It's not every day you get a $3 billion acquisition offer from Mark Zuckerberg. But when Snapchat's founders turned down Facebook's buyout last year, they knew exactly what they were doing.
The ephemeral messaging app seems to be on a mission to become its own social juggernaut--and it just snagged a big round of funding (and sky-high valuation) to do it.
Citing anonymous sources, on Tuesday the Wall Street Journal reported Snapchat fetched a $10 billion valuation with an investment from Kleiner Perkins Caufield & Byers. Kleiner Perkins is sinking up to $20 million in the startup, which has a reported 100 million users a month but has yet to prove it has a sustainable business model. (Or any business model, come to think of it.)
To some onlookers, it looks like another crazy milestone in an ever-expanding startup bubble. Valley insiders, however, tell a different story. It goes as follows: Snapchat will succeed and prove that snubbing Facebook was one of the smartest decisions the startup will have made.
Here's what Twitter CEO Dick Costolo had to say about the news:
Snapchat at $10b not absurd. Crazy growth, clear monetization path, & one of the best social product thinkers out there. Long (figuratively)-; dick costolo (@dickc) August 27, 2014
That monetization path has only become less hazy fairly recently. The Journal reports Snapchat has been in talks with major media companies and marketers about a new content service called Snapchat Discovery, which would show content and ads to users. The service will reportedly debut in November. (Snapchat declined to comment to the Journal about the news.)
A lot is riding on whether or not this move to generate revenue works. Investors are betting that Snapchat can be its own platform, and this will be the first real test.
"Exiting to Facebook would have been a safe harbor for [the company] to develop its advertising capabilities, which Facebook has clearly shown the ability to do," says Bo Brustkern, an analyst with Denver-based Arcstone Partners, a private company valuation firm. But "this is not about money at all. This is about whether this company can independently displace the other mobile advertisers and become a juggernaut."
In terms of the business of becoming a juggernaut, angel investor Dave McClure says there's no time like the present for Snapchat--bubble-predictors be damned.
"There is capital available for startups that want to remain independent and have growing usage and/or monetization," McClure told me over direct message on Twitter. "While many are predicting a startup bubble bursting, it certainly doesn't seem like anyone is pulling back on the throttle--quite the opposite, in fact."
He's right: From wearable tech to the Internet of things, which drew more than $1 billion in funding last year, investor enthusiasm in the tech startup hasn't waned. So, why shouldn't Snapchat's founders wait to cash in and see how far they can take the business? Instagram, according to many observers and even some of its early investors, left far too much money on the table when the company sold to Facebook for $1 billion, even though it didn't have any revenues to speak of.
But perhaps CEO and co-founder Evan Spiegel puts it best. "I think that trading for some short-term gain isn't very interesting," he told Forbes in a recent cover story. And $10 billion is cooler than $3 billion.