Snapchat Raises $50 Million In Series C From A Single, Undisclosed Investor | Hacker News Reader

Snapchat Raises $50 Million In Series C From A Single, Undisclosed Investor

techcrunch.com

64 pointstomashertus64 comments

Prior to using Snapchat, I truly wondered what the big deal was. Why is the valuation so high, and what value proposition does it offer? I'm certainly not an expert in the matter, but perhaps my observations can relay some insight to others who just can't seem to grasp it.

Snapchat is a tool that primarily allows a user to become closer to (1) acquaintances, and (2) existing friends who may have drifted away over time. Let's rephrase this a few ways to unveil the value. Snapchat is a communication tool that's useful for overcoming shyness. Snapchat allows users to break the ice, facilitate conversation, and overcome awkwardness. Snapchat allows the user to converse with acquaintances and distant friends that would otherwise be too awkward via other methods like texting, email, Facebook, etc.

In fewer words, Snapchat makes communication trivial.

Just Snap a picture of something, add some silly text or a drawing on top, and push it out to everyone. After all, what's the harm? The picture goes away, and if no one Snaps back it doesn't really matter. There's no evidence of a failed attempted communication, e.g., an un-responded email, text without a reply, comment on a wall without a Like or a response. In this way, Snapchatting is a lot like fishing. Cast your snaps, see which old friends or acquaintances reply, and strike a conversation, hang out, hookup, etc. later on.

The disposable aspect of Snapchat provides a new medium for conversation starting. You know what conversation leads to? Deeper friendships. And who's really interested in knowing who your friends are? If you aren't making "new friends" on Facebook, but elsewhere, you can see why Facebook might be startled. But that fear starts to compound when you consider aging relationships are being nurtured on Snapchat as well.

After all, if you aren't reconnecting with your current friends on Facebook, what good is it? All that's left is the News Feed and what everyone is up to. Hm. Enter Snapchat's "My Story" feature, where you can essentially create a 24-hour lasting Snap, very similar to status updates on Facebook. Interesting.

I'm not sure Facebook being cool or uncool has much to do with it. I suggest the bigger factor is being able to communicate with peers, despite shyness. Overcoming awkwardness, facilitating conversation with a lack of confidence, or whatever you want to call it... Snapchat is a layer below Facebook. Said another way, turning acquaintances into friends (Snapchat) pre-empts the need for maintaining friendships (Facebook).

> (1) acquaintances, and (2) existing friends who may have drifted away over time.

sounds like facebook to me :)

That's exactly how I felt about FB vs email, so maybe this really is another step in the direction of "trivializing communication"

It probably has unforeseen collateral damage though, much like FB.

Except that Facebook posts are public and everyone can see the failed communication attempt. Or Facebook messaging which is no better than email/text messaging and demands a reply. I love snapchat for exactly this no reply needed nature

Or its just primarily used for sexting.

I don't have any data, but from everything I've observed the "sexting" aspect of Snapchat is wildly overblown. Most people just use it for goofy little communication between friends.

I guess people keep bring it up because they think it's funny or think it makes them seem cynical, but it would be a mistake to think Snapchat is primarily used for sexting.

I would disagree from the reddit threads revolving around snapchat and nude pictures and 4chan threads. I would think its a mistake to think its not used primarily for sexting.

I don't have any data either but I think comments like op above are really trying to legitimize a sexting app. Lets take the recent Tumblr acquisition. Most tumblr blogs involved porn although they were able to legitimize is it as a better blogging service.

Because reddit and 4chan are representative of Snapchat users. Right? Right..?

Seriously, of all the users of Snapchat that I know, only one of them is a reddit user as well.

no but they are representative of their primary demographic. Your personal experience means a lot less than the two biggest sites used by snapchat's target demographic.

And your unsubstantiated statements mean more..?

how is it unsubstantiated ? reddit has subteddits dedicated to sharing snapchats you can see subscriber numbers 4 Chan is a little harder to measure but the fact the threats are brought up several times a day days a lot

Some reddit users are snapchat users != most (or even a substantial minority!) of snapchat users are reddit users.

Statistics 101.

>Most tumblr blogs involved porn

This is blatantly false. It was estimated that about 10% did. Porn was never the biggest draw of Tumblr.

Although it would be unethical for the Snapchat folks to do a statistical sample to find out, I'd estimate that sexting is no more than 1% of Snapchat, probably more like 0.1% or 0.01%.

I beg to differ: http://youtu.be/FarGT40V8tc

This seems like the type of video I'd expect in a response on Reddit. That is, it's a response that's trying to be funny (or link something funny) rather than continue the conversation at hand.

I was really hoping it would be a link providing evidence to one side (Snapchat is primarily sexting) or the other side (only a small % of snapchat usage is sexting).

The joke can't exist in a cultural vacuum. It has a lot of views and resonates with people because sexting on Snapchat is A Thing.

You can't really have much more than anecdotal evidence at this point, so I offered this.

Having cybersex on Skype is a thing, but you people just don't say Skype is used for cybersex.

while the highschool story they spout sounds great on paper, a lot of their primary growth in the early days were early /b (4chan) threads for pics.

The CEO of the company I work at uses Snapchat.

i have no problem admitting this to my friends, snapchat is currently my favorite app on my phone. most people i tell that to dont understand and think im a creep, and they are the ones who have never used it.

however with that being said: the app is free and has no ads.... they must have some crazy ideas in stock.

> however with that being said: the app is free and has no ads.... they must have some crazy ideas in stock.

Gonna go out on a limb here and predict that they'll do the old, "wait until we have a gazillion users, then start injecting ads."

I think they'd struggle more than some companies that have done that though - Facebook and Twitter have huge network effects which makes them super difficult to replace, Snapchat just seems so replaceable. If they annoy people in hyper local friendship groups they'll just find something else.. as long as they convince their friends to follow they lose nothing.

on top of the fact ads are disposable. The user stories feature is really a way to make their ad business viable.

Interesting. I thought it was the opposite direction. Since the nature of a snap is short term, people are more likely to pay attention because it will be gone. Thoughts?

People will pay attention to it, but there isn't as high of a pressure to respond, in contrast to a Facebook wall post or message.

I like your take on it turning acquaintances into friends. I think it is spot on.

For a while I have been saying that Snapchat is for sharing moments digitally. It makes sense that sharing moments, digitally or not, brings people closer.

You almost sold me on it, but the fact that I can only send photos still prevents me from using it. My girlfriend and I communicate via text a lot. If we could exchange random photos and messages through Snapchat, I'd try it out. As it stands, I have no desire at all to jump between messaging apps to talk to the same person in different ways.

Uh snapchat certainly shows you if someone viewed your snap. It also shows you what 3 people anyone snapchats with the most (best friends are publicly viewable), a public score system which can be used to track usage, as well as showing you everyone who views your timeline photos.

Also, the alternatives are too formal (don't get auto erased), or far too dramatic (Facebook, where who knows what your privacy settings are non trivial to deal with, and new friendships aren't kept away from prying eyes of your friends and family).

new friendships aren't kept away from prying eyes of your friends and family

This is an often overlooked point...even in the many casual interactions that turn into (casual) friendships later on...raising the stakes has little upside and significant downside

You just made me a Snapchat user. Installing it now.

So is Snapchat just big enough and hot enough that investors will ignore due diligence red flags? In any other startup, I feel like a year of litigation over an founder's equity stake would send investors running. If you haven't seen the Snapchat deposition video leak on Business Insider, it's well worth a look.

> So is Snapchat just big enough and hot enough that investors will ignore due diligence red flags?

Maybe! Or more accurately, the investors will just price this into their expected return. Let's assume the third founder wins and gets some number of shares equal to the number of shares owned by one of the other two founders. Let's also assume, for the sake of illustration, the investors collectively hold 100 shares and each of the founders holds 100 shares. In the worst case scenario (for the investors), those newly issued shares dilute all of the current stockholders equally -- e.g. the investors would go from holding 100/300 shares to 100/400 shares.

Well that sucks. But if you bought into Snapchat with the expectation of a 4x return, all that means is that you're now getting something closer to a 3x return. Not as much as you hoped -- but it still might make sense from an investment standpoint to hop on.

If anything, the actual litigation probably made things easier for the investors. It's much easier to price the risk from actual ongoing litigation than potential may-or-may-not happen litigation. Moreover, the litigation probably gave the investors more leverage against the founders -- e.g. it's possible the investors required the founders to bear the brunt of any extra dilution resulting from the lawsuit.

One perspective is that a friend got screwed out of shares. Another view is the real drivers behind the company were smart to not give a dispensable person a third of the company, and are seeking a discount on mistakenly made legal commitments by drawing out the litigation. As an investor I would take the second view. The deposition video also shows Spiegel is clearly CEO material.

$50 million is 5% of the net worth of someone worth exactly $1 billion. That's equivalent to someone worth $150,000 investing $7,500. Not quite a quarter down the slot machine but an amount one can still gamble with and not destroy their life.

No offense, but this is a terrible argument. Corporations worth $10's of billions do not exempt themselves from doing due dilligence on $50MM deals. Not by a mile. It is negligent to not have a process that structures investment reviews, of which due dilligence is a key part. The (corporate) materiality threshold is not alone enough of an exuse. It is gross negligence to studiously looking the other way...as your modus operandi. (It doesn't scale).

Here's the link: http://www.businessinsider.com/snapchat-lawsuit-video-deposi...

Kind of like Facebook?

Does anyone doubt that Facebook actually offered $3billion and google $4billion? Could that have been done as hype?

Snapchat Landed Sony Entertainment CEO Michael Lynton As An Investor, Board Member. http://www.businessinsider.com/snapchat-sony-entertainment-c...

Is "founder liquidity" exactly like what it sounds? Does that money go right into the founders' personal bank accounts?

So apparently founder liquidity is something investors do with hyper growth companies to prevent them from selling too early. It is suppose to take the risk out away from the founders and align their incentives towards the higher expected return IPO/gigantic acquisition outcome.

More or less, yes. The founders sell some of their stake for cash so that they are left free to focus on the company rather than worrying if they are going to make rent.

I don't think anybody's worried about making rent:

http://la.curbed.com/archives/2013/12/snapchat_cofounder_jus...

Exactly. It's very rare that they take all the money off the table, but it's enough to easily pay the bills, while still leaving them with enough of a stake to shoot for the moon.

Which usually doesn't mean employee liquidity :/

I bet the "Single, Undisclosed Investor" is Tencent

Why do you guess that?

"However, it’s now confirmed through court documents and TechCrunch’s inside sources that Tencent has already invested in Snapchat, likely during the Series B round."

Given the fact they secretly invested in series B round and didn't disclose it.

DST/Milner

Ten cents says it's Tencent.

these guys are so incredibly douchey i can't be bothered to use their shit.

I feel like Snapchat would be the perfect way for flash sales sites like Groupon et al to advertise - Think targeted/exclusive limited-time-only coupons.

It would be Daily Deals 2.0 - Mobile-first and and ultra time-constrained to induce even more impulse purchases.

Does SecondMarket still let you buy securities of private companies?

Only if the companies shares allow it (and, if applicable, the company itself approves it.)

My question is are the shares of any company available for purchase currently? I didn't find a list on the site.

The CIA--er, Carlyle Group.

In-Q-Tel

IVP?

Presumably a joke originally, but suddenly relevant: http://www.quora.com/Silicon-Valley/What-is-spider-pooping-a...

Uh.... this cannot seriously have been a thing?

Is this how I have to get Thiel to invest in me?

I can't tell if it's (a) exactly the sort of thing that would catch on among the VC elite-- which is what makes it so damn believable and funny-- but hasn't, or (b) if it's a real thing. I'd guess mostly (a), but who knows.

Well, michaelochurch... guess we can see if we benefit from this practice. I am free at 4pm, your toilet or mine?

I think I'm gonna make a quick startup and sell it for $50M

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