How Snapchat Could March Startups Right Off the Cliff, Lemming-Style

Nerval's Lobster writes "Two investors are Tweeting that Instagram, had it stayed an independent company, could be worth between $5 billion and $15 billion today. That's led to talk of whether Snapchat was right to (reportedly) shoot down Facebook's bid of $3 billion for its business, considering its growth and sizable user base. Snapchat's founders evidently think they can score a better deal within the next few quarters. If they manage to sell their startup a year from now for twice as much, they'll be lauded as extraordinarily smart businessmen—perhaps smarter than the folks at Instagram who sold for a 'measly' $1 billion (and all this despite Snapchat making no revenue). But for other startups in the space, the Snapchat and Instragram stories won't do them much good. Propelled by dreams of ever-increasing millions (perhaps billions!) startup founders could end up turning down perfectly good acquisition offers in favor of continuing to bootstrap — and find their businesses eroding and imploding, as the market for their particular app or service either fades away or (more likely) ends up crowded out by competing software. The startup market is a shark-tank, and most of those who don't get out of the water as soon as possible are eaten, dreams of grandeur or no."

Comments

Oh, dear.

[Ralph Spoilsport]

Business is complex. Making the right decision to sell at the right time to parasitically extract money from the vector capitalists is fraught with peril.

Headlines from Captain Obvious.

Re:Oh, dear.

[Moheeheeko]

"One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley." - Louis Winthorpe III

Re:Oh, dear.

[dkleinsc]

Up to a point, yes. But I'd also factor this in: If I'm a startup founder and am ever in a position to hold $50 million, I could take that, invest it relatively sanely in the stock market, and be living extremely comfortably for the rest of my life. There's such a thing as "enough", and there's no particular reason to press your luck when you already have it.

Re:Oh, dear.

[mythosaz]

I have a friend that was offered 1M to walk from a business in 1990.

The only thing the 1M offer convinced him was that it was clearly worth more than 1M, so he held on, and today has nothing.

Wisdom now is to take your 1M and get some percentage of the future action, so when you're terribly wrong, and it's worth 1B instead, you don't have to kill yourself.

Re:Oh, dear.

[paiute]

The lesson in most cases is to take the million, walk, then buy back your old company for pennies on the dollar in a couple of years.

Re:Oh, dear.

[Anonymous Coward]

There's such a thing as "enough", and there's no particular reason to press your luck when you already have it.

This.

The only viable business plan is to get acquired. In the long run, all businesses go back to zero. Even stalwarts of the Dow - good blue chip names like the American Cotton Oil Company, Pacific Mail Steamship, Studebaker, Bethlehem Steel, Sears Roebuck & Company, and Eastman Kodak, are no longer with us in recognizable form.

If for some reason it's personally more important to you to be a founder/CEO than it is to actually make money, you still have an obligation to your shareholders to sell the damn company, take the money, and go found another one.

Re:Oh, dear.

[Sarten-X]

For perspective, $1 million is like having a $30K salary for 30 years* that you don't have to actually work for, while you can continue to work on other projects or more fun jobs. With a "regular" job that pays the bills, $1 million is a pretty luxurious two-week vacation every year for fifty years. With a healthy retirement plan already in place, $1 million is a decent second home on a lake somewhere, with a savings fund to cover the upkeep. As a point on a résumé, $1 million is a pretty bold statement that you have enough dedication and business sense to get an idea off the ground, and enough creativity to bring good ideas to a prospective employer.

I'll take the million, thanks.

* 20 years after taxes, if you won't spend the few thousand dollars to get a good accountant to avoid those.

Re:Oh, dear.

[able1234au]

$1 million at 3% is like having $30,000 for ever

Re:Oh, dear.

[asmkm22]

People like that generally aren't driven by the desire for "good enough." What makes sense to you seems trivial to them.

frat bro's

[globaljustin]

Snapchat was made by frat bro's who royally screwed the guy who did all the real work.

A *real* tech thought it up and made it, then his rich friends stole his idea...

An idea for a way for people to send drunk videos to each other w/o consequences, which the frat-bro's took to the logical place they would, which is to drunken college girls...

**that's Snapchat**

Facebook.com offered $3Billion b/c facebook.com is *hemoragging* young users & it will do anything to buy other system's users (ex: Instagram) for them to vampire the life force from for advertising profit

that's it: facebook.com wants to buy Snapchat's users

all the noise about 'IPO valuation' is absolutely standard issue tech-bubble startup stuff that **we all know** how the cycle goes!

snapchat is only good as long as drunken hotties use it to send consequence free drunk selfie videos

SnapChat founders are idiots.

[RightSaidFred99]

If Facebook offered them that much money, they are complete nimrods to turn it down.

Maybe they didn't think that the alternative is Facebook (and maybe others) dropping a cool $1B on a similar app of their own that better integrates with existing social platforms. Wonder how much their company will be worth then?

Idiocy. Greed and idiocy. Will be hilarious if they can't even sell for $0.5B in 6 months.

Re:SnapChat founders are idiots.

[Seumas]

Instagram and Snapchat are two examples of how there is no such thing as a stupid internet idea. Or, rather, there are plenty of stupid internet ideas, but they'll make billions anyway.

Why is SnapChat even a thing?

[GoodNewsJimDotCom]

Snapchat should have sold. The entire idea should die to hackers making a buck when Snapchat becomes big. Can't someone make a hack to permanently store the data? Outside of a little encryption breaking, it shouldn't be that hard to do. And I'm sure there are ways to dodge encryption breaking even if you'd have to go a hardware button where when you press it, the video memory gets saved.

Maybe the market is tired of this type of startup?

[mlts]

We have gone through a first round of startups which were actually pioneering, back in the dot com days.

The next boom are startups which really don't offer much in the way of breaking ground. What they offer is the fact that their customers and their product are totally different groups. FB, Twitter, SnapChat, and many more follow this model.

The problem is that there is only so much money advertisers will pay, and only so much data they can squeeze out of their subscribers before they give the middle finger and move on. This is a bubble waiting to happen, because long-term, there isn't really any product, and their services are essentially fungible. Someone else can come out with a virtually identical service and wrest the userbase away, just like Facebook wrested MySpace's userbase away.

I can understand why people invest in these companies on the short term, but long term, what product do they have over time? Cable at least has fiber in the ground guaranteeing they will be around. Same with wireless providers and spectrum.

Making change

[TheloniousToady]

They'll be lauded as extraordinarily smart businessmen—perhaps smarter than the folks at Instagram who sold for a 'measly' $1 billion (and all this despite Snapchat making no revenue)

This billions-for-no-revenue thing reminds me of "The Change Bank" commercial that appeared on Saturday Night Live years ago:

A lot of people don't realize that change is a two-way street. You can come in with sixteen quarters, eight dimes, and four nickels - we can give you a five-dollar bill. Or we can give you five singles. Or two singles, eight quarters, and ten dimes. You'd be amazed at the variety of the options you have....All the time, our customers ask us, "How do you make money doing this?" The answer is simple: Volume. That's what we do.

Re:Le Pop!

[bob_super]

Nah, that one is evident. $3B for a competitor with no revenue, after $1B for a competitor with little revenue?

"enough" is not the end goal for these guys...

[schlachter]

They are not looking for "enough" money to sip drinks at the beach. They are looking to ride the crazy train and steer it along for as long as they can...and selling out to a company at any amount takes them out of the driver seat. And if the shit really hits the fan and things take a dive, they'll still be able to off load their once $3B company for a couple hundred million which is certainly "enough" in failure mode.