks a night. Couldn't have asked for a better experience
I worked full time through college with minimal breaks so when I graduated, I needed a major break. Quit the job I had been at through college and spent four months in Central America. It was the perfect reset before jumping into a career right out of college.
My girlfriends brother lives in Costa Rica and from visiting him and listening to their conversations I can say the internet infrastructure is not that good. There are normal days and very bad days that may last for a day-week-month.
Costa Rica's internet is better than Nicaragua though!
I've heard the opposite - internet connectivity is quite suspect in Costa Rica. Where exactly are you and what kind of connectivity package/price do you have?
Right now, I'm in a restaurant on the beach. Internet is pretty good here (and everywhere else I've been -- way better than the average coffee shop / hotel / etc internet in the US). I use StrongVPN and haven't had any problems yet. I Skype and watch Netflix all the time with no issues at all.
It's slow as in you're not going to find a 20 megabit connection all to yourself. Normal speed is probably closer to 1 megabit, but you can easily get a bit better than that these days (I'm on 5).
When I lived there I relied mainly on 3G. You can get a prepaid SIM for ~$6, and you pay around $0.50 per day for unlimited data. It is fairly slow at 1 Mbps up/down, but its enough to make Skype calls and the like.
I don't know about Costa Rica, but I found Panama to have somewhat of a scene, for instance Acelerador de Empresas de Panamá via http://ciudaddelsaber.org As I have relatives there as well, I have always had an interest in doing a startup in Panama. Been a few years since I have been there, I have to get back.
I'm loving it so far. It's not "stable" in the traditional sense, but no distractions and I can get a ton done. Internet is easy to find, places are pretty nice and affordable, and it's quiet. I came down here to finish a startup I've been talking about for ages but never finished due to the distractions in SF.
AirBnb has some great finds, especially if you go with a few friends. Nice places, good internet and not too expensive.
(Oh, and hi Simone! You submitted my startup notes site to HN a few weeks ago)
I can resonate with this so much, I travelled CR last year for a month and loved it.
I've just got back from 3 mths travelling the States, Hawaii, Fiji and Aus to do exactly the same, London had too many distractions and whilst the salary was great I knew if I didn't take the plunge to dedicate some time to the startup I too had been talking about for ages then it would never get off the ground. Oh, and seeing beautiful places along the way does wonders for motivation!.
Whelp, diminishing marginal utility of the dollar, I suppose.
With a billion dollar valuation, the founders will have found ways to make themselves rich - http://news.cnet.com/8301-1023_3-57591017-93/snapchat-founde... - and if you already cashed out fuck-you money, then you might as well keep going and see where it lands.
If I was broke and offered $3b, sure. But if I had $10-20mil sitting in the bank… anything I do after that point is 100% risk-free.
Mind you, I'm really racking my brain on how this isn't all totally insane.
Probably, but I doubt you as a founder would get $1-1.2 Bil from a deal that was only $3b.
On a much larger note, I don't feel like there's a big difference beyond $20 Mil if your goal is to continue living the life you're living now, but with total financial security. I know that given the chance, that's all I'd really ask for. Anything beyond that, and the only thing I can think of to spend the money on is philanthropy.
However, I'll bet other people have different aspirations, so I guess I can't really speak on the subject.
I think the cutoff point is more like 100 million. With 20 million you're still having second thoughts about your NetJets use or the size of your yacht.
With $20MM in the bank, there is plenty you cannot buy and subsequently maintain for very long: a shiny new Bombardier jet, a motor yacht, more than one vintage racing Ferrari... even blowing $5MM on a substantial estate would be highly ill-advised. But at this point, one becomes acquainted with people who can afford to keep such things, so it might start to seem less like "wealth" and more like "security" depending on one's desires and insecurities.
Consumption of ultra-luxury items is one way to look at the difference, but another is your progeny. $20M, if spent frugally and invested well, could certainly ensure the well-being of your immediate children and probably grandchildren as well (not if you blow it on vintage sports cars and jets, though). But a billion or two could keep your family out of work for many, many generations
Not for a decade or more has this been true. Inflation in the UK is 2.2%. You would be lucky to get that without venturing into equities (which to be fair have done well this year) or property. But energy is up 8%, travel 9%, food 12%, etc. Real inflation is hard to outrun. And markets are prone to bubbles...
My intent was to put $20MM or so in perspective: yes, prudent investment could put such an amount to good, long-term use, but it is not so much money that it would be challenging to spend it all within a decade or so. $1Bn is something else entirely, and would require a very concerted effort to squander quickly.
You could pay for your $5 million estate in cash with the dividends from a 'boring' investment in AT&T's stock (5.1% dividend) after six years, while never touching the principle.
uh, pretty sure 10-20 million is in fact "do whatever you want for the rest of your life" money. Certainly do anything normal that you want. perhaps you can't buy a jet. damn.
10million * 3% dividend stocks = 300k per year just having it sit there. Maybe not entirely risk free, but not too risky either.
Exactly. I could never bring myself to use billions on super luxury stuff anyway and would wind up donating most of that money to a good cause (I wonder if the Gates foundation accepts donations?).
Lets say you want to get into automotive racing. Assuming you want to race in professional series such as ALMS or similar you could easily burn 5M a year.
20M is plenty to live a very well off life, but its not "do anything you want for the rest of your life" money. Look at how many professional athletes/musicians manage to blow many multiples of that amount.
I included the caveat of "normal". Obviously that amount of money is "spendable." 300k a year though will service a very nice lifestyle though. You can live an upper class lifestyle most places in the world without doing anything.
Also, perhaps I'm naive, but I expect tech startup founders to be better with their money than professional athletes. Yes, you could be an idiot, but that doesn't mean 10 mil isn't FU money. It is if you have even a little bit of a brain. You can spend nearly any amount of money, but that's not really the point. You can put your 3 billion all on red and dammit if it didn't come up black. Doesn't make it not FU money. (No casino in the world will take that bet, but you know what I mean).
Is $10 million, before taxes and expenses, really fuck-you money these days? Having maybe $ $6 or $7 million in the bank certainly wouldn't inspire me to turn down $3 billion for a flash-in-the-pan type of business.
If you can sustain 5% interest, that's $500k a year taxed at 15%. That might not be fuck-you but it's certainly good enough for pretty much anything you might want to reasonably do with the rest of your life. (Barring ultra luxury of course.)
Interest is taxed at marginal rates, not capital gains rates. (You may be thinking of dividends.) Moreover, at $500k/year, you would be subject to the new higher capital gains rate of 20%...
Exactly. If you have anything more than $10m in the bank and are still not 30, you'll be too naive NOT to take more risks (considering you don't plan to touch the $10m in the bank).
$10–$20 million is nothing to sneeze at, and certainly enough to fund a more-than-comfortable lifestyle if that's what you want to do. But if you have money in the billions, that will literally open the door to anybody in the world that you want to talk to, and you will be taken seriously.
One article I read that always stuck with me was Peter thiel recalling the day Mark Zuckerberg turned down yahoos 1 billion dollar acquistion offer .
Thiel said he remembered saying, "We should probably talk about this. A billion dollars is a lot of money." They hashed out the conversation. Thiel said he and Breyer pointed out: "You own 25 percent. There's so much you could do with the money."
Thiel recalled Zuckerberg said, in a nutshell: "I don't know what I could do with the money. I'd just start another social networking site. I kind of like the one I already have."
This is probably how the SnapChat guys feel there is no different project down the road this is it and if you feel that way you never sell
I fail to understand how owning (a large chunk of) 3 Billion is less desirable than owning what another poster calls a teen messaging app. How passionate can an intelligent adult be about something like that (without thinking of the moolah)?
He (also) turned down google as well for someting like $8B, then got MSFT to invest in @$15B before taking it to $100B and an IPO. So this is a very good point.
yeah, but for every Facebook there are 1000's of other companies who should have taken the money. Like myspace perhaps. snapchat also doesn't have the depth that facebook has. I could see snapchat being omgpop just as easily as the next facebook or twitter. 3 billion? take the money man.
Option B worked really well for Mark Cuban, for example. He sold a company with a <$50M run rate for close to $6B, probably recognizing that he'd gotten really damned lucky. But he didn't take the one-way ticket to Costa Rica; he parlayed his lottery payout into a continuous string of successful businesses.
I'm not saying everyone gets a multi-billion-dollar exit (and even getting there in the first place is fucking tough; certainly a lot tougher than it was in the '90s). But there are worse paths through life than being a serial entrepreneur who's in it for the love of the game.
That is the problem I always have with this argument. It turns into "do you want to have fuck you money and do whatever or keep your baby"? Why not take 3b and start whatever venture you want? Why not 6 different ventures?
There is a theory called "When the founder drives a porsche", which refers to already wealthy entrepreneurs who have much more appetite for risk to go for the big exit.
Evan has taken at least $30-40M off the table in subsequent financing rounds. He has enough stacked away to go for an exit that deems him a billionaire which my guess at this point would need to be a $5B acquisition (assuming cap gains tax for his piece)
If Thomas Watson, Dave Packard, Ken Olsen, Bill Gates, Bob Noyce, Ben Rosen, Michael Dell, Jim Clark, Scott McNealy, Larry Ellison, John Sidgmore, Ross Perot, Steve Case, Steve Jobs, Irwin Jacobs, Larry Page, Jeff Bezos, Pierre Omidyar, Jerry Yang, Mark Zuckerberg, Evan Williams, and Ben Silbermann all thought like that, I don't think our industry would even exist today.
Maybe others can reply for the other names in your list, but at least Larry Page tried to sell the tech behind the Google search engine to all the major search engines of the era. None of them wanted outside tech (NIH syndrome, etc) and thought their stuff was "good enough". Based on that, if one of those search giants had offered Larry $3B, what do you think he would have said?
I did not know that, thanks! It's hard to imagine SnapChat in such rarefied company as the ones you mention, but I guess that's the point - there was a similar time in all of those companies' pasts, hard though it may be to recall it now that they are successful.
i get what you're saying, but i'm not sure that's actually true. once you are getting offers in the billions it's pretty clear you have something. obviously no guarantees, but certainly you have some potential.
that being said, the market potential for a google is quite obviously higher than the potential for snapchat i think. I can't imagine a future world where snapchat is worth more than google, and if it is, it's almost certainly because they used that valuation to pivot and make something more worthwhile.
[This is not a comment on Snapchat specifically, so I'm going to take out the reference to Snapchat and replace with "X"...]
"that being said, the market potential for a google is quite obviously higher than the potential for X i think. I can't imagine a future world where X is worth more than google, and if it is, it's almost certainly because they used that valuation to pivot and make something more worthwhile."
You can only say that with the benefit of hindsight. At the equivalent stage in Google's life, you might well have been equally skeptical of Google -- and a lot of people were, including at various times their founders and their VCs. It was widely known at that time that search was a bad business -- in fact, the assumption based on several years of prior data was that it was a loss leader for portals. Google itself didn't start with the keyword advertising model, they developed that along the way (in part based on work done earlier at Goto.com, which hadn't worked nearly as well for them).
Equally, at the equivalent stage in Microsoft's life, it was well known that PCs were a toy and that people wouldn't pay for software. At the equivalent stage in Oracle's life, it was well known that data belonged in hierarchical databases on mainframes, not in relational databases on Unix servers. At the equivalent stage in Cisco's life, it was well known that proprietary networks like SNA and DECnet were standard among people who paid for things and that the Internet was only a toy for academics. And so forth and so on.
>>"Equally, at the equivalent stage in Microsoft's life, it was well known that PCs were a toy and that people wouldn't pay for software."
You're mistaken in your analogy.
Regardless of what some people thought they "knew", Microsoft was always in the paid-software business.
Microsoft was formed in 1975 and that year, their revenue was $16,000. In 1977 it was $381K (with net income of $112K). 3 years after formation, Microsoft's revenue was $1.3M.
Microsoft's business plan was based on selling software and they did that from the beginning.
Snapchat was formed around 3 years ago. At this "equivalent stage", they seem to have zero revenue. It also seems like they are holding out for a better purchase-offer. They seem to be on the familiar VC-guided route of "selling a company and its users" as opposed to the old-fashioned route of "selling a software product/service".
In general, I don't think you can equate the growth strategy/prospects of an independent/self-sufficient company that sells software-products with a company that wishes to sell itself.
"At the equivalent stage" - I disagree on all examples. It depends on what we are talking about though. I was talking about 3 billion + valuation, not 2 years into company. I'm pretty sure each of the above mentioned companies were pretty successful companies by the time they got to a 3 billion valuation. Obviously there is some inflation over time, but microsoft didn't get to that point until several years after IPO. Pretty sure at that point it was a bit more clear they were going to be able to make money than snapchat.
Now, snapchat can make money, don't get me wrong. They have a lot of eyeballs and it is worth a big number. I just don't think the number is that big to too many people other than Facebook.
I might be in the minority here but I think snapchat is totally worth 3 billion. And the article says they have a company interested in a round valuing them at 4 billion . If Instagram would have held out longer and not accepted the deal from facebook (They didnt need it the just closed a nice round of funding a couple months before)they would probably be worth North of 6 billion
Those valuations are really not that significant. We don't know the motivations of the investors. They are buying a small piece of the company at a certain price, often for strategic purposes other than simply the investment itself. So, if I buy 3 shares of YCombinator at a price that would value YC at $5 billion, because I want to make connections or explore a strategic partnership with them, does that mean PG could sell YC for $5 billion tomorrow? No way.
If Instagram were to sell 100% of itself today, who would buy it, other than Facebook? There are only a handful of players who can afford $3 billion+ for a speculative acquisition of a company with 0 cash flow. They definitely would not be able to IPO anytime soon, and waiting that long involves a significant amount of risk (by the time they are mature they could be abandoned and worthless). And remember, even if you do IPO, you can't just dump your shares right when the lockup period ends, if you're an executive or insider. You need to disclose your sales and if you're still involved with the company and try to sell all your shares, the stock will likely plummet. The best you can do is buy insurance on the value or borrow against shares.
Same goes for Pinterest. Who would all of the company at that valuation or anywhere near it? Other than maybe Facebook, I can't imagine anyone else.
Pinterest is the greatest cash cow in the making that nobody's talking about. (I mean, they're talking about it. But nobody's talking about it the way they're talking about Snapchat, which is kind of nuts. Pinterest is the perfect ad platform, outside of Google, for a demographic almost every major consumer brand cares deeply about.)
This is a great point, and for advertisers it seems absolutely correct. In part because the purpose of the use and her mindset and the advertisers are in synch. Perhaps somewhat similar is linkedin (now worth ~$20B). FB, Instagram, Snapchat, and Twitter have emerged to be far more disruptive socially as communications platforms. This puts advertsing and the user experience at something of a conflict in terms of functionality (& ignoring here the privacy/data collection debate, which is a different issue). So the reason snapchat is 'hot' right now to FB and VCs is this disruptive potential to entities with deep pockets.
What is interesting, IMHO, is to see if the network effect is really critical, or if the service can be repicated by a thrid party. What I think we will see soon is that people will maintain a network on one site and not necessarily use it; they will turn to other platforms to communicate on an ad-hoc basis. The ad-hoc platforms will have significant value, but wheras instagram and twitter were additional platforms for audience aggregation, the next wave will be service layers where you communicate to your network by "porting over" your contact base, as needed. The only reason I'm bothering to ramble on is that I'm not sure FB wins the game buy buying out SnapChat. That worked for instagram, which had a sticky network and people didn't leave it. For SnapChat, the whole premise is LNT...so why feel stuck to it? Once FB owns it they will track the hell out of everyone using it, so the LNT value prop dies. But the demand will surely remain if the service can be cloned.
I think all they want to say to advertisers is "we have the most active social platform". They can figure out, given enough time and assuming they have patience, how to effectively monetize the snapchat users.
I think differentiating Pinterest ads from content will be tough. The company had previously been rewriting pinned product URLs to include Pinterest's own referrer code. (Users didn't like that.)
Same does not go for Pinterest. Pinterest will be able to make money and lots of it very easily. It is the perfect social site. It is a site for women to tag things they want to buy. It doesn't get any better than that except for maybe google. If I could invest in Pinterest today or anytime in the last few years I'd do it in a heartbeat. The same cannot be said for snapchat.
It's amazing, I never saw the point of Pinterest until I saw my wife using it.
Snapchat on the other hand? I can understand the key selling point - it's basically the naked girl app. And I'd wager that a good proportion of their traffic could get the receivers arrested...
I'd have been all over it when I was a teenager, though.
Instagram would be worth north of $6B based on what, exactly? It just doesn't make any sense to me. Maybe it is because I live in Europe and Instagram is ad-free here so I can't really see it changing peoples lives.
Right now, I would agree. It's just that the reason for using this app (it forgets stuff) is something that is easy to implement, and lock-in doesn't seem to be much of a worry. So it seems like the barriers to entry are very low. I like these people, I'm rooting for them and all, but still.
A month ago, I arrived in Morocco to work on my startup after I quit my job back in Belgium.
I'm living in Taghazout, which is a very small fishing/surfing village. It's quite touristic, so rent prices are high. I'm paying ~$400 per month. However, food is extremely cheap. I easily live on $25 per week when cooking at home.
My studio has a direct view towards the beach with opportunity for spectacular sunsets. The beach is 1 minute away, so I hear the sound of the ocean 24/7. The bays in the area give you more than enough beaches for sunbathing or surfing.
It's definitely warm, more or less around the calendar.
The internet that I have is extremely slow though. That would be a 0.25 Mbps connection. It's enough for working, but any forms of procrastination i.e. YouTube, cat browsing in reddit are nearly impossible. You can find 4 Mbps connection in some houses, but it is extremely rear. My guess is that in the big cities like Agadir, there will be fast wifi.
If you have questions, shoot me an email - filipminev [at] gmail
I've wrote about it in more detail on my blog (there are a couple of more posts about it): filipminev.com/post/63548505248/on-the-startup-road
But in a nutshell - adventure, warm weather, learn to surf, meet a lot of tourists with who I can share my startup idea, and receive feedback prior launching.
I don't know about internet, but I really loved Croatia. Perfect weather on the beautiful Adriatic with some incredible cities. Dubrovnik is the best known, but I spent a couple of weeks living right by Korčula and that was also wonderful.
To me, at least, being in Europe is also a really big plus. I love the idea that I could just take a ferry to Italy and going to Paris or London is only a slightly longer trip.
It's cheap to live in San Diego? Please tell that to my landlord. Certainly cheaper than SF proper, but really you end up paying a lot for gas (Because you drive everywhere) and food. At the end of the day, you probably aren't saving much.
I agree -- I'm starting to think all social media sites have a half-life. I guess I'm too old to understand snap chat. Like -- isn't it just text messaging w/ pictures? Aren't there already a million ways to do that without ads? Any youths want to weigh in?
I'm 30 and didn't really understand it, but I work with teenagers quite a bit. My generation was very excited about putting things online, permanently, a monument to our selves. Things like blogs, facebook, even twitter are pretty much permanent; you're putting your information and ideas out there for anybody to see. What I gather from kids now is that they don't care about permanence so much as connecting with people. So they're leaving FB for the most part, for ephemeral services like Snapchat and Whatsapp (another one I don't understand). They like the idea they can communicate with a single person and have it disappear. They won't be haunted by a bad picture (or naughty ones) the rest of their lives. They don't have to "think" about what they're doing (which I see as a problem, but they think this way). Nothing's permanent, so it's all about the raw conversation.
That said, as a tech guy, every one of the kids I talk to says something like "but I wish it did ___" or "but I'd really rather use ___ if it worked a certain way". I believe Snapchat is successful for maybe one more year, tops, until some other startup gets even more in touch with the latest trends. I would have taken the $3bn and run. FB's and Twitter's days are also numbered, judging by the teenager beliefs today.
For those wanting a good idea (I don't care about this space enough), teenagers are really interested in micro-celebrity. Some of their favorite bands, actors, etc. are local to them, are generally not big hits, etc. but communicate individually with them (even through Snapchat). One of Twitter's big reasons it worked was because of big celebrities communicating directly to fans. Kids now seem to not care at all about big celebrities. If you can find a way to even more easily connect smaller celebrities/bands to young fans and allow personalized interaction, you just found a potential next big thing.
They're trying to buy them out because SnapChat is a problem, just like how Instagram was. At some point, everyone was just posting a link to their Instagram photos in their status. In other words, it is validation that you are being disruptive, and you should definitely hold on.
I think it depends on how risk averse you are, if you're willing to press on you may potentially end up with a higher valuation or it could start going wrong and you've got no chance of getting as strong an exit. Also depends on your motivation about building a business, if it's about money then taking a strong early exit is a sensible idea, if it's about building the business and exploring it's future then selling and seeing your vision disappear is probably a worst fate than losing out on the money.
I'd personally sell and I'm not very risk adverse, I always push for more when I'm gambling, but if you're exiting at a $1bn value you're going to have enough to explore most ideas without worrying about outside investment.
The argument could be made that 2nd acts in tech rarely go well. See youtube founder getting sued by Kanye and others. There are of course exceptions.
Does anyone know the name of the instagram founders? Not really. They got money but only a little fame. If Evan sells out then maybe he is less known. Gamble but a chance at legendary status.
I guess goals matter. What is "reputation" and what does it mean, except for your future goal execution. If you want to start more companies, meeet more people, retire, etc.
I don't understand "legacy" or "legendary" status at all. Bill Gates may get a footnote in history, but what are you really chasing after for "legendary"? Do most people even know the YouTube founders? Does being a dead artist with legions of fans mean anything?
Now I'm getting existential, but I don't understand your comment on "fame." They should break into movies with their $20MM or so, or music if they so desire "fame."
I absolutely agree. I can see this article being reposted on HN in a few years as a laughable cautionary tale for unrealistic entrepreneurs. Snapchat gained a significant user base quickly with very few resources. The next popular app will do the exact same thing and curtail Snapchat's growth and prospects.
No the reason you will may never be a billionaire enterpreneur is that you are probably yet to build something. If you did build it, and Facebook offered you $3bn. You are damn near a billionaire if not. Who's still counting? $500million or $1billion. I don't know that I can tell the difference or feel it in my lifetime.
What separates the "billionaire entrepreneurs" and the "other entrepreneurs" is that the billionaire entrepreneurs know something others don't (market insight).
With this being said, I believe if you knew something others didn't understand you would not be doing a) or b).
I don't think you lack vision: I think you simply see what many others see - that Snapchat will be one of the many Myspaces of mobile.
Even if it stays afloat, it will soon be valuated much, much lower than it is now.
With $3 billion, you could put a rocketship on Mars, do serious research into gene-modifying medicine, start new cities on the ocean, make automated laboratories that shrink the cost of medical research - you know, sci fi shit. I'd trade a teen messaging startup for that any day.
Exactly. It's funny that on a network of primarily tech founders, everyone seems to be looking at this as spending money, when the real pleasure is in using wealth as capital to really "make a dent in the universe".
2. Snapchat figures Snapchat is worth more than that, and refuses the offer.
The valuation multiples lately have gotten me to wonder what I'm doing. I'm quite familiar with a growing startup that has 9 figures in yearly revenues, and a 9 figure valuation. It makes almost as much money as Twitter, but the valuation is less than 300x smaller. It makes infinity times more money than snapchat, but has a thirtieth of the valuation. What is going on?
"It makes infinity times more money than snapchat, but has a thirtieth of the valuation. What is going on?"
A valuation isn't just based on how much money a company makes right now. It's based on how much money the company's expected to make over its lifetime. Snapchat's valuation [1] is based on expectations of high future revenue.
(There was a point where Facebook & Twitter had 0 revenue, too. Now they're both multi-billion dollar public companies.)
These stories always cause scepticism, especially in the HN crowd. It's the most common response ("What?! 4 BILLION!?"), and an easy one (i.e. doesn't require much thought), but it's the wrong one.
Sure, you can argue over the exact number, but let's consider the reverse claim: are you really willing to bet that an app that processes 350m+ messages every day is worth nothing? If not, what would you value it at?
Answering that question requires hard thought; reflexive scepticism doesn't. And if you were really imaginative & thought it through, you'd probably arrive at quite a high number.
For many consumer apps, the path to market dominance involves offering a service for free at first, and then 'monetizing' later on. The whole point of venture capital is to allow that (common) pattern to happen; the result is massive companies - like Dropbox and Airbnb - that weren't always cashflow positive, and that meaningfully benefit the world.
Perhaps it was crazy of Snapchat to turn down $3 billion, and maybe they really are overvalued, but it seems obvious that they are worth a lot of money [2].
[1] Although valuations make great media stories, valuation is really not that meaningful a number for private VC-funded companies.
[2] If you don't agree, consider that both Mark Zuckerberg & the founders of Snapchat disagree with you. So either you're smarter than Mark Zuckerberg & the founders of Snapchat, or you're probably wrong.
Yes, I'm willing to believe it's worth nothing. I'm actually willing to believe it's worth less than nothing; that the cost of running a service processing that much data for free may be higher than the service is truly worth.
I'm not saying that's the case here, but it really is not hard to imagine. It's quite obviously possible when you're giving away physical things for free. The only difference here is that free software is a hell of a lot cheaper than free cupcakes, but the cost still isn't zero.
How many "messages" do copper telephone wires owned by Verizon carry every day? Does that make those wires worth trillions?
How much is "Email" worth? If you could "own" Email, but not have any way to monetize the transport of messages, and no way to charge for the service, how much is it worth solely because billions of messages are transmitted with your service daily?
Since when are "messages" valuable? Come on, who wants to own a Protocol?
Snapchat could flash advertisements before and/or after 'snaps'. How big that ad market is would just be a guess with little data to back it up.
The big risk for Twitter, Snapchat, and some degree Facebook is the more money they attempt to make off of users, from advertising, the easier it is for someone else to start a less intrusive competitor. The cost of creating, launching, and maintaining a service like this will keep dropping.
Facebook purchasing Snapchat is just creepy. They think delete=hide.
As someone who works in the advertising space I can tell you with a great deal of confidence that SnapChat will not be able to monetize in the way you describe and make enough money (without pissing off users) to justify the price tag.
Unless they've got a very clever model that is more advanced than what you've described or that FB or Twitter have ever used it's a very long shot. Unless the owner has a personal issue with FB and didn't want their money for this reason I do not believe this was a sound business decision.
I'd love to be wrong but I don't think I will be in this case.
Question: If you were to have a CS grad from Stanford offer you 50% of all of his income for the rest of his life. How much would you pay in one lump sum? $100? $1 million? Probably more… Point is, you would agree the number is not zero.
He doesn't have a job yet (and never had a job before), but by any measure everyone that knows him says he's extremely talented. And now he's even getting huge job offers from Google and Facebook.
Would you say that you wouldn't make that investment? Is he worthless cause he has an upcoming rent payment due and also has to feed himself?
It would be an extremely risky bet which I would never make. There's no guarantee that the grad wouldn't take your money and live the rest of his life as a heroin addict -- lots of smart people don't live up to their potential. Also, he might get hit by a bus tomorrow.
Similarly, lots of companies run by smart people don't live up to their potentials, or are not lucky enough to be popular long enough to make billions of dollars.
Definitely not, because at that valuation the offer is suspiciously too cheap - in fact it's so cheap it's unlikely he'll pay out because the first thing he'll do is hire a lawyer to get out of that contract.
You're nitpicking. It's a hypotethical. He's trying to show how something that is not profitable right now might still have positive value.
The point of the question is whether you expect the person to earn enough that getting 50% of their life income would be worth 100, 1k, 10k etc. today, not 'how likely that person is to actually keep the deal'.
But that's exactly relevant to the point - the issue is that the details of the arrangement matter, which is relevant to the wider point: how are we expecting profit to be made? Gesticulating to size doesn't actually monetize something.
I'm sorry, but your hypothetical is bad for this scenario.
This only works if, in addition to all of the other possible risks we all face in life, this CS grad could simply disappear because a CS student in the new freshman class is more interesting.
Snapchat is risky because it's audience is as fickle as they come.
I would actually argue that there are more top tier Stanford CS grads than there are startups with Snapchat's engagement numbers. The value of the student should be discounted more than the value of snapchat from a competition standpoint.
In either case the point was to illustrate that, all risks considered, snapchat is still worth a lot of money. I have yet to see anyone (HN commenters, tech press) argue about what their valuation should be, which seems like the reasonable follow up to "It should not be $3 billion".
We can agree that its not zero, then what basis can we use to agree that $3 billion is inaccurate?
Yes, you are entitled to believe it's worth nothing. But the only problem is that, the market has decided it's worth anywhere from $0 to $3 billion.
Facebook is not paying for the software. A very good hacker can put together a snapchat app in an afternoon. Facebook is paying for the traction and the fact that the people who are using both services are not exclusive set of people. therefore, the more a user spend time on snapchat, the less she spends on Facebook.
As already mentioned, this is not about how much they are making now, it's about how much they could potentially make in the future. Facebook knows this better than you and I because they've been there.
Any dollar that SnapChat makes in the future is potentially a dollar facebook would have lost and that is what they are trying to protect.
FB can throw $10b at snapChat and some people (me not included) will still find sense in it. Look, if on March, 2006, a 'crazy' billion said he has envisioned that twitter is the next big thing and threw $5b for a 99% stake, everyone would have called him shit crazy but in just 7 years, he would have made a cool $16b on his investment.
No matter what you think about how silly the service is, its ability to be monetized is where the value lies.. In a logical world, an investment in coca-cola shouldn't be considered a safe one at all, but here we are!
Snapchat needs to be valued not as a social network, maybe as a amateur porn company.
I have lots of friends who use Snapchat (mostly the teen to college demographic), and they all use it for photos that they don't want other people to ever see. They use iMessage or Whatsapp for everything normal.
The user generated content literally disappears in 10 seconds, and you are left with... nothing.
> The user generated content literally disappears in 10 seconds, and you are left with... nothing
It doesn't disappear, and whilst it might disappear off their servers I can guarantee that won't be the case in the future. At some point a court is going to force SnapChat to preserve a user's photos on their systems, probably someone under a wiretap or surveillance. I wouldn't be totally surprised if this hadn't happened already.
"It's based on how much money the company's expected to make over its lifetime." - So guess work right. Because a company that isn't generating revenue yet without a model yet is nothing more than speculation. Like you cannot reliably predict the stock market based on historical data alone.
What this all means is that companies like Snapchat are all hype geared mainly for the ones with vested interest to get a quick cash out. There is nothing "lifetime". Kinda like the stock market where you see volume (demand) move thinking that supply will drop and price will go up so you make stupid decisions to jump in.
As for Facebook, maybe Snapchat is worth that much to them. To Facebook it would increase their users engagement and spin the marketing engine. For the public market Snapchat is an over valued company based on speculation, hype and fueled by those with vested interests. There really is nothing stopping competitors from entering this space. There is no IP in timed photo sharing. Unless I missed something?
as a threat to FB it worth much more. FB is just too slow to recognize it. Wrt. feeling of immediacy/in-the-moment/real-time we have progression from "archaic grand-ma long form" style of FB status update, wall posting, etc.. -> TWTR -> Snapchat. FB is $100/user, TWTR is $100/user and the $3bn is about the same valuation for Snapchat.
The real question is how in the world any of these companies are going to making $100/user. I am a user of FB and TWTR and I can't imagine how I will ever make that much money for them. Certainly I can see some money, but not that much. CPM's just aren't that high. Snapchat? not a chance.
They probably don't. They are in land grab mode for users, and SnapChat has the young teen audience that Facebook (relatively) struggles with (which, for whatever reason, seems to bother Wall Street). They probably bid far beyond what they value it at currently, assuming they can find a way to monetize it later once they have the users.
I was glossing over a detail that what the company is worth to Facebook may be different to what it is worth to the owners.
There is a little known gem of modern microeconomics called the Myerson–Satterthwaite theorem. It states that under certain assumptions (Bob knows what an item he owns is worth to him, Alice knows what it is worth to her, both values are drawn from some commonly known random distribution) there is no mechanism that will guarantee that trade takes place exactly when it "should" (when the item is worth more to Alice than to Bob) and that relies on truthful revelation by both parties.
That is, even when there is room for profitable trade, negotiations may break down because the only way to ensure the perfect outcome is for each agent to truthfully reveal what the object is worth to them, and there is no way to give people an incentive to do this in all cases.
I would take this further and say, how do we know this was a real offer an not PR? Or there were onerous conditions that 'could' value this at 3bn but was more likely significantly less.
Am I the only one who gets very irked that something as stupid and useless as Snapchat, Facebook, Instagram, etc. get valued so highly, while actual useful products by comparison are worth exactly nothing? It seems like you can spend years carefully building something useful, that actually improves people's lives and maybe cash out for peanuts, or you can do something that is borderline abusive, or just a time waster, and become an instant billionaire. </rant>
We've regulated the hell out of stuff and left bits relatively unregulated.
Hence, more money going into bits. And more instant billionaires. Also no cure for cancer, or flying cars or (insert 1950's projection of the 21st century here).
edit: I'm borrowing Peter Thiel's "bits and stuff" metaphor here.
I don't buy it. More regulation surely would change how software companies are valued, but I don't think lack of regulation is why they get valued so highly. Whether regulation here is good or bad I will not touch.
My first inclination for why things like Facebook and SnapChat are valued so highly is because investors operate under the delusion that reaching many eyeballs means profit. What they seem to not grasp is that there is a fundamental difference between things like print and TV ads and ads on Facebook. When Facebook was bought, I did a rough calculation that given their valuation and number of users they'd need to extract $50-60 on average from each user to justify the valuation. That's a huge number. Most I know people to date have given them exactly zero: they don't play the games, click on ads, etc.
Once the idea that having a huge number of inert users comes under test and we realize that it doesn't hold up, the valuations will plummet.
Believing a company is overvalued is not sufficient reason to short it. You must also have a reason to believe that other investors will realize it's overvalued sometime soon too.
> Hence, more money going into bits. And more instant billionaires. Also no cure for cancer, or flying cars or (insert 1950's projection of the 21st century here).
Other countries like China have close to zero regulation compared to the USA in many areas. Why are there no Chinese cures for cancer or flying cars, if regulation is the overwhelming reason why?
Actually Chinese medical regulation is in some ways worse than America! (I work in medical devices.) it's certainly more arbitrary.
But the larger answer to that question is that China is still moving into the first world, a process that would be retarded if they were throwing massive amounts of capital into R&D
Medicine is subject to FDA regulation at the manufacturer level, JCHO at the hospital level, various state boards at the provider level, and both state and federal agencies at the payor (insurer) level.
Actually I would argue that the reason for no cancer cure is that it's illegal to offer experimental drugs to people who 1) consent and 2) are going to die anyway. But that's another show.
Well according to Techcrunch's 'startup unicorn' analysis post, enterprise software startups deliver more value per investment dollar than consumer startups. We just don't hear about them nearly as much because they aren't consumer facing, and are not nearly as controversial as snapchat.
At least snapchat is not psychologically exploitive company, like zynga, the guys who make clash of clans and such.
>>while actual useful products by comparison are worth exactly nothing?
You already see the results of this don't you. If people were half serious about something like medical electronics the way they are about Facebook. The cost of diagnosis and testing etc would be way lesser.
That's a very self-centered rant–"stupid" and "useless" are subjective. I find Instagram extremely useful and would say it improves my life to some degree. I could care less about Facebook and SnapChat. I also think video games are a complete waste of time–YET I would never say Facebook or EA should not be worth some large amount of money.
I also think you don't give enough credit to "dumb luck". Sometimes timing, external forces, chance encounters, and coincidence can make silly things take off and useful things get lost in the mix. The key is to maximize your opportunities as best you can.
Hate to re-hash the Innovator's Dilemma here, but this makes me judge big media companies less harshly. With Facebook, we have a company that is roughly just a decade old, and yet instead of organically creating a service that is well within their capability and talent, they find it easier just to acquire.
Just a decade or two ago, newspapers also had this kind of buying power and tendency to acquire rather than create...the New York Times bought About.com for $400M in 2005, and then sold it last year for $300M (in cash).
I was never a big user of About.com, but the way its layout didn't change much over the years, and how it seemed to be built on a not-very-flexible CMS, makes me think that if instead, the NYT in 2003-2005 (when it had even more money to spend) just had an in-house team of technologists and a budget of $20-40M a year, could've built a much-better info source, and one that would've, by now, been as dominant as About.com, but with the quality of NYT-in-general.
I know Facebook's clone, Poke, ended up being a failure...but it can't be just because the engineers and thinkers who work at FB are, on average, worse than the SnapChat inventors. How much management and political baggage did it have? (I'm assuming that the cost to build Poke was also under $1 billion...I hope)
Well I'd argue that it might be political baggage.
Is SnapChat's product really worthless? I mean, what it offers -- the ability to casually and anonymously (...or not) send selfies and other private missives -- is clearly valuable to people. And if Facebook buys it just to shut it down, won't people just eventually flock to another service?
Or, worse, won't people stop using a FB-owned-and-operated SnapChat precisely because it is owned by FB, and thus has even less of an illusory sense of privacy? And similarly, any FB-managed service has that lack of illusory privacy and casualness...so what does FB accomplish here? The two or so years it takes before people flock to some other non-FB service?
To Facebook, yes. Facebook managed to throw together a Snapchat clone (Poke) in a couple of weeks. There is no IP, no technology worth acquiring, nothing that couldn't be done in house at very low cost.
What Facebook doesn't have is the brand. I suppose you could argue SnapcChat's product is the brand. That's what's valuable. Personally, I think it's a foolish play. As Facebook know well, there's no guarantee SnapChat users won't flock to another service in a few years (let me rephrase that: SnapChat users will flock to another service). And SnapChat currently has no business model to speak of in terms of per-user revenue.
SnapChat's product is not worthless, it just doesn't comprise much of the value of the company. People don't use SnapChat because of the product itself, they use it because of the brand and popularity among their friends.
Think about what an exact clone of SnapChat with no users or brand equity would be worth. Probably negative value to most of us, without distribution resources. It would be of some value to Facebook, but getting people to change behavior and gel around a new product is hard, even for Facebook.
So yes, the value of SnapChat, and most consumer companies, is not in the product itself.
I cannot understand the mindset of someone who turns down an offer of $3 billion dollars for their company that has no path to revenue, let alone profit.
IMO, this is why you avoid investment money. Can you imagine VC "partners" forcing you into a decision like this?
$3 Billion dollars _IS_ changing the world. How much more could you possibly want? What kind of future is preferable to the one you'd have had you taken this deal?
I feel like that is a valid argument when talking 7 figures. "I'll decline $3 million because I feel 4 is coming". This makes sense because we are talking about real difference making dollars. But the difference between $3 billion and $4 billion to 2 people is not going to make a difference to your lifestyle, maybe your children's, children's, children's lifestyle.
Depends what they want to bankroll. Sure, it is enough to be sitting on a beach for generations, but they might be looking at sending robots to fetch asteroids, or something equally outlandish. Then betting on an extra few billion might make a lot of sense. Also, there is the possibility that shouldn't be discounted when people refuse to sell, which is that they actually have a plan and want to try and execute it.
He tried to sell for $75m in early 2005. Then for $750m in late 2005. Apparently a lot of luck mixed with a lot of greed turns anyone who succeeds in to a savant.
The product is different.. maybe. But that is not the point.
OP of my reply was talking about how crazy it is for Snapchat to reject a $3 billion buyout offer. My reply was that Zuck just a mere 7 years ago rejected a $1 billion offer and people thought he was crazy for doing that. He obviously wasn't.
I understand that part. However, my point was that the Facebook product in itself has many more opportunities for monetization than SnapChat. SnapChat has eyeballs, but no data, no platform, no secret sauce. I mean, apart from in-app purchases and/or advertising, what can you think of that could generate revenue for them? Facebook, even 7 years ago when Zuckerberg turned down $1B, had much greater potential.
Can anyone explain to me how they're worth $3 billion dollars? They haven't produced anything, they haven't advanced humanity, they have the eyeballs of teens - for the moment, until something cooler comes along. Are they really that valuable? It doesn't seem like there's any show stoppers for creating a snapchat clone (rather than having X users at the moment), and if snapchat were to start making money - say by sending ads to endorse a product rather than a user generated picture, people would probably start leaving the platform towards the newest green pasture.
I recently got a new phone, and I got hooked in to all the services my friends were talking about in recent memory - instagram's dead, twitter's dead, snap chat is in flux. Not for all users, but in my group of friends these services aren't used as much. There isn't really anything keeping you from moving onto something new - your digital life isn't really that valuable. It's probably better to not read the conversations you had a year ago. The pictures are always nice, that's probably the only thing that people would care about, but with Snapchat they're gone (unless you hit save). I'm not sure what I'm getting at, but this company isn't worth $3 billion dollars.
Interestingly, instagram has taken on a new life for preteens who can't convince their parents to allow a chat app. The kids are using the posting function as a pseudo-chat feature.
This is just insane to me. I don't care how much you believe in yourself. You have never made money, and are offer $3b in cash. That should be enough to more than satisfy your investors. Facebook seems like they are pretty good as acquirers, based on the Instagram acquisition, they have let Systrom and his team basically do their own thing, with a bit of prodding on faster releases and a monetization plan. I don't find the Instagram experience to be any worse. Plus, they now get the essentially unlimited Facebook resources, and likely a pretty awesome salary and gig there. I honestly haven't heard anyone effectively defend this.
Facebook spurned a $2bn Acquisition offer from Yahoo.
I'll say now about SnapChat what I said about Facebook at the time: They probably know something about their market that we don't that leads them to credibly believe they're worth more than $x bn.
Not so fast. On 1 December 2010 (around when Google bid $6 billion for Groupon) the 3-year Treasury traded at 0.84% - thus $6 billion in December 2010 was worth no less than $6.2 billion today.
If you put $6 billion into the Russell 3000 index on 1 December 2010, on the other hand, it would be worth $8.7 billion (14% more) today. Given that Groupon is a high-beta mid-cap stock, I would expect this figure to be closer to a fair baseline than the prior one.
Even if we cede that Groupon would have had a better IRR for investors had they sold for $6bn; A move does not have to be correct with final knowledge to be correct with present knowledge.
My point is more that I don't think any information can be gleaned about whether rejecting this offer was a good idea from the fact of the rejection itself. You can look at this and say "Boy, they must know what they're doing to turn down that kinda scratch!" or you can look at it and say "They are crazy idiots."
The information that can be gleaned is that they internally value the company at a higher price.
My argument then, is that given that think about their company 24/7 and that they have access to data that I do not that they probably have a reasonable basis for believing that their company is worth more than the offer.
I further bolster my belief that their conclusions are reasonable with the fact that they have to justify their valuation to a board, many members of which represent IRR centric VC firms.
From the fact that a VC backed company rejects any offer you can glean quite a lot of information. Its a fairly simple exercise of "what had to happen?" and "what would you have to believe?".
St. Petersburg lottery[1] has an infinite expected value, but it definitely is not an investment. No actual person would be willing to "invest" more than a very small amount into it.
1: there is a finite upper bound to the payoff, fixed at the amount the casino has, so calling the ev infinite ignores real constraints.
2: infinity is a valid concept on Mathematics, but not in economics. If there were infinity in economics there would be no constraints and no reason for the field of economics to exist.
3: by my definition, playing the st petersburg lottery is an investment up to the amount of of money the casino has on hand. I'd argue that it is further prudent to play if you're guaranteed a sufficient N and $x price such that your available disposable cash = ($x * N) leads to a positive value at least 50% of the time.
Hate to be negative, but this could be their "Groupon Moment". When Google offered Groupon $6bn for the company, they said no because they thought the hockey stick would never end. Now they're in shambles, and nobody is cashing out like they thought.
Snapchat is a GREAT product, but the potential for monetization is limited and there are a lot of negative things about its security coming out lately. Seems like a good time to "take the money and run", but maybe they'll prove me wrong.
Then again, I'm not sure this is a very meaningful answer - the variance in startup valuation is huge, so it could just as easily be $8 billion today, just through randomness.
Hate to be negative, but this could be their "Groupon Moment". When Google offered Groupon $6bn for the company, they said no because they thought the hockey stick would never end.
While that was part of the reason, there were other reasons as well. They were concerned that regulators would block the sale, so they were seeking a bigger "breakup fee" than the $800 million Google offered.
It's worth noting that Facebook's SnapChat "competitor" Poke, which was rumored to have been created after the $1B offer was rejected, was released almost a year ago: http://techcrunch.com/2012/12/21/facebook-poke-app/
I suppose waiting the year added another $2 billion.
I think the additional $2 billion in value was created by showing they have a strong enough brand that a competitor can't throw together a clone quickly and take away their market share.
Snapchat's monetization potential is staggeringly limited. Snapchat adds ads, they annoy people, everyone moves to Poke or some other platform which does the same thing.
Facebook at least, have a way to use the data from Snapchat to add value to their other products - Snapchat, not so much.
Not relevant to OP but I think companies like Snapchat becoming so popular might not be good sign for this society's intellectual health. As already been discussed here, we are becoming a society with very short attention span. I know there is market for all this, but then one could say there is market for face-creams that make people fairer(atleast in my country such a cream is very popular). Imagine if we had a society where a decent SRS(spaced repetition software) extension would have been offered so much wealth.
I see a lot of the comments the thinking in the founders logic. But remember there is also likely a good deal of pressure from investors who, depending on circumstances, have quite a bit of say on if they approve a deal or not. It is not uncommon for founders to want to sell and the vc want to hold out to produce a better return.
Why is that? Economics of a venture fund. Say a VC recognizes this is likely to be the biggest winner in their fund. If I run a $400 million dollar fund and I am trying to return 3 times that to my investors that means that I have to make my investors $1.2 billion. Considering my fund only owns 10% of the company, a sale for $3 billy ain’t gonna cut it.
Yes, this would be one of the 30 investments I made from this fund, but I am only expecting 3 of those to really knock it out the ballpark. I have to extract all my returns from those three.
I certainly don’t know that this is the case for Snapchat, but it has been the case for some. While this may sound like it’s holding founders money hostage, this is the game they (hopefully) knew they were getting into when they took that first dollar. Best of luck to them, they are still very much killing it.
I really cannot fathom any investor that would not be absolutely ecstatic over a $3B exit for a product like this. Would any VCs care to comment on this specifically?
Therin lies the problem. That is the fundamental conflict between the diversified vc and the concentrated entrepreneur. It is not a secret, in fact a lot of good VCs want entrepreneurs to have a very clear understanding of what the end goal is.
I think you are perhaps conflating returns on the fund as a whole vis-a-vis returns on an investment by investment basis. The goal of a VC, as I understand it, is to only invest in companies that can provide 10x returns, providing that one of those investments does return 10x, one returns 2x, three break-even, and five are outright failures. If a VC owns 10% of a company that exits for $3B, then the VC gets $300M, which returns 75% of the total fund. I very seriously doubt any VC firm would have stopped this transaction.
Lots of comments here about people trying to understand why SnapChat rejected the offer, but I've yet to see much discussion about the other half:
Why would Facebook offer SnapChat $3B? If they believed like most others would, why wouldn't they just ignore SnapChat and let it die like the fad it seems to be?
It's not just SnapChat that thinks they're worth more, Facebook does too.
My background is in Finance, I have traded and followed the markets closely for nearly a decade and I've studied or read about basically all major bubbles that happened around the world for the past millennium.
Price cycles are an inherent part of capitalistic markets, periods of both over and undervaluation will always happen, that's basically a part of the games rule.
In the late 90s happened the web bubble. When is the mobile one going to take place?
Now back to Snapchat. They are looking more and more like what I imagine the poster boy of the mobile bubble would look like. Also, the macro conditions (tech stocks making new highs after new highs, investors throwing easy money at basically anything related tech etc.) are currently very bullish, which means perfect conditions to the birth of a new a price bubble.
That being said, I wish the Snapchat crew the best wisdom and luck of the world in navigating both the good and the bad times, whatever comes next.
Actually I'm just about to start fundraising - similar to short selling only I don't lose money if the market keeps going up ;)
Trying to catch a bubble is very risky business. The biggest upward moves happen just before it bursts so you can easily get totally wiped out if you don't get the timing right with your shorts even if you are right. That's not something I'm willing to figure out right now.
Also, I'm long term bullish on tech stocks. Doesn't mean I think there're no sucker plays going on right now though.
There is no way Snapchat is worth $3 billion. I don't think the idea is even worth $100 million. The funding round alone was insane. I don't know what is going on in the valley and San Francisco these days, but I guess these startups have to be funded somehow and these VCs want their return so everyone will be rooting for transactions like these to happen.
If I had stumbled onto Snapchat and Facebook offered me $3 billion, I would've grabbed the money before I could blink. I'd probably even throw them a party to thank them for being so nice.
There will be too many imitators, and this privacy problem will be solved in other ways. It will all cause Snapchat to die off. It will never realize these lofty valuations.
Despite the fact that whenever I read things like this it depresses and befuddles me, the truth is a company (or really anything) is only worth what the buyer is willing to pay for it.
Is Snapchat really worth $3b? Apparently they are, because someone was willing to buy them for that much. It doesn't matter if they make 0 revenue, or if they 0 users, or the worst possible financial metrics. At the end of the day, if someone is willing to buy them, then the founders and investors will get their return on investment. The VCs won't care if they are hemorrhaging money as long as at the end of the day, there is some sort of exit that is a multiple of their initial investment.
I think the revelation I've discovered since diving into entrepreneurship is that worth is not simply as black and white as how much money you're bringing in versus how much you are spending. Part of a business model appears to now be acquisition - it's like the analogy of do you want to offer a product for $100,000 to 10 users and earn $1mm, or do you want to sell a product for $10 to 100,000 users? In this case, it's selling 1 product (your business and it's userbase) to a customer (the parent company) for a large sum.
When you look at it that way, businesses are simply commodities just like the products that are offered within them. The business itself is the product. In that sense, the customer-facing product is simply just a mechanism to the greater product, which is the sale of the business.
I hope I've articulated myself clearly enough, but that seems to be the rationale that makes the most sense to me when I see seemingly "fruitless" businesses valued at exorbitant amounts.
This is NOT a comment on Facebook or Snapchat or any other company I'm involved in --
You're sort of right. The other part that fills in the logic is "what is the value of business X to acquirer Y" -- seen through the eyes of acquirer Y -- business X when it becomes part of Y.
When Y buys X, X's opinion or the market's opinion of what X is worth is only one input. The more important input is usually what Y thinks X will be worth as part of Y. That is hard to understand from outside of Y. I am aware of deals where the purchase price was way more than X thought they were worth, but Y still got a bargain -- and every other permutation you can imagine.
For this reason it's very hard to have an objective view of what X is worth in the abstract -- the takeout price in an acquisition depends on who is buying it at least as much as any other factor.
Try selling all that Groupon stock and see how long the market cap stays there. 6 billion in cash or even Google stock is way better for the investors.
This valuation dance is strictly tied to how long the Fed can keep the stock market artificially inflated. The moment the market tanks - which is the inevitable downside to a five year bull run - the value that a company like Snapchat can command tanks accordingly.
We're also due for another recession shortly, just going by the averages.
It seems as though the founders are intent on becoming billionaires. Hard to imagine not cashing in (at 22!) for enough money to live the rest of your life and the rest of your children's lives without a financial worry in the world. I mean, what is the end-game for him here? More money?
Does anyone else think that this seems to be, at least to some extent, a defensive play by FB? They seem to be determined not to go the way of MySpace and are thus pursuing a strategy of acquiring whatever company/service begins to capture large swaths of their audience (e.g. Instagram).
It seems a risky bet that may backfire at some point. If they expend $3B on a company largely to reacquire the same eyeballs they once had themselves, then those eyeballs flee the acquired property, then FB will have to rinse and repeat. A few such deals of this scale and they may have a problem.
And, when you look at properties like SnapChat in particular, you see that its differentiation is somewhat gimmicky and potentially ephemeral--accelerating the need to do acquire again.
Seriously, whats has happened here, i see this over and over on HN, the top 12 comments are about Costa Rica! A few yrs ago we would be talking about the market, statistics, strategy etc but now its like reading TMZ. Where has the substance gone guys?
Does this mean that the current investors of snapchat (or maybe the board members) also believe that snapchat is worth far more than 3 billion dollars? Basically, was it just the CEO of Snapchat who made this decision or were there others involved?
But this is a brilliant publicity and, perhaps, together with the principle of delaying gratification, will pretty soon bring them $5B offer.. Money are printed nowadays.)
It is a lousy investment, btw. Teens will quickly migrate to some new cool similar service as long as they will see FB logo, so they will end up with another dead Yahoo Messenger.)
Snapchat is great because they found such an exclusive niche - the sexting service for teens, so they could easily wait for a better offer.
guys, gals, ladies and gentlemen. The valuation is purely greed. A raw human emotion not governed my logic or common sense. There's no financial model that will be able to justify Snapchat at $3bln. So stop using logic to justify and/or invalidate viability of the business.
People are greedy, especially VCs. they inflate the valuation since you have Facebook ($114bln market cap) and other big Asian investors willing to pony up.
Anybody want to venture a guess as to what those 350 million daily messages are worth as far as advertising goes? I feel like they would be relatively "low quality" ad impressions but could they be worth a 0.1 cents per? I'm also wondering how much better and more targeted an ad platform it could be by figuring out users' interests based on the social graph data.
In my spare time I like to generate some organic search traffic for "lung cancer" and "asbestos" and "mesothelioma" and click the AdWords. My Google stock has been going up as long as I've been doing this. /s
If you're turning down a $3b acquisition you probably have your eye on an IPO right? I'm genuinely interested in where Snapchat plan to go to line up an IPO if that is the case, because their current product seems horribly difficult to monetise - to me anyway, I'm interested to see what they have planned.
Why would a company plan an IPO when they currently don't have a business model that makes money? Suggesting Snapchat is gearing up for an IPO is laughable.
People work their entire life and when they're rich, they think that working is the worst thing that could happen to them. Nature only allows the fittest to win. Somebody who never works on his own, is in no way fit, useful or in any sense going to be happy with anything he owns or will own. Switzerland is doing the right thing, by paying it's citizen for living. The citizen make the country worth, what it's worth, not the banks, not the government or anything else.
I can understand how they value that offer by that logic. It's always a risk, but that's what makes the game worth playing. 3 Billion is a lot, but their future valuation must be close to that, if they are sure enough to decline the offer. Alright dear traders, get your keyboards undusted and unleash your bids when Snapchat files an IPO.
Snapchat is worth 3-4 billion because someone offered to buy them or invest for a percentage that valued them at that price.
People arguing whether or not it is worth that price are silly. It's like arguing whether a house is worth the asking price. It is if there is a buyer who values it at that price.
Are the sticking their noses up at a $3bn offer because they want more money in an acquisition (GroupOn), or because they have a compelling vision for the product (Tumblr)?
Because I HIGHLY doubt the good folks at Snapchat have a vision for their product that is so important that selling out would be wrong. It's snapchat. If it disappeared tomorrow, millions of people would shrug, and that'd be it.
As far as I can tell, the best tactic for me would be to create a product that seems so stupid that I couldn't possibly ever picture using it myself.
Nobody ever went broke underestimating the good taste of the American public, as they say.
Most people who have the ability to create professional apps and websites, such as those of us on HN, are so far removed from this segment of audience that we don't have much of a chance of understanding and creating whatever products they actually want.
I can't think like the average 12 year old with a 103 IQ. I wasn't in line with average kid thinking when I was 10 or 12 and certainly I'm not now.
Ooh, that seems unwise. I'll be happy to be proven wrong but man is 3 billion gonna be tough to beat. I know a lot of people use it and all, but still. Wow.
Here's an interesting analogy. Suppose you own a small parking lot in NYC and a developer wants to build an 80 story apartment building. He has bought out all the land surrounding yours and offers you $X for your lot. Assume $X represents fair value plus a small premium. Would you take this deal? Or would you hold out for more, knowing that you're the final piece to the puzzle?
I have no inside information on whether this is real or not, but I always take these type of stories with a massive grain of salt. These posts play well to the interests of the startup and lots of false rumors get circulated. There's little accountability as both companies will say "no comment".
Bad move. I am willing to bet that Snapchat will never earn more than 3 billion in profits or get a better acquisition offer. The only concievable opportunity would be an IPO where its market cap could concievably be higher for a limited time.
Looks like Spiegel didn't pay attention at the bullish attitude Andrew Mason had this early on turning down crazy acquisition offers with Groupon, and we know how that ended.
Another part of this that SnapChat could benefit from is Facebook's legal team, who are probably the best versed in founder disputes of any team in the country.
Does anyone remember a simar company a while ago with large traffic and little revenues that was almost acquired for $1B but turned it down called Digg ;)
a) sitting on a beach in Costa Rica
b) giving a completely different project a shot with my new found riches
Maybe I just completely lack vision, but what happens in two years when Snapchat likely isn't cool anymore and all the kids are onto the next thing. Where will the money be?