Most interesting is the question of how Facebook's interest is impacting Snapchat's plan to raise new capital at a big valuation (a deal that likely will include more founder liquidity). One theory is that it's an effort to make Zuckerberg increase his offer, by showing that others believe the company is far more valuable than his opening volley. An alternate – and more likely – theory is that this raise is to eliminate any temptation to sell the company, both for the founders and early investors (who may also get some cash back).
Well, it seems to have been the latter.
Facebook's original offer was said to be for between $1 billion and $2 billion, but today the WSJ is reporting that Zuckerberg later raised the stakes to $3 billion. And was still rebuffed!
At first blush, it seems ridiculous. A pre-revenue company founded less than three years ago turns down a deal that would value it at 3X what either Instagram or Tumblr got. Or at up to 3X what Zuckerberg originally agreed to take from Yahoo (YHOO), before Yahoo mistakenly got cold feet.
But there is some precedent. Groupon (GRPN), for example, famously shunned a $6 billion offer from Google (GOOG). And, as we recently learned from Nick Bilton, it seems that everyone from Zuckerberg to Al Gore has tried to purchase Twitter over the years.
More importantly, Snapchat and its investors seem to believe that this company is the next generation of social networking -- not an add-on to the dominant incumbent. Snapchat is about immediate/disposable communication, not permanent record-keeping.
Yes, some of that means sexting. But think about all of the conversations you had as a teenager that you wouldn't have voluntarily put out for public consumption (not only for your parents, but even for many of your friends). And, for millennials, a lot of that communication comes via photo, rather than via voice (or even text -- save, perhaps, for a quick caption).
Plus, there are some tangible concerns that go beyond personal relationships:
In other words, Snapchat is providing its users exactly what existing services like Facebook and Twitter and Tumble are not. Not surprisingly, some people close to the company say that Snapchat's depth of engagement is off the charts. Sure the core technology itself is fairly simple. So is Twitter's (TWTR) -- a company that also wasn't monetizing 2.5 years into its existence.
To be clear, I don't use Snapchat. But I am beginning to understand the hype. And maybe, just maybe, why it was comfortable walking away from $3 billion...
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Snapchat, Pinterest and Nextdoor are all raising money before the ink is even dry on their last VC checks. Why?
FORTUNE -- Pinterest last week announced that it had raised $225 million in new funding, just eight months after raising $200 million. Then came a $60 million raise by Nextdoor, which also had secured capital back in February. And then there is Snapchat, which is seeking new funds a scant four MOREDan Primack - Oct 30, 2013 12:36 PM ET
Some founder liquidity for startups can be helpful. Too much, however, misaligns interests.
FORTUNE -- One of the most notable changes in VC financings over the past five years has been the widespread adoption of founder liquidity.
For the uninitiated, these are deals in which some of the new capital is used to buy shares from company founders, rather than to help grow the company. Oftentimes these transactions make pragmatic sense – particularly MOREDan Primack - Jun 26, 2013 11:46 AM ET
Venture capitalists have valued Snapchat at more than $800 million. Why?
FORTUNE -- Snapchat is one of the world's fastest-growing mobile apps, with users sharing more than 200 million "snaps" per day. For the uninitiated (or those over 30), "snaps" are instant messages/photos that self-destruct ten seconds or less after being viewed.
It also has one of the mobile world's fastest-growing valuations, with multiple reports out today that the company has raised MOREDan Primack - Jun 24, 2013 1:25 PM ET
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