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.

[bloodhawk]

yes that is the part I don't understand. If they were holding out because they would only be making a small premium on there investment I could understand. But they would be making a massive amount of money leaving them all very rich, why the hell would you hold out for more in such a fickle market as social media where in a few short months they could end up begging to be given a fraction of the original offer. Sure they might get more, but such insane greed makes no sense when they might also get nothing.

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.

[rudy_wayne]

Instagram, had it stayed an independent company, *COULD*could be worth between $5 billion and $15 billion today.

The important word here is "could". The truth is, Instagram pulled off an amazing scam and they were smart to just go for it.

-- Instagram takes $50 million from investors and gives them 50% ownership of the company
-- 3 days later, Instagram, which has 13 employees and zero revenue, agrees to be bought by Facebook for $1 Billion
-- Investors see their investment go from $50 Million to $500 Million overnight
-- The founder of Instagram gets half a billion in the process.
-- PROFIT!!

What's not to love?

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.

[retroworks]

Didn't you read the summary??? Two investors sent TWEETS!!!! Case closed.

Re:Oh, dear.

[Jah-Wren Ryel]

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

The snapchat founders have been able to monetize their situation such that they've already got at least 10 million in the bank. That's enough "FU money" to press their luck and ride this thing all the way to the end, glory or otherwise.

Re:Oh, dear.

[Anonymous Coward]

You are right; SnatchChat (damn autocorrect), I mean SnapCunt (damn autocorrect), SNAPCHAT - there, got it right - will be a MySpace in a few years. Sell at the top. Not at the bottom.

Re:Oh, dear.

[FatdogHaiku]

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.

That needs to be modded up but I got no points today...

Re:Oh, dear.

[able1234au]

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

Re:Oh, dear.

[Anonymous Coward]

Standard Oil and Carnegie Steel are also no longer with us in recognizable form, but Rockefeller and Carnegie certain made more money by not selling there companies.

True, but my larger point still stands: even if you build an actual sustainable business, every company has a lifecycle. Railroads gave way to automobiles, but it took 50 years. (Oil will eventually give way to something, but it'll probably take another 50 years on top of the 100 years its already had).

In tech, the lifecycles of companies are ridiculously compressed. For every IBM (which reinvents itself every 30 years - calculators, mainframes, PCs, consulting) Apple (which reinvented itself once about 15 years ago - transitioning from PCs to multimedia-consumption devices), Adobe, Microsoft, and Oracle (all three of whom are getting pretty damn long in the tooth), there are countless names who rise, dominate their respective industries for a couple of years, and then sink into oblivion. HP, Sun, SGI, Sybase, Borland, SCO, WordPerfect/Corel, UUNet/Worldcom, etc. Their founders and boards ride them up, and ride them all the way back down to zero again.

If the company has not gone public, there aren't a lot of shareholders. They also have little recourse if the founder and controlling party disagrees with them.

True, which is part of the risk of working at a startup. (It's a much nicer problem to have than the usual risk: that the startup flames out before anyone makes a dime, for instance...) That said, I doubt any VC who invested at any stage in Snapchat would be disappointed with a $3B exit.

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.

Re: Oh, dear.

[Mabhatter]

I'd say that has more to do. Only the shareholders in this case are the founders.. Who traditionally get screwed out of the actual PAYOUT of that $1billion.

The other question I'd ask is why does Facebook WANT your company? They just bought Instagram. Why isn't that doing good for them? Either they have horribly tore up their last big purchase, or they just don't know what they are doing and buying "trophies" not business partners... This ain't the 1990's.

Re:Oh, dear.

[ColdWetDog]

What's not to love?

That I don't happen to be the founder of Instagram, that's what.

Re:Oh, dear.

[Anonymous Coward]

And if you've got $1 million, you should be getting better than 3% on your return.

Re:Oh, dear.

[Anonymous Coward]

Okay, yeah, that changes everything. Smart kids.

Re:Oh, dear.

[demonlapin]

Um, no, you can't. Let's just make the math simple and say that you will live 50 years on 50 million dollars. That kind of money is - today - just barely the point at which you can afford to begin to live like a king. It doesn't get you private jets, or more than three houses with staff, or yachts. It gets you an upper-middle-class lifestyle that more or less lasts forever, sure. But even though someone's going to mow your grass, you're going to have to write their checks yourself.

Re:Oh, dear.

[gl4ss]

well they would take the money.. knowing that their business has zero revenue.

BUT they would encourage tweeting about how their product(the company itself) is worth x billion dollars of course.

and instagram being worth 10 billion ? holy fucking cow no fucking way - or did I miss how instagram was making 500mil+ profit per year? they weren't making that and they wouldn't be making that so how the fuck would it be worth 10 billion dollars?

if you're being offered more than 10 times what the company profit per year + assets are then it might be worth taking it.. if you're really offered it.

Re:Oh, dear.

[coofercat]

Maybe the deal required them to work for their new overlords for 2 years, or relocate the company to Elbonia, or whetever else. It may have been that they got offered the majority of the money as shares in their new overlord, which they thought might tank once the truth of their own organisation became public. Who knows?

There is also something about believing your own hype. That is, is you started snapchat, you presumably think it's a good idea. Whilst the market may have other ideas, you may not have shifted your position, and so believe that your present worth is much less than your future worth. You may also over-estimate your own abilities to get to that future worth.

Re:Oh, dear.

[ememisya]

10 years. 10 years it took for people to be okay with no privacy. Just ... wow ... The thing is, people signed up for Facebook because it was MORE SECURE than myspace, nobody really thought eventually that information will be sold in the market when signing up. The ones who ran the service knew, but it's a clever ruse. Nobody could legitimately explain this business model to their grandparents without getting odd stares. "You mean the peeping Tom looking through the keyhole is a millionaire now? Get outa here"

Re:Oh, dear.

[bitt3n]

"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

My kid's so dumb, even when I owned Bentley, they still didn't admit him.

Re:Oh, dear.

[Princeofcups]

"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

Except that's not the case. If a billionaire loses 999 million, he still have a million dollars in the bank.

Re:Oh, dear.

[Warbothong]

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.

Erm, I'm confused. Why is it terrible for a business to succeed 1000x better than originally thought? Why would a millionaire kill themselves due to not having enough money?

Re:Oh, dear.

[demonlapin]

I was responding to

live like a fucking king for the rest of your life.

$1M/year is a very comfortable lifestyle. It is not like a king.

Re:Oh, dear.

[Salgat]

That's after inflation. The general rule is that if you withdraw 3% of your savings annually and your savings are in a stock index then you will be able to withdraw the same amount (inflation adjusted), every year forever. 7% return - 3% interest - 3.5% inflation

Re:Oh, dear.

[pnutjam]

That depends on where you live. $1M/year goes pretty far in some parts of the country. You might not want to live there, but you could be a big fish in a little pond.

Re:Oh, dear.

[demonlapin]

I live in one of those places. That money would indeed make you a big fish. But it's really not enough to swing anything I'd call "king", like having your own private jet, multiple houses each with staff, etc.

Le Pop!

[bob_super]

Remind which which date we have agreed on for that bubble to pop?

Re:Le Pop!

[istartedi]

Remind which which date we have agreed on for that bubble to pop?

Since bubbles are only evident in hindsight, I'd say six months before "real soon now".

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?

Lemming-Style...

[Hsien-Ko]

You mean like programmed by a bunch of Scots and saturated ports of other platforms taking the world by storm eventually being bought up by a larger entity to rot on with half-assed iterations through third-party developers?

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

Re:frat bro's

[kamapuaa]

It's not rich frat bros using their money to push out the real developer, that's not what's being argued. The two central developers presented and developed the program for a class at Stanford University. The third guy (from the same frat) is arguing that he had a hand in further development, and that he came up with the old name of the business that's no longer in use. Whether that entitles him to a third of the business is a legal matter that relies on what contracts were signed or agreements were made, but that's hardly the narrative you're pushing.

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.

[khallow]

Apparently, it was an all-cash offer too. I thought it might be a Facebook stock offering that could be worth far, far less by the time they would be allowed to sell the stock. Well, it'll be interesting to see what happens down the road.

Re:SnapChat founders are idiots.

[geekoid]

Facebook got a huge amount of data for their users, and NON USERS of facebook.
They got demographics, usage states, increased traffic.
This was a good move for facebook.

Re:SnapChat founders are idiots.

[hsmith]

I have a feeling they will go the way of Groupon.

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.

Re:SnapChat founders are idiots.

[Hognoxious]

Depends. Do the NSA buy data, or just take it?

Overvalued?

[lymond01]

I'd like to see the numbers on ad revenue/data selling revenue for these services. I have a hard time believing that instagram, with its miniature, completely ignorable ads, would ever truly be worth $5 billion. This is what is terrible about "value" these days -- it is turbulent. Houses are bouncing back -- our house gained $100K in one year. Do I think it's worth that much? Not at all...but a lot of people do, so there it goes for no other reason than many people think it should be worth more. Price of wood, stucco, tile hasn't gone up 50% that I know of...

I suppose it's not advertisement so much as selling the information from the userbase to other clients. Those are the dollar amounts I'd like to see -- not so much what ads are directly bringing in, but what other companies are buying access to. "Hmm...Instagram user ou812 has a linked Facebook account under David Lee Roth with lots of pictures of banjos, cows, and hair replacement techniques. We can sell his info to [insert companies here] for $X."

Or something.

Re:Overvalued?

[mckwant]

Real Estate: I don't have anything to back this up, but lots of real estate markets have been blowing up. My neighborhood is up about 20% year on year, but we've seen a lot of rentals cropping up. My guess is that either REITs or well-heeled investors are buying loads of houses at the low end and renting them out. Rent ~= mortgage payment, so you're just out the maintenance and handling, if that, and you're gaining equity.

If you go onesie - twosie, and one goes vacant for a few months, that nukes a lot of your (not tremendous in the first place) profit. At 20-25 houses (@200k/house, that's about $4-5M total capital investment), your risk probably isn't too bad.

Years #1 morons.

[Anonymous Coward]

Snapchat founders are the years stupidest people. By a wide margin.

3 billion. for a stupid chat program... 3 billion!

You turned down 3 billion. Your program makes nothing. 3 billion for nothing.

Thats the ultimate great deal. And you said no...

Now line up so we can slap you. 3 billion times.

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.

Re:Why is SnapChat even a thing?

[GoodNewsJimDotCom]

Okay, the hardware idea is bad for a major vector. I was just had another thought,"Aren't decompilers pretty common now? If you decompile an ap, you'd have access to all their encryption functions right there. All you'd need to do is isolate where it is painted on a screen, write a function called to save that data. Voila, you have a snapchat client that can save all the data. I bet people have aps that do this right now because it sounds so simple to do.

Re:Why is SnapChat even a thing?

[Connie_Lingus]

" Can't someone make a hack to permanently store the data?"

yeah...its called using the screenshot function of your phone to capture the pic while its there.

Re:Why is SnapChat even a thing?

[Algae_94]

You're making this too difficult. There are numerous apps to store SnapChat messages in the Play store. I imagine the same is true for other platforms. All you need to do is a screen grab. Don't bother with encryption functions, etc. Your client has all that to show you the original message. Just take a screen grab before it disappears.

Is there some crazy patent that SnapChat has? Why again couldn't Facebook or anyone else build "self-destructing" messages for well less than $3 billion?

Re:Why is SnapChat even a thing?

[ColdWetDog]

As has been pointed out, Facebook doesn't want the software, the want the victims^Husers.

Whether several million drunk college students are worth billions of dollars is another deep and unanswerable question.

Re:Why is SnapChat even a thing?

[fatphil]

Well, they are demonstrably willing to part with their money, and foolishly at that - what's not to like about a market segment like that? (in the short term, at least)

Re:Why is SnapChat even a thing?

[ememisya]

Also, Snapchat said THEY won't store your data. They said nothing about selling your pictures to someone else, they still wouldn't be storing it, couldn't say the same for the business deal though. Nobody needs to be smart to hack people's personal information anymore, you just need money.

Re:Why is SnapChat even a thing?

[MacDork]

http://forum.xda-developers.com/showthread.php?t=2183526

.nomedia herp derp. They only ever delete the videos, probably because of size. Pics stay forever afaik. Totally haxor proof. Now we just need someone to publish a "Snapchat girls gone wild" video. That should make the producer lots of cash and drive a stake through the heart of snapchat at the same time. Then I don't have to hear stories about VCs masturbating themselves over snapchat.

Seen this before.

[the eric conspiracy]

Boss had a web site (silly little news aggregation thing).

Somebody offered him 12 million for it. He turned it down.

Now it isn't even on line and Boss is working for a salary somewhere.

Lesson: Take the bird in the hand.

Re:Seen this before.

[able1234au]

The question is when do you take the offer, when you dont have hindsight. What happens when he is offered 100k, then 1m, then 10m, then zero. If you take offer one and two you are stupid but if you dont take offer 3 then you are stupid. Hindsight makes it all easier.

Re:Seen this before.

[LynnwoodRooster]

My rule of thumb in selling ideas/patents/business seeds has been to sell out when the offer is 5X the money/time I put into it, at my normal consulting rate. If I put 50K into a patent - in direct costs and time - and someone offers me 250K for it, I take it. Yes, they make take it to $1+ million, but I've already got 5 times the value out of it - a fairly healthy return!

Re:Seen this before.

[able1234au]

This is too low for VCs. They expect a higher multiple. If the failure rate is 90% then a 5x payoff will lose you money.

Re:Seen this before.

[LynnwoodRooster]

Which is why I'm not a VC. I fund and develop my own things...

Re:Seen this before.

[able1234au]

Sure. understood, but if the odds of failure are the same, nine out of ten, then the same rule applies. My point is that people are complaining about people expecting ten times their money but if they fail nine times out of ten, then they are just breaking even. I know plenty of people who lost everything in a startup.

Re:Seen this before.

[fatphil]

But as someone wants to buy it, it's not a failure. So the failure rate is 0%.

Parity payoff is parity.

Re:Seen this before.

[LynnwoodRooster]

Sure. Although in this case I doubt the initial funders spent anywhere near $300 million building snapchat. And if they have, then they really are doubly-confirmed as idiots - one for spending SO MUCH on development of an app with no business plan to monetize, and two for turning down $3 billion dollars!

Re:Seen this before.

[able1234au]

True. i know i was playing roulette wrong. i should only put on winning numbers.

The payoff from this one for the VCs has to underwrite the losses you never hear of.

Re:Seen this before.

[fatphil]

Absolutely. And of course, not all 10x returns, or 1x losses, are equal in magnitude, either.

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.

Those that don't learn from history...

[hirschma]

The original "but we're worth so much more than they're offering" dot.com story...

http://en.wikipedia.org/wiki/PointCast_(dotcom)

How many have their been since?

Re:Those that don't learn from history...

[tlhIngan]

The original "but we're worth so much more than they're offering" dot.com story...

http://en.wikipedia.org/wiki/PointCast_(dotcom)

How many have their been since?

Hell, There's Apple and Be, Inc.

Back in the mid 90's, MacOS (Classic) was on its last legs and Apple was shopping around. One of the things they considered was purchasing Be, Inc., for BeOS (which was created by former Apple exec Jean-Louis Gassee).

Apple offered Be about $300M or so for it. Gassee, seeing that Apple was "desperate" and really wanted BeOS, held out for more. Apple got frustrated, and approached NeXT instead, and Jobs ended up making some very convincing arguments against BeOS. And Apple then acquired NeXT for a whopping $425M - nearly 50% more than the offer for Be (though they really also bought a bunch of other things - including Jobs).

Be eventually was acquired 5 years later when Gassee convinced the rest of the board of Palm Inc. to buy it... for $11M. But they were on the decline after basically calling Apple's bluff and seeing them go with NeXT and NeXT STEP rather than BeOS.

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.

Heh, Lemmings

[readacc]

Oh no!

*pop*

Or as I used to end up doing...

*pop**pop**pop**pop**pppooopoooppppppppppppppp [Amiga stutters]

In other words:

[Anonymous Coward]

Two investors are Tweeting that Instagram, had it stayed an independent company, could be worth between $5 billion and $15 billion today.

Is complete horseshit. It's as valid as saying "If Columbus actually hit Asia, he'd own it."

Predictions of the future or what-ifs are pointless and moronic.

The Founders Are Stupid

[george14215]

It's the investors (who can afford to lose a few million) who are pushing to hold out. Their risk is "low" compared to the potential upside in this decision. To them holding out is good. For the founders, it's an idiotic move. But they probably don't control this decision at this point.

Friendster

[Nick]

Google tried to buy Friendster for $30 Million in 2003 and it was turned down. We all know what happened to Friendster not even 2 years later. At the end of the day you need to just use your better judgement and evaluate where you think the company is heading in the future. Although I fail to see how accepting a one billion offer on a company is a failure.

Re:Friendster

[geekoid]

IN short, some risk in business don't pay off.
The kind of people saying they would jump at the first offer are the same kind of people who would be to afraid to get away from the salary test to start their own business.

Re:Friendster

[Hognoxious]

The kind of people saying they would jump at the first offer are the same kind of people who would be to afraid to get away from the salary test to start their own business.

Yeah, it's not at all possible that they:
a) reckon it's as good an offer as they're likely to get
b) realise that they don't have the skills to take it to the next level
c) reason that it's enough to retire, and go "sod it,where do I sign?"

You should go back to DeVry - I'm sure they'd love a distinguished and eloquent alumnus teaching on their MBA course.

what would an independant skype be worth now?

[rewindustry]

i only wish microsoft had bought bookface instead.

'idea for an app that deletes messges'

[globaljustin]

it's all on the link I provided...

the guy invented the app

the two frat-bro's class project doesn't mean shit...for my MS in Information & Communication Science I made proposals and projects for all kinds of app concepts...doesn't mean I can sue anyone

in court these things become pretty black and white...at least when there are text messages that say it literally word for word ;)

"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.

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

[JaredOfEuropa]

Problem is that when it comes to businesses based on eyeballs, things can take a nosedive fast. If interest in SnapChat dwindles slowly, they may still be able to grab a few 100 million. But in the case where there's a competing service crowding them out (a very real risk), it's rather likely that no significant offer will be forthcoming at all.

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

[boristdog]

Especially in a business that can be almost completely replicated by a decent programmer and a RackSpace account.

The new pets.com

[PrimeNumber]

How many photo sharing apps do smart phones need? Remember what happened the last time we saw insane valuations for silly companies like this?

Lemmings Don't Commit Suicide

[rubycodez]

Lemmings don't commit suicide by cliff or any other means, Disney actually rigged up a turntable to fling them off cliff for their "documentary" White Wilderness

Re:Lemmings Don't Commit Suicide

[Anonymous Coward]

Disney actually rigged up a turntable to fling them off cliff for their "documentary" White Wilderness

I kind of like the image of a turntable to fling stupid start-ups off a cliff...

'publicly presented' = nothing

[globaljustin]

How is it that he developed the app, if it was publicly presented by somebody else?

hey, AC...it's actually really, really easy for one person to develop something and another 'publicly present' it ;)

it happens every day in the tech industry

the link shows alot more than what you listed...it shows the other two acknowledging the truth that the one guy had the idea for the messages disappearing...

you ignore that, which is the crux of the whole thing...b/c the disappearing messages is **the only reason anyone uses Snapchaat**

people use Snapchat b/c it disappears...everyone acknowledges on paper it was the one person's idea...end of story

as far as 'publicly presenting'...that and two bits and you have a quarter....'publicly presenting' is **exactly** the bullshit hype language that people use to justify huge stakes in things they did not make or contribute to intellectually

Re:'publicly presented' = nothing

[Your.Master]

hey, AC...it's actually really, really easy for one person to develop something and another 'publicly present' it ;)

I'm sure he understands that. He's asking why you think that happened, based on the link.

the link shows alot more than what you listed...it shows the other two acknowledging the truth that the one guy had the idea for the messages disappearing...

I don't see that in the link. Are you sure you pasted the right link? The article you linked is ENTIRELY about one email mentioning three people, and one mentioning two. It doesn't say anything about the "third guy" being the one who had the idea for the messages.

stolen vs borrow

[globaljustin]

just about every idea is, or was stolen from another company, or several companies

I wanted to address this b/c there is an important distinction to make...however I don't have any argument against your greater point

Regarding ideas & the stealing thereof...you are right in a sense, but I make a distinction between *borrowing* & *stealing*

B.B. King did a commercial for some dumb credit card (AmEx? can't find it on youtube) back in the early 2000's and he said something to the effect of, "My advice to young musicians today is, if you love music, find what you like and listen to as much as you can of it, then learn to play an instrument, and then if you want to write your own songs, go ahead and borrow a little"

All the greatest creative types can list (usually with affection) their list of influences

Same goes for internet sites.

facebook.com was (and still is) *better* than any alternative from an everyday user perspective...there's no honor in their title, but they get it nonetheless

I don't begrudge Zuck & Co for borrowing ideas from other sites at the time. Hell **WE ALL KNEW IF SOMEONE DID IT RIGHT IT WOULD BE HUGE** Credit them for having the coding chops to make a functional system and the discipline to *keep ads away*...they did that part right.

Zuckerberg & friends had wealthy parents to support them in the weird interim between starting the site > getting users > monetization. The way Zuck punked the Winklevoss'ses's is kinda funny but morally, ethically, and legally wrong, but they had their settlement.

No, today, what makes Zuckerberg and facebook.com awful isnt a stolen idea like Snapchat was stolen from its creator. Instead, Zuckerberg is evil b/c he has perpetuated the business philosophy that tech must profit from users **by taking their privacy for profit** and **bottlenecking features**

Facebook.com's IPO says explicitly that any legislation or policy that gives users control over their data is a threat to business profits. That's it in black and white.

Zuckerberg is the new Gates.

Snapchat was stolen.

Pure fantasy

[__aaltlg1547]

How much revenue does Instragram generate? How is it that modern business "investors" have lost any inkling of a connection between revenue generation and enterprise value?

Re:Snapchat is like google, and it will go big

[__aaltlg1547]

No it won't because Snapchat's popularity is directly due to its simple UI and lack of ads. There's no way to put ads on Snapchat without being obtrusive and diminishing the quality of service. Do that and they will be instantly replaced by some new service that does what they used to do before they tried to monetize your fun. SharePix or something.

Google's serving up ads to the side and even among search results is actually part of what people want to use Google for. If I'm searching for "sweaters" there's a damn good chance that what I'm really doing is shopping for clothes. So ads for sweaters and other things that I might also be looking to buy based on my search terms are part of what I expect to see.

Compare that to Facebook ads. Facebook ads on the sidebar don't bother people much. But ads in the news feed and sponsored links with their friends names on them really annoy users. So far, not so much that FB users have abandoned the service. They keep it at a level where it's moderately annoying but won't actually change users' willingness to use the service.

Bubbling again?

[jandersen]

If I may go off on a tangent here; companies beign bought for billions, even though they don't make a profit - isn't that what has been behind all bubbles in the market? I wonder if it wouldn't be better to simply round up all venture capitalists, confiscate their ill-gooten money and shoot them. They are more than a bit like a disease; they infect the market, suck out the value and then let the host die, and like all parasites, they don't understand or care that it is going to kill most of them in the end.

Only joking, of course ...

After I sold my companies, I walk ...

[Taco Cowboy]

... and never look back

Why would I buy back my old companies even if I can buy them back pennies on the dollar ?

When I sold my companies, I did not only sell the companies. I sold them what I had created, I sold them the years I have invested in those companies, the ideas that I've put in them, the niche market that they've created

And if the buyers fucked up the companies that they bought from me, they are already damaged goods - and unlike Michael Dell, I will not buy back the damaged goods, not even for pennies on the dollar

Same thing with the companies that I have helped created - be it with seed money, with mentoring, or with the connections that I have - when it came time for me to sell off the shares, that's it

I rather put my time in creating something new, or invest in startups that make sense

Don't fall victim to ego

[Overzeetop]

You sell when either (a) you feel the price is indicative of the value or (b) you have enough to retire and spend your days working (or not working) on whatever the fuck you feel like. And, for the record, it's the lower of those two values you should accept. That's where the snapchat folks failed.

If you really feel that it's only worth 100k, sign the contract. If it's "worth" $100k, then going from 100k-$1M-$10M takes resources - probably resources you don't have. OTOH, if you see rapid, perpetuating growth and are seeing it go 1M-10M-100M and somebody offers you $25M, you still sign that check. Once you hit the "set for life" level, if you get an offer you should tap out. Ego is what keeps you from taking a "low" number like $25M (or $3B).

Coulda woulda shoulda. Or: duh

[wonkey_monkey]

Two investors

Wow, two! One might just be a crazy person, but two? This I gotta see.

are Tweeting that Instagram, had it stayed an independent company, could be worth between $5 billion and $15 billion today.

Or it could be worth nothing. Or monkeys could fly out of my butt.

considering how its growth and sizable user base.

I think you accidentally a verb.

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

So what you're saying is, business is risky? Prices may go down as well as up? Terms and conditions apply?

Well, no shit.

For the record ...

[Rambo Tribble]

... lemmings don't actually do that. A great deal of the impetus for the belief that they do comes from an old Disney documentary where they herded the unfortunate animals off cliffs for the photo-op.

Serial Killer Logic

[ememisya]

Remember the good old days when it was only serial killers interested in home videos of other people? Now here's a bit from George Carlin: Here's Some Fun: Go into a photography shop and ask the man if you can buy the puictures of the other people in the window. Say. "How much for that heavy-set couple?" I guarantee they'll stare at you a long time. In fact, they might even back up several feet.

Re:Maybe the market is tired of this type of start

[g01d4]

only so much money advertisers will pay

You'd think there would be some estimate of the advertising pie and how much thinner the slices get when coming up with a valuation for companies following this model. You'd think.

Re:Maybe the market is tired of this type of start

[mlts]

What I see that counteracts the thinner slices is the fact that advertisers keep offering to give more and more data out, from tracking mouseovers to intercepting E-mail, to supercookies, and other permanent identifiers.

However, there is only so much people will take, especially if the info sold causes negative consequences to people, and that is when the ad-based ecosystem will start hitting the skids. That, and when there is no more to sell to advertisers, after the cameras are turned on, and the subscriber's computers miked. Then, the bubble will burst.

If I were to make a startup, I'd take advantage of people and companies waking up to actually needing security and backups (and no, the cloud is just a form of media, it isn't a comprehensive backup solution.) Old and boring stuff, but really needed.

hey dumbass

[globaljustin]

one email mentioning three people, and one mentioning two.

It was 3 people then 2 of them tried to screw 1 of them by rewriting history and saying it was 2 the whole time not 3

the two screwed the **third guy** out of his work

the link is full of several points...links to other stories as well...

read harder you moron

Re:3 Billion? Morons.

[Hognoxious]

What goes up must come down, and the gains investors have now will be paid for by people losing their shirts later on.

[citation needed]

Just Say Yes

[pupsocket]

Try not selling.

You will find yourself outside the offices of the company which you founded and grew without outside capital , screwdriver in hand and an attorney at your side, jimmying open the locks because the investment bankers you tried to fire had the locks changed. Your newly hired comptroller, selected with input from the bankers, will stay on for a few weeks, leaving you a note with "do not try to track me down" in the last line, and he will turn up along with the majority of your employees in a firm you had declined to purchase because its booked business was bogus. Because Mary Jo White is the United States Attorney for your district, no one worries about prosecution. True story.

Rarely have I met with a venture capitalist who did not start trying to deal out my other shareholders within five minutes of an introduction.

In the end, business is about cash-in exceeding cash-out, a condition that can be met one of two ways: 1) buying an interest in a firm and selling that interest for a higher price or 2) selling better stuff for a lot more than it costs you to create. 1 requires a lot less talent and discipline than 2, and not just because investment bankers don't have to take returns from disappointed customers who bought their hype.

If SnapChat's founders really made this call, then they are toast, but I doubt it. They are following the guidance of investors. Most likely, declining this offer enables them to use their now highly-inflated shares to acquire other assets, trading movie-set houses for real houses.

all depends

[recharged95]

If the $2 billion offer was 75% cash and 25% options and the $5billion offer was 25% cash and 75% options, the $2bil offer may have been better. Especially if the options tank. That's the risk I guess.

Heck, $1bil is nothing to laugh at anyway. 10000x more than my salary.