Snapchat Spurned $3 Billion Acquisition Offer from Facebook
blogs.wsj.com
blogs.wsj.com
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?
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.
That's the best I have come up with too.
10million * 3% dividend stocks = 300k per year just having it sit there. Maybe not entirely risk free, but not too risky either.
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.
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).
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.
... why am I writing this comment ...
That's a huge difference.
At $20 million, there is nothing you can't do. At that point, with some wise long term investments, you wouldn't need to worry about finances.
When we talk about "interest" here, I think its defined as passive low-risk investment income that is able to be taxed at a lower capital gains rate.
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.
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.
I'd say they should be able to monetize that quite well.
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.)
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.
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.
Here's a speed test (while off my VPN and at a restaurant rather than my house): http://www.speedtest.net/my-result/3099024113
http://www.ticotimes.net/Business/Internet-slow-but-speeding...
Costa Rica has among the slowest Internet speeds and least broadband access in South America.
Costa Rica's internet is better than Nicaragua though!
We have occasional hiccups in San Jose, but mostly it works pretty smoothly. I've worked in Playa Hermosa and had no problems.
BTW, if anyone is considering developers in Costa Rica, send me an email.
wow, what are you doing? How comes you could afford it? Are you a developer? You're living the dream!
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'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!.
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.
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.
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
http://www.inc.com/allison-fass/peter-thiel-mark-zuckerberg-...
What's the best country to hang out on with a beach & super fast wifi?
Costa Rica always gets thrown around - but wondering if there's anything better/warmer/cheaper/faster.
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
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.
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.
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.
He is a great(and rather rare) example of bootstrapping your money upwards. Most people only get lucky/good once.
With this being said, I believe if you knew something others didn't understand you would not be doing a) or b).
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)
I always liked the quote from Entrapment "What can you do with 7 billion that you can't do with 4?"
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 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 was early to FB, a little late to Twitter, but I love it now, loved Instagram... etc.
But Snapchat? Nah, "that's for the kids"
The others cant compare, its not a chat with oh send a file or upload picturr click here there herr and there. ugh.
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.
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.
"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.
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.
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.
Steve Case: sold AOL to Time Warner for $164bn
Ev Williams: sold Blogger to Google for an undisclosed sum
John Sidgmore: sold UUNet to MFS Communications for $2bn
Ross Perot: sold EDS to General Motors for $2.5bn (in 1984 dollars!)
Just sayin'.
[Yes, 20 years later from the point in time I'm talking about.]
Steve Case: sold AOL to Time Warner for $164bn
[$3 billion isn't cool. You know what's cool? $164 billion is cool.]
Ev Williams: sold Blogger to Google for an undisclosed sum
[Obviously I was referring to Twitter.]
John Sidgmore: sold UUNet to MFS Communications for $2bn
[Brainfart -- I meant John Morgridge.]
Ross Perot: sold EDS to General Motors for $2.5bn (in 1984 dollars!)
[Yeah, but that's when $2.5 billion was real money.]
3 bn is not cool anymore.
You known what's cool? 10 bn!
1. Facebook figures Snapchat is worth $3B, and
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?
How much were eyeballs worth back in 1999? I don't quite remember. Was it more or less than $50 per eyeball?
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.
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.
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.
1. Some friends I know use Snapchat for 'photos they don't want other people to see'.
2. Therefore, most people use Snapchat to send porn.
3. Therefore, Snapchat should be valued as an amateur porn company.
Do you really believe that's a valid argument? And that all of the 350m+ photos sent on Snapchat every day are porn?
You actually don't need the Ctrl key. Just PrintScreen will also do the same thing.
WindowsKey + PrintScreen is a nice idea. Problem is, I usually do Alt + PrintScreen. Adding the Windows key doesn't do anything in that case.
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.
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.
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?
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.
All of those factors (risks) have to be taken into consideration, and you price it as such. It's still a > zero figure.
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'.
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.
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?
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?
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.
You really think Snapchat deletes the images? Lets pretend they did, I bet the NSA keeps a copy.
laughable.
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.
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!
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?
There is an actual metric to judge your value by, rather than using fuzzy valley metrics.
http://37signals.com/svn/posts/1941-press-release-37signals-...
"When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation" :)
The valuation of companies with no record of profits and no easy path to profitability is utterly ridiculous.
Facebook made an offer of $3B, all that implies is they think Snapchat is worth more than $3B.
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.
At least snapchat is not psychologically exploitive company, like zynga, the guys who make clash of clans and such.
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.
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.
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?
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.
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.
Ultimately we only get what we want.
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.
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.
http://mediadecoder.blogs.nytimes.com/2012/09/24/times-compl...
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)
SnapChat is a brand with users. Not a product. The product itself is worth very little.
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?
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.
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.
I don't see a lot of upside from $3B, but I've been wrong before...
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?
Can anyone make sense of this?
The one where you sell for $4 Billion dollars.
This is what baffles me. I cannot understand it for one second.
You literally created 3 billion dollars out of nothing. What can you possibly have up your sleeve?
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 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.
Facebook is (rightly or wrongly) perceived by the market as:
1) Losing its cool
2) Suffering from user flight
3) Still not offering significant competition to short-message social networking
For a $116B company, offering 2.8% of its total value to fight off what might be a a future 20%+ loss in value is a no brainer.
Those gains were basically wiped out when the CFO said, "We did see a decrease in daily users specifically among younger teens."
With that one comment $18B in value disappeared.
I have no idea if Snapchat is worth $3B but what happened Oct 30 should give you an idea of how valuable that demographic is to Facebook.
On a side note, Google should buy Snapchat and integrated it into Youtube and use it as their new commenting platform (half kidding)
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.
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.
Maybe they know something, maybe they don't.
I have a feeling that company wasn't quite the disaster you think it was.
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.
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."
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?".
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.
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.
http://www.businessinsider.com/groupon-google-deal-turn-down...
I suppose waiting the year added another $2 billion.
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.
Specifically I'd prefer open source JavaScript.
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.
Mendelson touches on this in a post: http://www.jasonmendelson.com/wp/archives/2013/06/the-vc-bar...
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.
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.
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.
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.
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.
...but actually just renamed to a .nomedia extension and left on the HDD?
Groupon turned them down, thinking they were worth more and then went the IPO route.
Now, in late 2013, Groupon has a market cap of $6.8 billion.
Moral of the story? Take the money and run.
Am I missing something? Didn't groupon technically do around $400million better out of not accepting the deal?
We're also due for another recession shortly, just going by the averages.
The clock is ticking Snapchat.
Shut up and take the money.
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.
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.
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.
A Social Media Startup's steps to profit:
1. Collect Users 2. ? 3. Profit!
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.
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.
"Why is Snapchat worth $3 billion? Because Facebook is willing to pay that much and investors are willing to invest at that valuation."
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.
Last time I heard about a big founder snub a gigantic offer, it was GroupOn...and well... http://business.time.com/2013/03/01/groupon-fires-ceo-andrew...
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.
1) Make a cool buck, and chill out in Costa Rica.
2) Make cool companies forever.
3) Make Snapchat HUGE and somehow remake the world with it or something else.
4) Asteroid mining.
If (1) is good enough, and guaranteed, then all options are still on the table.
Only if (4) scale projects are the goal should they sell now. If any other vision is really what they have in mind, they are set.
I personally would aim for (4) or (5) :-)
Honeymoons of offers to overhyped entities tends not to last long, and competitors are not sleeping either.
I heard Snapchat managed to carve themselves a valuable niche, but this seems like overconfidence.
They didn't turn it down.