The purpose of these big rounds, usually, is founder liquidity.<p>Snapchat could easily get acquired, making the founders (and early employees) very rich.<p>But investors don't want them to sell yet. So investors buy a lot of common stock (from founders/employees) at a big valuation, making the founders (aka the only board members who aren't already rich) rich, so that the founders are less interested in selling.<p>Some of the money goes to the company. But it's not usual for 20-25% of big rounds to go to founders/early employees.
HAHA 3.5 Billion Valuation!<p>Honestly I am afraid that Snapchat will suffer the same fate as MySpace or DIGG once the younger generation finds something new (look at who uses google+, no one and I am not talking about your techy friends). We can already see young teens are leaving facebook. To be honest I stopped using it once my parents and other older adults started joining and that was 2-3 years ago.<p><a href="http://mashable.com/2013/08/11/teens-facebook/" rel="nofollow">http://mashable.com/2013/08/11/teens-facebook/</a>
Does anyone else find this valuation incredibly ironic given that in 1999 Yahoo! bought Geocities for $3.57 billion?<p>I mean, does anyone believe that Snapchat is going to ever be a service that brings in billions of dollars in revenue?
It really is astonishing how the most idiotic services gain so many users by "going viral." And it just motivates more hackers to work on being the next Snapchat or Instagram rather than putting in the effort to solve the real problems that plague our society.
The only way Snapchat is worth $3.5 billion is if they have been secretly saving all of the photos and they threaten to post them all online unless the users pay $100 per photo.
$3.5B for an app lots of developers could create over the weekend is absolutely incredible. It also has absolutely no income, and very little avenue for actually gaining any. I don't know what they're doing to need seed money, I can only imagine that the service runs itself outside of tweaking EC2 instance sizes.
I will leave the bubble question aside and ask what is the money raised being used for? Infrastructure to do what? Doesn't snapchat delete the photos after the other party sees them? Or this another ad play where photos are stored and some big data program will create targeted ads.
<i>"Besides the huge piles of investment dough being poured into [these companies], here’s what else [they] have in common: Little to no revenue. That does not seem to have stopped a panoply of venture and other investors from jumping in and ponying up with huge amounts of cash for the privilege of investing in several fast-growing startups, hoping to grab ahold of the next Twitter or Facebook early."</i><p>I don't know anything about Snapchat's internal operations or plans, and therefore can't really judge whether the company will eventually figure out how to make enough money from its self-destructing messages to warrant a $3.5 billion valuation today. What I DO know is that whenever investors start "jumping in and ponying up with huge amounts of cash for the privilege of investing" (in new companies with no revenues), there's a good chance that valuations are getting too optimistic -- and <i>that</i> never ends well.<p>Maybe this time things really are different, but it's hard for me not to see some parallels with the "dot-com bubble" of the late 1990's.[1]<p>--<p>[1] <a href="http://en.wikipedia.org/wiki/Dot-com_bubble" rel="nofollow">http://en.wikipedia.org/wiki/Dot-com_bubble</a>
One thing I don't get Snapchat is that if I use an iPhone (Android probably has other way to do so), I can always make a screenshot whenever I open your naughty pictures, right? So what's the point even if the naughties get deleted in a few seconds, if I have a local copy anyway?<p>I know I don't belong to the targeted demographics, just out of curiosity.
I have to say, I'm a little shocked that Snapchat's valuation is only ~10% lower than Pinterest's (3.8bn)<p>I would think there is a pretty huge difference between their potential revenues
The valuation is based on what I would call "defensive valuation".<p>Instagram was bought for $1 billion, not because it had any billion dollar revenue generating potential. It, however, had the potential to erode Facebook. So Facebook buys it out as a defensive move.<p>Snapchat, given its huge user base, could potentially threaten Facebook, so Facebook would be forced to acquire them, purely as a defensive strategy.<p>Think of it as the cost of defending their empire.
This is ridiculous. How exactly does Snapchat plan on profiting from their user base if they have yet to have proven a revenue model?<p>Sure, advertisements seem like the end game, but how will they be targeted? How can they be implemented without severely affecting application experience and user expectations?
Something that always bugs me about valuations, wondering if someone could explain.<p>A lot of these investors probably have multiples. So if someone $1m in a company for 10%, and the company sells for $5m, they'll get back at least $1m, rather than $500k.<p>If investors are only putting money in with these multiples, then doesn't it artificially raise these valuations? If so, is there a measure for the valuation of a company that takes this into account?
So the investors funding Snapchat at a $3.5+ billion valuation, think it will one day be worth $10 or $15 billion (at least). Yeah....<p>The Fed has finally done it with their hyper loose monetary policies (for the third time in 15 years). I think it's safe to assume the dotcom insanity has begun again. It's also drastically pushing up dotcom valuations in the public market as well.