Snapchat Goes for a $500 Million Slurp at the V.C. Trough

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Although the ink is barely dry on the $485.6 million venture capital funding for Snapchat that valued the company at about $10 billion, Bloomberg reports that Snapchat is looking to raise another $500 million at a valuation of up to $19 billion. That would make the messaging platform the third-most-valuable venture startup on the planet, just behind Xiaomi and Uber. It also would value the company at 92.5% of what was considered a jaw-dropping value of $22 billion paid by Facebook to buy WhatsApp.

Despite Snapchat closing its second major round of venture capital in September, the mobile application for sending photos and videos that disappear within seconds wants to raise as much as half billion dollars, according to sources that spoke to Silicon Valley News. The source indicated the projected valuation would be between $16 billion to $19 billion.

At that level, the 23 investors–who included Yahoo! Inc. and venture capital firm Kleiner Perkins Caufield & Byers, Lightspeed Venture Partners, Benchmark and Institutional Venture Partners who poured $485.6 million in cash into the company in September–would already make a $300 million to $600 million profit. That works out to a compounded rate of return between 96% to 144% on an annual basis.

Snapchat’s Founder and CEO Evan Spiegel turned down a $3 billion acquisition offer from Facebook in 2013 at the ripe old age of 22. At the time, Spiegel had dropped out of Stanford University, three classes short of graduating the year before. He had moved back in with his father to work on the mobile app that let users send photos, videos and messages that disappear a few seconds after they are received.

Snapchat had become incredibly popular with teenagers and young adults that want to make sure their parents or “significant other” cannot catch them engaged in Internet “sexting” of lewd photos and other embarrassing evidence of dicey activities.

Spiegel in early 2012 came to the attention of Barry Eggers, a managing director at the venture capital firm Lightspeed Ventures, when his teenage daughter said that the three most popular apps among her friends are Angry BirdsInstagram, and Snapchat.

Lightspeed visited Spiegel at his father’s house in May 2012 and struck a deal to invest $485,000 into Snapchat. By November, Snapchat’s popularity exploded to 10 million users, sharing about 20 million images a day. A month later, they picked up $70 million in venture funding from a group of top drawer VCs that included Institutional Venture Partners and Benchmark Capital. The rest is history.

Raising $500 million for an early stage company like Snapchat does not seem to be a problem right now. In the last month, Lyft, Bigcommerce and Spotify have announced they are looking for a similar amount.

In spite of generating about 700 million disappearing “snaps” and views of more than 500 million stories day, many people originally laughed at Snapchat’s no-revenue business model. But that is changing with Snapchat starting to show quick-view advertisements that are optional to click on and that disappear after they are viewed, just like a snap.

Despite being the go-to place for teens to interact, the company is promising to not be like Facebook and Twitter, which are notorious for using algorithms to sell data regarding target age groups, sexual preferences and other personal traits.

Snapchat two weeks ago also started “Discover,” a feature that offers a customized television service that supposedly allows the users to explore “stories” from different editorial teams from 11 different channels, including CNN, ESPN, Comedy Central, Cosmopolitan, Vice and Yahoo News. The service allows users to curate news and entertainment, as opposed to merely reading it in a feed, as they do on Facebook or Twitter.

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