Here's What The LA Startup Scene Thinks About Snapchat's CEO And His Decision To Turn Down Billions

Mark suster vacationBoth Sides of the TableMark Suster, an LA-based investor, thinks Evan Spiegel was smart to reject Facebook’s buyout offer.

I’ve spent the past few days in Los Angeles visiting dozens of startups and investors in southern California. I met with fashion startups, social startups, video startups, and incubators.

Los Angeles — specifically Venice Beach — is also where Snapchat is located.

I asked a dozen startup people there the same two questions:

  • “What is Snapchat CEO Evan Spiegel like?”
  • “What do you think about Snapchat turning down Facebook’s $US3 billion offer?”

Before we get into their responses, there’s one thing we should note:

Not everyone believes Snapchat actually rejected a formal $US3 billion offer from Facebook. One person with vague knowledge of the situation believed there was some level of rejection between Snapchat and Facebook, but it wasn’t clear how serious talks were. It probably depends on how you define the word “offer.” A few months ago, Evan Spiegel claimed he had never received a formal acquisition offer, despite having met Mark Zuckerberg to discuss his business nine months prior.

But let’s assume Snapchat did turn down a formal $US3 billion acquisition from Facebook. Here’s what people in LA think of Spiegel and his decision to reject billions of dollars.

For being the startup man of the hour, Evan Spiegel is elusive in LA. Even some of the most prominent people in the tech scene there have never met him. That’s because Spiegel doesn’t attend many of the tech parties, chat it up with investors, or attend local events. Some feel it’s because he looks down on the startup scene and isn’t a big supporter of the community. Others say he’s just a busy guy who’s trying to focus on his startup.

Whisper CEO Michael Heyward, 26, attended the same high school as Spiegel. His sister is about the same age as the Snapchat CEO. Heyward says he and Spiegel are on friendly terms: they say hi when they see each other but otherwise they don’t have much communication. They’re both focused on building their businesses.

Whatever his reputation, most people we spoke with felt Spiegel was crazy for turning down billions of dollars.

“Does anyone not think it’s crazy?” One person asked. Another startup executive attributed Spiegel’s “crazy” decision to the fact that he’s young. This person wondered if Spiegel, who is only 23, had any concept of money. Spiegel’s father is a very successful lawyer who gave him a hefty allowance and his mother caved to Spiegel’s demands for a BMW in high school.

We also found three people who supported Spiegel’s decision to reject Facebook.

Mike Jones runs a startup incubator in Los Angeles, Science Inc. Science Inc has produced startups like DogVacay and Dollar Shave Club.

Jones formerly ran MySpace and he has met Spiegel. In fact, he was invited to Snapchat’s offices to present the MySpace story to Snapchat’s team. So Spiegel definitely understands that startup success can be fleeting.

Jones didn’t call Spiegel’s decision crazy. Instead, he applauded Spiegel for trying to become the next Mark Zuckerberg.

Tinder CEO Sean Rad said he occasionally communicates with Spiegel and thinks Snapchat was smart to reject Facebook. Rad says if he were Spiegel, he wouldn’t have sold Snapchat either.

“Facebook is about permanence,” Rad rationalized. “Snapchat is about impermanence.” Since the companies are fundamentally different, and because Snapchat has so much momentum, Rad doesn’t believe selling to Facebook makes much sense. Selling to Google, which hasn’t had luck in the social media department, makes even less sense.

Mark Suster, a Los Angeles-based VC who is not a Snapchat investor, also believes Spiegel was wise not to sell. Here’s Suster’s logic:

No matter how you slice it, Evan Spiegel and co-founder Bobby Murphy are rich. Even if Snapchat fails, the co-founders will be worth at least $US40 million, Suster estimates. That’s generational wealth and more than enough to buy houses, toys, and support their families.

Here’s where that $US40 million figure comes from:

  • During Snapchat’s $US60 million Series B round of financing, Spiegel and Murphy reportedly swapped equity for $US10 million in cash, each.
  • Spiegel and Murphy could make $US10-20 million more on secondary markets. Sources say they currently own more than 50% of Snapchat, which makes sense since they were able to reject the reported multi-billion-dollar offers.
  • Even if Snapchat’s exit is a fraction of its current valuation, Spiegel and Murphy could pocket a few million. Suster estimates each could make $US20 million in a worst-case exit scenario.

Suster’s logic: If you’re young and you’re already set for life financially, what risk are you really taking by turning down billions?

Sure, $US1 billion is a lot more money than $US40 million. But in the words of BuzzFeed CEO Jonah Peretti, “How many yachts can you water ski behind?” If Snapchat sold now, Spiegel might always wonder what could have been.

So the decision wasn’t to accept or reject billions of dollars. It was to either settle for being rich, or try and create something legendary. Spiegel chose the latter.

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