A lot of tech publications predicted Snapchat’s latest round of financing would be at a $US3-4 billion valuation.
Instead, the company raised $US50 million at a $US2 billion valuation.
Why is the valuation so much lower than everyone expected?
1. Snapchat kept a lower valuation to attract talent.
2. Snapchat screwed up.
The first situation is likely what happened. Most people would rather join a hot startup at a lower valuation than a higher valuation.
“Take a lower valuation, albeit still significantly higher than the $US800 million Snapchat received for its $US60 million Series B round just five months ago,” Primack writes. “Then you raise fewer actual dollars, to satisfy dilution concerns.”
The other theory is that Snapchat lost a $US4 billion Tencent term-sheet at the last minute. Primack feels this is the less likely scenario given that Snapchat could have sold to Facebook or Google at a valuation almost as high.
“Perhaps…Snapchat put its tail between its legs and went to Coatue — which had wanted in on its Series B round, but lost out — at a much more amenable price,” he writes.
“And perhaps it had already burned through lots of that prior round, and had to get new money in the door very quickly.”