Snapchat Spurned $3 Billion Acquisition Offer from Facebook

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 &quot;here&#x27;s 3bn, please give us your users&quot; -- 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&#x27;t care how badly they may maul my creation, I&#x27;m either:<p>a) sitting on a beach in Costa Rica<p>b) giving a completely different project a shot with my new found riches<p>Maybe I just completely lack vision, but what happens in two years when Snapchat likely isn&#x27;t cool anymore and all the kids are onto the next thing. Where will the money be?

I&#x27;m having a hard time understanding how,<p>1. Facebook figures Snapchat is worth $3B, and<p>2. Snapchat figures Snapchat is worth more than that, and refuses the offer.<p>The valuation multiples lately have gotten me to wonder what I&#x27;m doing. I&#x27;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?

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&#x27;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. &lt;&#x2F;rant&gt;

Hate to re-hash the Innovator&#x27;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 <i>well within their capability and talent</i>, they find it easier just to acquire.<p>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).<p>I was never a big user of About.com, but the way its layout didn&#x27;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&#x27;ve built a much-better info source, and one that would&#x27;ve, by now, been as dominant as About.com, but with the quality of NYT-in-general.<p><a href="http://mediadecoder.blogs.nytimes.com/2012/09/24/times-completes-sale-of-about-com/?ref=aboutinc" rel="nofollow">http:&#x2F;&#x2F;mediadecoder.blogs.nytimes.com&#x2F;2012&#x2F;09&#x2F;24&#x2F;times-compl...</a><p>I know Facebook&#x27;s clone, Poke, ended up being a failure...but it can&#x27;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&#x27;m assuming that the cost to build Poke was also under $1 billion...I <i>hope</i>)

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.<p>IMO, this is why you avoid investment money. Can you imagine VC &quot;partners&quot; forcing you into a decision like this?<p>$3 Billion dollars _IS_ changing the world. How much more could you possibly want? What kind of future is preferable to the one you&#x27;d have had you taken this deal?<p>Can anyone make sense of this?

Can anyone explain to me how they&#x27;re worth $3 billion dollars? They haven&#x27;t produced anything, they haven&#x27;t advanced humanity, they have the eyeballs of teens - for the moment, until something cooler comes along. Are they really that valuable? It doesn&#x27;t seem like there&#x27;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.<p>I recently got a new phone, and I got hooked in to all the services my friends were talking about in recent memory - instagram&#x27;s dead, twitter&#x27;s dead, snap chat is in flux. Not for all users, but in my group of friends these services aren&#x27;t used as much. There isn&#x27;t really anything keeping you from moving onto something new - your digital life isn&#x27;t really that valuable. It&#x27;s probably better to not read the conversations you had a year ago. The pictures are always nice, that&#x27;s probably the only thing that people would care about, but with Snapchat they&#x27;re gone (unless you hit save). I&#x27;m not sure what I&#x27;m getting at, but this company isn&#x27;t worth $3 billion dollars.

This is just insane to me. I don&#x27;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&#x27;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&#x27;t heard anyone effectively defend this.

Facebook spurned a $2bn Acquisition offer from Yahoo.<p>I&#x27;ll say now about SnapChat what I said about Facebook at the time: They probably know something about their market that we don&#x27;t that leads them to credibly believe they&#x27;re worth more than $x bn.

Hate to be negative, but this could be their &quot;Groupon Moment&quot;. When Google offered Groupon $6bn for the company, they said no because they thought the hockey stick would never end. Now they&#x27;re in shambles, and nobody is cashing out like they thought.<p>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 &quot;take the money and run&quot;, but maybe they&#x27;ll prove me wrong.

It&#x27;s worth noting that Facebook&#x27;s SnapChat &quot;competitor&quot; Poke, which was rumored to have been created after the $1B offer was rejected, was released almost a year ago: <a href="http://techcrunch.com/2012/12/21/facebook-poke-app/" rel="nofollow">http:&#x2F;&#x2F;techcrunch.com&#x2F;2012&#x2F;12&#x2F;21&#x2F;facebook-poke-app&#x2F;</a><p>I suppose waiting the year added another $2 billion.

Not relevant to OP but I think companies like Snapchat becoming so popular might not be good sign for this society&#x27;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.<p>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.<p>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.<p>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.

Lots of comments here about people trying to understand why SnapChat rejected the offer, but I&#x27;ve yet to see much discussion about the other half:<p>Why would Facebook offer SnapChat $3B? If they believed like most others would, why wouldn&#x27;t they just ignore SnapChat and let it die like the fad it seems to be?<p>It&#x27;s not just SnapChat that thinks they&#x27;re worth more, Facebook does too.

I have a very bad feeling about Snapchat.<p>My background is in Finance, I have traded and followed the markets closely for nearly a decade and I&#x27;ve studied or read about basically all major bubbles that happened around the world for the past millennium.<p>Price cycles are an inherent part of capitalistic markets, periods of both over and undervaluation will <i>always</i> happen, that&#x27;s basically a part of the games rule.<p>In the late 90s happened the web bubble. When is the mobile one going to take place?<p>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.<p>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.

There is no way Snapchat is worth $3 billion. I don&#x27;t think the idea is even worth $100 million. The funding round alone was insane. I don&#x27;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.<p>If I had stumbled onto Snapchat and Facebook offered me $3 billion, I would&#x27;ve grabbed the money before I could blink. I&#x27;d probably even throw them a party to thank them for being so nice.<p>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.<p>Is Snapchat <i>really</i> worth $3b? Apparently they are, because someone was willing to buy them for that much. It doesn&#x27;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&#x27;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.<p>I think the revelation I&#x27;ve discovered since diving into entrepreneurship is that worth is not simply as black and white as how much money you&#x27;re bringing in versus how much you are spending. Part of a business model appears to now be acquisition - it&#x27;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&#x27;s selling 1 product (your business and it&#x27;s userbase) to a customer (the parent company) for a large sum.<p>When you look at it that way, businesses are simply commodities just like the products that are offered within them. <i>The business itself is the product</i>. In that sense, the customer-facing product is simply just a mechanism to the greater product, which is the sale of the business.<p>I hope I&#x27;ve articulated myself clearly enough, but that seems to be the rationale that makes the most sense to me when I see seemingly &quot;fruitless&quot; businesses valued at exorbitant amounts.

Was the offer withdrawn after 10 seconds?<p>...but actually just renamed to a .nomedia extension and left on the HDD?

Groupon was offered about $6 billion by Google in 2010.<p>Groupon turned them down, thinking they were worth more and then went the IPO route.<p>Now, in late 2013, Groupon has a market cap of $6.8 billion.<p>Moral of the story? Take the money and run.

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.<p>We&#x27;re also due for another recession shortly, just going by the averages.<p>The clock is ticking Snapchat.

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&#x27;s lives without a financial worry in the world. I mean, what is the end-game for him here? More money?

I can&#x27;t see how Snapchat would be able to be able to make $3 billion in revenue on its own, but I could see how it might be worth that to FB.<p>Shut up and take the 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&#x2F;service begins to capture large swaths of their audience (e.g. Instagram).<p>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.<p>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?

Anyone who uses snapchat is an idiot. Fortunately, there are a lot of idiots in the world.

Hey, remember when Google offered to buy Groupon for $6 billion or whatever? Good times.

It&#x27;s funny because $3billion is 58% of what Facebook took in last year in revenue.

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.)<p>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.)<p>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&#x27;s no financial model that will be able to justify Snapchat at $3bln. So stop using logic to justify and&#x2F;or invalidate viability of the business.<p>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 &quot;low quality&quot; ad impressions but could they be worth a 0.1 cents per? I&#x27;m also wondering how much better and more targeted an ad platform it could be by figuring out users&#x27; interests based on the social graph data.

This is ludicrous. Snapchat has no fucking revenue. What a chronic joke.

How do you buy a company in which their only revenue stream is to seek more funding?<p>A Social Media Startup&#x27;s steps to profit:<p>1. Collect Users 2. ? 3. Profit!

If you&#x27;re turning down a $3b acquisition you probably have your eye on an IPO right? I&#x27;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&#x27;m interested to see what they have planned.

People work their entire life and when they&#x27;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&#x27;s citizen for living. The citizen make the country worth, what it&#x27;s worth, not the banks, not the government or anything else.<p>I can understand how they value that offer by that logic. It&#x27;s always a risk, but that&#x27;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.<p>People arguing whether or not it is worth that price are silly. It&#x27;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)?<p>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&#x27;s snapchat. If it disappeared tomorrow, millions of people would shrug, and that&#x27;d be it.<p>Last time I heard about a big founder snub a gigantic offer, it was GroupOn...and well... <a href="http://business.time.com/2013/03/01/groupon-fires-ceo-andrew-mason-the-rise-and-fall-of-techs-enfant-terrible/" rel="nofollow">http:&#x2F;&#x2F;business.time.com&#x2F;2013&#x2F;03&#x2F;01&#x2F;groupon-fires-ceo-andrew...</a>

As far as I can tell, the best tactic for me would be to create a product that seems so stupid that I couldn&#x27;t possibly ever picture using it myself. Nobody ever went broke underestimating the good taste of the American public, as they say.<p>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&#x27;t have much of a chance of understanding and creating whatever products they actually want.<p>I can&#x27;t think like the average 12 year old with a 103 IQ. I wasn&#x27;t in line with average kid thinking when I was 10 or 12 and certainly I&#x27;m not now.

Do we know who holds the majority of the voting stock in this case?

Ooh, that seems unwise. I&#x27;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&#x27;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&#x27;re the final piece to the puzzle?

It is all about vision. What is their vision of the future?<p>1) Make a cool buck, and chill out in Costa Rica.<p>2) Make cool companies forever.<p>3) Make Snapchat HUGE and somehow remake the world with it or something else.<p>4) Asteroid mining.<p>If (1) is good enough, and guaranteed, then all options are still on the table.<p>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.<p>I personally would aim for (4) or (5) :-)

He&#x27;ll face Groupon&#x27;s fate.<p>Honeymoons of offers to overhyped entities tends not to last long, and competitors are not sleeping either.

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&#x27;s little accountability as both companies will say &quot;no comment&quot;.

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.

&quot;When a company you barely heard of spurns billions of dollars...&quot; is what I said, about Groupon.<p>I heard Snapchat managed to carve themselves a valuable niche, but this seems like overconfidence.

Looks like Spiegel didn&#x27;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.

Why do most people think the founders still have a saying in this?

Another part of this that SnapChat could benefit from is Facebook&#x27;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 ;)

I can only imagine how the markets would have reacted to FB spending 2% thereabouts on a company with no revolutionary IP or revenue.

The real problem with this is that Facebook is acknowledging the value of Snapchat.

how much is <a href="http://www.google.com/patents/US8428453" rel="nofollow">http:&#x2F;&#x2F;www.google.com&#x2F;patents&#x2F;US8428453</a> worth

Too many comments to read. They are idiots.

OOOOHHHHHHHHHHHHHHHHHHHHHHHH Snap!