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.

[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.

[able1234au]

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

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

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.

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: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.