$10B Snapchat Valuation — Lessons for Founders
It was reported last week that Snapchat is in the process of raising a large investment round at a $10B valuation. That would make it one of the world’s most valuable private technology startups. And they generate no revenue. While that’s interesting, what’s even more fascinating is the fact that Snapchat turned down a $3 billion cash offer from Facebook just a mere nine months ago.
While it seems preposterous that someone would turn down that kind of money, it was their tenacity and vision to radically impact the current social media hierarchy that enabled them to walk away. Here is why they did.
“There are very few people in the world who get to build a business like this,” Evan Spiegel, co-founder and CEO of Snapchat, told Forbes in an interview. I think trading that for some short-term gain isn’t very interesting.
Entrepreneurs and founders alike are faced with making hard business decisions every day—maybe not $3 billion decisions, but decisions that still impact the success and ultimate direction of their businesses.
So, what can all entrepreneurs learn from Spiegel’s decision to walk away from the big $3B offer from Facebook?
Know where you are going If you are working at a startup and running fast you need to know why. You must establish a “goal first” approach and a true north for where you are headed. A “goal first” approach is about defining your vision. Because If you do not have a vision, it will be difficult to understand what major decisions are aligned with your goals and need your attention longer term. Read Spiegel’s quote again and it’s clear that building a lasting business is important to him.
Trust your gut No one has a crystal ball, but sometimes you just know what’s right and what’s wrong. Intuition is something entrepreneurs must have to start and grow their companies in the first place. But, do not second guess your instincts — especially when you’ve set a vision you believe in. Clearly turning down generational-impacting wealth takes some gut feel.
It’s not just about the money The best moments never come when we close that big new deal or see that electronic funds transfer show up in our bank account. That’s the short-term gain that Spiegel is referring to. It only gives us a brief high and then we want more. When we build something that serves more than ourselves we are contributing to a higher purpose. And when the results serve a larger group, we have even more motivation to be great and often are appreciated when we do. And that feels good too. The irony is that when it’s not about the money you make more of it.
Independence Independence is the space we need to solve a problem or work “our way.” Independence helps us pursue an objective in a way that suits our intellectual and moral sensibilities. Clearly, being acquired by Facebook or any other large company eliminates a team’s independence. That is part of what you are sacrificing as part of the sale of any company. An acquisition can often help a smaller team achieve even more, but in this case, the Snapchat team wanted to continue to go their own way.
While a rare handful of us will be faced with massive cash offers for our businesses, we can all learn from Snapchat’s decisions.
For the Snapchat team, saying “no” to Facebook was staying true to their beliefs and not giving up the opportunity to build the business that they envisioned. Time will tell whether they made the right financial decision, but the reported $10B valuation suggests that they probably did.
And even if history proves they were wrong, they are still free to pursue their true vision. And sometimes that’s priceless.
What would you have done?