Whatever you might think of Snapchat, it’s apparently worth $10 billion to technology investors. The company isn’t going public, but it is getting an influx of cash, making it one of the new tech darlings.
The Wall Street Journal story by Evelyn M. Rusli and Douglas MacMillan had these details about the new private equity investment:
Kleiner Perkins Caufield & Byers has agreed to invest in the fast-growing ephemeral message service Snapchat Inc. at a valuation of close to $10 billion, people with knowledge of the matter said.
Snapchat, which has talked to several potential investors in recent months, is in the process of raising a large investment round that would make it one of the world’s most valuable private tech startups despite virtually no revenue.
Kleiner, one of Silicon Valley’s best-known venture-capital firms, committed to invest up to $20 million in May, one of the knowledgeable people said.
At least one strategic investor has also committed to invest in the round, which isn’t yet closed, two of the people said.
DST Global, the Russian investment firm led by Yuri Milner, also invested in Snapchat earlier this year at a valuation of $7 billion, according to two people familiar with the matter.
Parmy Olsen wrote for Forbes that the investment was just another round of funding for the company:
Earlier this month, for instance, we reported that Snapchat had mysteriously authorized the sale of 17.4 million shares at just $0.001 each. Those 17.4 million shares represented a relatively small, 3-5% stake in Snapchat, according to VC Experts analyst Justin Byers — and if that investment was tied to Kleiner’s new funds, it suggested Spiegel and Murphy have yet held on to a decent chunk of equity.
Funding since last December would have had to dilute their stakes to below 10% to keep from qualifying as dollar billionaires, which again is unlikely.
According to a separate report, Snapchat’s user base has grown to 100 million monthly active users as it explores nascent business models such as advertising, money-transfer and content discovery.
Steven Musli wrote for CNET that the site continues to grow in popularity, especially with younger users:
The 3-year-old mobile app, extremely popular with youngsters, offers people an way to send text, pictures, and videos to friends that disappear after a few seconds. Members upload more than 400 million images every day, CEO and co-founder Evan Spiegel said last October.
ComScore, an industry researcher, said earlier this month that Snapchat was the third-most popular social media app among people between the ages of 18 and 34.
The Los Angeles-based startup, which has virtually no revenue, has been discussing a new service called “Snapchat Discovery” that would allow media companies and other advertisers a way to display ads to Snapchat’s users, according to a Journal report last week. Snapchat, which declined to comment on the report, is expected to launch the service in November.
Bloomberg’s Sarah Frier said that the site still needs to figure out how to make money:
Snapchat, led by Chief Executive Officer Evan Spiegel, makes the third-most popular app among millennials, after Facebook Inc. and its Instagram photo app, and it’s used by 33 percent of 18-to-34-year-olds in the U.S., according to ComScore Inc. The funding would value Snapchat at more than three times what Facebook CEO Mark Zuckerberg offered to pay for the startup last year, making Spiegel look prescient for turning it down.
Snapchat has yet to unveil a business model. Even though advertising isn’t an option, marketers have been experimenting with ways to reach the application’s users, said Debra Aho Williamson, an analyst at EMarketer Inc. Taco Bell, for example, has been sending out doodle-enhanced ephemeral photos using the company’s Stories feature, which makes posts available for 24 hours.
“They’re intrigued with Snapchat because they see that usage is growing and it’s getting popular among the younger demographic,” Aho Williamson said of advertisers. “They see an opportunity to be more creative and test out new types of advertising they can’t do on Facebook or Twitter.”
In a corporate filing in Delaware on Aug. 4, Snapchat authorized 17.4 million shares of new preferred stock, an increase from the 1.2 million shares a month earlier, in a precursor to selling a stake in itself. The shares are valued at a fraction of a cent, according to the filing.
“The valuation of our business and our capital requirements are the least exciting aspects of supporting the Snapchat community,” Mary Ritti, a spokeswoman at Snapchat, wrote in an e-mail yesterday. “We have no further comment at this time.”
It seems like a lot of money for a company with no business plan and no revenue model. But one thing has proven true, many investors have made a lot of money on firms that seem to be a fad if they get in at the right time. And for all purposes, making an investment before the initial public offering has proven to be lucrative. So, here’s to the next tech darling.
