By Dennis Phelps, General Partner
Snapchat today announced it recently closed a new round of financing with IVP as the lead investor. We are excited and proud to officially confirm the rumors.
IVP is a leading later-stage venture capital firm based in Menlo Park, CA. Our current fund, IVP XIV, is capitalized at $1 billion. We have a highly selective investment model and typically make only 8-12 new investments per year.
Most of the companies that we invest in have $20-$100 million in annual revenues. Some have more. A small, select few have less.
It’s no secret that Snapchat has yet to turn on its monetization engine. Despite this fact, the financing was intensely competitive – one of the most competitive financings we have been a part of in years.
So why did IVP choose to invest in Snapchat at this stage? The following ten reasons top our list:
1. Mobile First – We spend much of our time at IVP trying to identify companies that are built from the ground up for the mobile platform. I won’t bore you with regurgitated statistics on mobile user growth. All one needs to know is that there are billions of mobile users on the planet, and smartphones and tablets are quickly replacing PCs as the dominant computing platform. Like all good technology investors, we’ve done our best to identify and invest in companies that benefit disproportionately from this trend. Snapchat clearly fits this description.
2. Momentum & Engagement – We cannot disclose any of Snapchat’s user statistics publicly, but the growth and engagement metrics are off the charts. Seldom have we seen a consumer application with this type of user momentum and excitement. Think Twitter… Think Instagram… Think Pinterest… and Snapchat is just getting started.
3. A Picture is Worth A Thousand Words – The mobile messaging wars are still in their early days, and the incumbents are clearly playing catch up. The type of connection that a Snapchat message brings to people is unique, and the temporary nature of the photo or video often creates a sense of excitement and an urgency of consumption that is rare in this era of information overload.
4. Youth is Not Wasted on the Young – Snapchat has amassed a very large user base within a valuable demographic. Facebook spread like wildfire across college campuses long before it gained acceptance with soccer moms. Twitter’s young fan base propelled Ashton Kutcher to a million followers more quickly than it did CNN. Snapchat initially gained popularity among Millenials and “Gen Z,” and now it’s the latest craze on Wall Street. This is how Black Swans start.
5. Setting the World on Fire – We couldn’t be more excited about working with the Snapchat team. Evan Spiegel and Bobby Murphy are prime examples of the next generation of technology entrepreneurs that grew up with smartphones and barely knew the web when it existed only on a desktop browser. They have a vision for building Snapchat into a core utility that sits atop the home screens of billions of mobile devices. We believe it could grow into one of the most successful consumer applications to date.
6. Follow the Smart Money – Snapchat’s early investors include Benchmark Capital and Lightspeed Venture Partners, two of the top venture capital firms in Silicon Valley. We’ve worked with both firms previously and can’t find enough good things to say about each. IVP co-invested in Twitter along side Benchmark in February 2009. That investment has proven to be one of the most successful in the history of our firm. We also co-invested with Benchmark in MySQL, which Sun Microsystems acquired in 2008 for $1 billion.
7. Network Effects – We love companies that benefit from network effects. Google, Facebook and Twitter all enjoy them. So do Ebay, HomeAway and OpenTable… as well as the NYSE and Nasdaq. Similar to these companies, Snapchat becomes increasingly valuable to each of its users as more and more of their friends and acquaintances sign up… such is the nature of social/mobile networks. The partners at Benchmark understand network effects better than anyone. If you are not familiar with the concept, please do not invest another dime in a technology or media company before reading Bill Gurley’s “Above the Crowd” blog, starting with the following article.
8. We Love LA – Snapchat is based in Venice, CA. The last highly successful mobile company built in Southern California was JAMDAT Mobile, which went public in 2004 and was acquired by Electronic Arts in 2006. JAMDAT’s former CEO, Mitch Lasky is now a partner at Benchmark and sits on Snapchat’s board of directors. There may not be a better mentor than Mitch to help Evan and Bobby build a very large company… In addition, Evan grew up in LA and aspires to make Snapchat the first multi-billion dollar venture-backed success story in SoCal in over a decade. He’s well on his way.
9. Big Fish, Small Pond – While it’s no secret that convincing world-class engineers to work for you is highly competitive these days, Snapchat’s engineers have a pretty good thing going… Evan and Bobby think about the Snapchat development team as an elite force, similar to Seal Team Six, and they have been successful in hiring some of the top young engineers in the country. The lure of working with cutting edge technologies for one of the coolest mobile app companies on the planet… of making millions on lucrative stock options while also taking sunset runs along the beach, bumping into movie stars at cafes, and even getting a suntan (aghast!)… it’s tough to compete with what Snapchat offers!
10. Because They Let Us – IVP was one of only a handful of firms that were evaluated to lead Snapchat’s recent financing round. As dedicated later-stage investors, gaining access to elite entrepreneurs at hyper-growth companies remains critical to our investment model. Almost by definition, if IVP decides to invest, a company has already proven itself… Snapchat is clearly a huge success, and we wouldn’t have invested unless we believed that it will become a much larger one. We are thankful for the opportunity. Good luck Evan and Bobby!