Speaking candidly here -- perhaps this is one of many (MANY) reasons why I will never be a billionaire entrepreneur, but I can wholeheartedly say that if Facebook came to my startup, no matter how popular, and said "here's 3bn, please give us your users" -- I would without question sign on the dotted line as fast as possible (and probably for A LOT less earlier in the game). And to be honest, I probably wouldn't care how badly they may maul my creation, I'm either:
a) sitting on a beach in Costa Rica
b) giving a completely different project a shot with my new found riches
Maybe I just completely lack vision, but what happens in two years when Snapchat likely isn't cool anymore and all the kids are onto the next thing. Where will the money be?
Only slightly related, but I'm sitting on a beach in Costa Rica right now. The Internet is fast, it's beautiful (although it just rained), and is cheaper than SF (where I'm from). You don't need a billion dollar company for A.
Whelp, diminishing marginal utility of the dollar, I suppose.
With a billion dollar valuation, the founders will have found ways to make themselves rich - http://news.cnet.com/8301-1023_3-57591017-93/snapchat-founde... - and if you already cashed out fuck-you money, then you might as well keep going and see where it lands.
If I was broke and offered $3b, sure. But if I had $10-20mil sitting in the bank… anything I do after that point is 100% risk-free.
Mind you, I'm really racking my brain on how this isn't all totally insane.
One article I read that always stuck with me was Peter thiel recalling the day Mark Zuckerberg turned down yahoos 1 billion dollar acquistion offer .
Thiel said he remembered saying, "We should probably talk about this. A billion dollars is a lot of money." They hashed out the conversation. Thiel said he and Breyer pointed out: "You own 25 percent. There's so much you could do with the money."
Thiel recalled Zuckerberg said, in a nutshell: "I don't know what I could do with the money. I'd just start another social networking site. I kind of like the one I already have."
This is probably how the SnapChat guys feel there is no different project down the road this is it and if you feel that way you never sell
Option B worked really well for Mark Cuban, for example. He sold a company with a <$50M run rate for close to $6B, probably recognizing that he'd gotten really damned lucky. But he didn't take the one-way ticket to Costa Rica; he parlayed his lottery payout into a continuous string of successful businesses.
I'm not saying everyone gets a multi-billion-dollar exit (and even getting there in the first place is fucking tough; certainly a lot tougher than it was in the '90s). But there are worse paths through life than being a serial entrepreneur who's in it for the love of the game.
There is a theory called "When the founder drives a porsche", which refers to already wealthy entrepreneurs who have much more appetite for risk to go for the big exit.
Evan has taken at least $30-40M off the table in subsequent financing rounds. He has enough stacked away to go for an exit that deems him a billionaire which my guess at this point would need to be a $5B acquisition (assuming cap gains tax for his piece)
If Thomas Watson, Dave Packard, Ken Olsen, Bill Gates, Bob Noyce, Ben Rosen, Michael Dell, Jim Clark, Scott McNealy, Larry Ellison, John Sidgmore, Ross Perot, Steve Case, Steve Jobs, Irwin Jacobs, Larry Page, Jeff Bezos, Pierre Omidyar, Jerry Yang, Mark Zuckerberg, Evan Williams, and Ben Silbermann all thought like that, I don't think our industry would even exist today.
I might be in the minority here but I think snapchat is totally worth 3 billion. And the article says they have a company interested in a round valuing them at 4 billion . If Instagram would have held out longer and not accepted the deal from facebook (They didnt need it the just closed a nice round of funding a couple months before)they would probably be worth North of 6 billion
2. Snapchat figures Snapchat is worth more than that, and refuses the offer.
The valuation multiples lately have gotten me to wonder what I'm doing. I'm quite familiar with a growing startup that has 9 figures in yearly revenues, and a 9 figure valuation. It makes almost as much money as Twitter, but the valuation is less than 300x smaller. It makes infinity times more money than snapchat, but has a thirtieth of the valuation. What is going on?
Am I the only one who gets very irked that something as stupid and useless as Snapchat, Facebook, Instagram, etc. get valued so highly, while actual useful products by comparison are worth exactly nothing? It seems like you can spend years carefully building something useful, that actually improves people's lives and maybe cash out for peanuts, or you can do something that is borderline abusive, or just a time waster, and become an instant billionaire. </rant>
We've regulated the hell out of stuff and left bits relatively unregulated.
Hence, more money going into bits. And more instant billionaires. Also no cure for cancer, or flying cars or (insert 1950's projection of the 21st century here).
edit: I'm borrowing Peter Thiel's "bits and stuff" metaphor here.
Well according to Techcrunch's 'startup unicorn' analysis post, enterprise software startups deliver more value per investment dollar than consumer startups. We just don't hear about them nearly as much because they aren't consumer facing, and are not nearly as controversial as snapchat.
At least snapchat is not psychologically exploitive company, like zynga, the guys who make clash of clans and such.
>>while actual useful products by comparison are worth exactly nothing?
You already see the results of this don't you. If people were half serious about something like medical electronics the way they are about Facebook. The cost of diagnosis and testing etc would be way lesser.
That's a very self-centered rant–"stupid" and "useless" are subjective. I find Instagram extremely useful and would say it improves my life to some degree. I could care less about Facebook and SnapChat. I also think video games are a complete waste of time–YET I would never say Facebook or EA should not be worth some large amount of money.
I also think you don't give enough credit to "dumb luck". Sometimes timing, external forces, chance encounters, and coincidence can make silly things take off and useful things get lost in the mix. The key is to maximize your opportunities as best you can.
Hate to re-hash the Innovator's Dilemma here, but this makes me judge big media companies less harshly. With Facebook, we have a company that is roughly just a decade old, and yet instead of organically creating a service that is well within their capability and talent, they find it easier just to acquire.
Just a decade or two ago, newspapers also had this kind of buying power and tendency to acquire rather than create...the New York Times bought About.com for $400M in 2005, and then sold it last year for $300M (in cash).
I was never a big user of About.com, but the way its layout didn't change much over the years, and how it seemed to be built on a not-very-flexible CMS, makes me think that if instead, the NYT in 2003-2005 (when it had even more money to spend) just had an in-house team of technologists and a budget of $20-40M a year, could've built a much-better info source, and one that would've, by now, been as dominant as About.com, but with the quality of NYT-in-general.
I know Facebook's clone, Poke, ended up being a failure...but it can't be just because the engineers and thinkers who work at FB are, on average, worse than the SnapChat inventors. How much management and political baggage did it have? (I'm assuming that the cost to build Poke was also under $1 billion...I hope)
I cannot understand the mindset of someone who turns down an offer of $3 billion dollars for their company that has no path to revenue, let alone profit.
IMO, this is why you avoid investment money. Can you imagine VC "partners" forcing you into a decision like this?
$3 Billion dollars _IS_ changing the world. How much more could you possibly want? What kind of future is preferable to the one you'd have had you taken this deal?
Can anyone explain to me how they're worth $3 billion dollars? They haven't produced anything, they haven't advanced humanity, they have the eyeballs of teens - for the moment, until something cooler comes along. Are they really that valuable? It doesn't seem like there's any show stoppers for creating a snapchat clone (rather than having X users at the moment), and if snapchat were to start making money - say by sending ads to endorse a product rather than a user generated picture, people would probably start leaving the platform towards the newest green pasture.
I recently got a new phone, and I got hooked in to all the services my friends were talking about in recent memory - instagram's dead, twitter's dead, snap chat is in flux. Not for all users, but in my group of friends these services aren't used as much. There isn't really anything keeping you from moving onto something new - your digital life isn't really that valuable. It's probably better to not read the conversations you had a year ago. The pictures are always nice, that's probably the only thing that people would care about, but with Snapchat they're gone (unless you hit save). I'm not sure what I'm getting at, but this company isn't worth $3 billion dollars.
Interestingly, instagram has taken on a new life for preteens who can't convince their parents to allow a chat app. The kids are using the posting function as a pseudo-chat feature.
This is just insane to me. I don't care how much you believe in yourself. You have never made money, and are offer $3b in cash. That should be enough to more than satisfy your investors. Facebook seems like they are pretty good as acquirers, based on the Instagram acquisition, they have let Systrom and his team basically do their own thing, with a bit of prodding on faster releases and a monetization plan. I don't find the Instagram experience to be any worse. Plus, they now get the essentially unlimited Facebook resources, and likely a pretty awesome salary and gig there. I honestly haven't heard anyone effectively defend this.
Facebook spurned a $2bn Acquisition offer from Yahoo.
I'll say now about SnapChat what I said about Facebook at the time: They probably know something about their market that we don't that leads them to credibly believe they're worth more than $x bn.
Hate to be negative, but this could be their "Groupon Moment". When Google offered Groupon $6bn for the company, they said no because they thought the hockey stick would never end. Now they're in shambles, and nobody is cashing out like they thought.
Snapchat is a GREAT product, but the potential for monetization is limited and there are a lot of negative things about its security coming out lately. Seems like a good time to "take the money and run", but maybe they'll prove me wrong.
Hate to be negative, but this could be their "Groupon Moment". When Google offered Groupon $6bn for the company, they said no because they thought the hockey stick would never end.
While that was part of the reason, there were other reasons as well. They were concerned that regulators would block the sale, so they were seeking a bigger "breakup fee" than the $800 million Google offered.
It's worth noting that Facebook's SnapChat "competitor" Poke, which was rumored to have been created after the $1B offer was rejected, was released almost a year ago: http://techcrunch.com/2012/12/21/facebook-poke-app/
I suppose waiting the year added another $2 billion.
I think the additional $2 billion in value was created by showing they have a strong enough brand that a competitor can't throw together a clone quickly and take away their market share.
Not relevant to OP but I think companies like Snapchat becoming so popular might not be good sign for this society's intellectual health. As already been discussed here, we are becoming a society with very short attention span. I know there is market for all this, but then one could say there is market for face-creams that make people fairer(atleast in my country such a cream is very popular). Imagine if we had a society where a decent SRS(spaced repetition software) extension would have been offered so much wealth.
I see a lot of the comments the thinking in the founders logic. But remember there is also likely a good deal of pressure from investors who, depending on circumstances, have quite a bit of say on if they approve a deal or not. It is not uncommon for founders to want to sell and the vc want to hold out to produce a better return.
Why is that? Economics of a venture fund. Say a VC recognizes this is likely to be the biggest winner in their fund. If I run a $400 million dollar fund and I am trying to return 3 times that to my investors that means that I have to make my investors $1.2 billion. Considering my fund only owns 10% of the company, a sale for $3 billy ain’t gonna cut it.
Yes, this would be one of the 30 investments I made from this fund, but I am only expecting 3 of those to really knock it out the ballpark. I have to extract all my returns from those three.
I certainly don’t know that this is the case for Snapchat, but it has been the case for some. While this may sound like it’s holding founders money hostage, this is the game they (hopefully) knew they were getting into when they took that first dollar. Best of luck to them, they are still very much killing it.
I really cannot fathom any investor that would not be absolutely ecstatic over a $3B exit for a product like this. Would any VCs care to comment on this specifically?
Lots of comments here about people trying to understand why SnapChat rejected the offer, but I've yet to see much discussion about the other half:
Why would Facebook offer SnapChat $3B? If they believed like most others would, why wouldn't they just ignore SnapChat and let it die like the fad it seems to be?
It's not just SnapChat that thinks they're worth more, Facebook does too.
My background is in Finance, I have traded and followed the markets closely for nearly a decade and I've studied or read about basically all major bubbles that happened around the world for the past millennium.
Price cycles are an inherent part of capitalistic markets, periods of both over and undervaluation will always happen, that's basically a part of the games rule.
In the late 90s happened the web bubble. When is the mobile one going to take place?
Now back to Snapchat. They are looking more and more like what I imagine the poster boy of the mobile bubble would look like. Also, the macro conditions (tech stocks making new highs after new highs, investors throwing easy money at basically anything related tech etc.) are currently very bullish, which means perfect conditions to the birth of a new a price bubble.
That being said, I wish the Snapchat crew the best wisdom and luck of the world in navigating both the good and the bad times, whatever comes next.
There is no way Snapchat is worth $3 billion. I don't think the idea is even worth $100 million. The funding round alone was insane. I don't know what is going on in the valley and San Francisco these days, but I guess these startups have to be funded somehow and these VCs want their return so everyone will be rooting for transactions like these to happen.
If I had stumbled onto Snapchat and Facebook offered me $3 billion, I would've grabbed the money before I could blink. I'd probably even throw them a party to thank them for being so nice.
There will be too many imitators, and this privacy problem will be solved in other ways. It will all cause Snapchat to die off. It will never realize these lofty valuations.
Despite the fact that whenever I read things like this it depresses and befuddles me, the truth is a company (or really anything) is only worth what the buyer is willing to pay for it.
Is Snapchat really worth $3b? Apparently they are, because someone was willing to buy them for that much. It doesn't matter if they make 0 revenue, or if they 0 users, or the worst possible financial metrics. At the end of the day, if someone is willing to buy them, then the founders and investors will get their return on investment. The VCs won't care if they are hemorrhaging money as long as at the end of the day, there is some sort of exit that is a multiple of their initial investment.
I think the revelation I've discovered since diving into entrepreneurship is that worth is not simply as black and white as how much money you're bringing in versus how much you are spending. Part of a business model appears to now be acquisition - it's like the analogy of do you want to offer a product for $100,000 to 10 users and earn $1mm, or do you want to sell a product for $10 to 100,000 users? In this case, it's selling 1 product (your business and it's userbase) to a customer (the parent company) for a large sum.
When you look at it that way, businesses are simply commodities just like the products that are offered within them. The business itself is the product. In that sense, the customer-facing product is simply just a mechanism to the greater product, which is the sale of the business.
I hope I've articulated myself clearly enough, but that seems to be the rationale that makes the most sense to me when I see seemingly "fruitless" businesses valued at exorbitant amounts.
This is NOT a comment on Facebook or Snapchat or any other company I'm involved in --
You're sort of right. The other part that fills in the logic is "what is the value of business X to acquirer Y" -- seen through the eyes of acquirer Y -- business X when it becomes part of Y.
When Y buys X, X's opinion or the market's opinion of what X is worth is only one input. The more important input is usually what Y thinks X will be worth as part of Y. That is hard to understand from outside of Y. I am aware of deals where the purchase price was way more than X thought they were worth, but Y still got a bargain -- and every other permutation you can imagine.
For this reason it's very hard to have an objective view of what X is worth in the abstract -- the takeout price in an acquisition depends on who is buying it at least as much as any other factor.
This valuation dance is strictly tied to how long the Fed can keep the stock market artificially inflated. The moment the market tanks - which is the inevitable downside to a five year bull run - the value that a company like Snapchat can command tanks accordingly.
We're also due for another recession shortly, just going by the averages.
It seems as though the founders are intent on becoming billionaires. Hard to imagine not cashing in (at 22!) for enough money to live the rest of your life and the rest of your children's lives without a financial worry in the world. I mean, what is the end-game for him here? More money?
[+] [-] sharkweek|12 years ago|reply
a) sitting on a beach in Costa Rica
b) giving a completely different project a shot with my new found riches
Maybe I just completely lack vision, but what happens in two years when Snapchat likely isn't cool anymore and all the kids are onto the next thing. Where will the money be?
[+] [-] gkoberger|12 years ago|reply
[+] [-] phillmv|12 years ago|reply
With a billion dollar valuation, the founders will have found ways to make themselves rich - http://news.cnet.com/8301-1023_3-57591017-93/snapchat-founde... - and if you already cashed out fuck-you money, then you might as well keep going and see where it lands.
If I was broke and offered $3b, sure. But if I had $10-20mil sitting in the bank… anything I do after that point is 100% risk-free.
Mind you, I'm really racking my brain on how this isn't all totally insane.
[+] [-] OnyeaboAduba|12 years ago|reply
Thiel said he remembered saying, "We should probably talk about this. A billion dollars is a lot of money." They hashed out the conversation. Thiel said he and Breyer pointed out: "You own 25 percent. There's so much you could do with the money."
Thiel recalled Zuckerberg said, in a nutshell: "I don't know what I could do with the money. I'd just start another social networking site. I kind of like the one I already have."
This is probably how the SnapChat guys feel there is no different project down the road this is it and if you feel that way you never sell
http://www.inc.com/allison-fass/peter-thiel-mark-zuckerberg-...
[+] [-] jonnathanson|12 years ago|reply
I'm not saying everyone gets a multi-billion-dollar exit (and even getting there in the first place is fucking tough; certainly a lot tougher than it was in the '90s). But there are worse paths through life than being a serial entrepreneur who's in it for the love of the game.
[+] [-] jasonwilk|12 years ago|reply
Evan has taken at least $30-40M off the table in subsequent financing rounds. He has enough stacked away to go for an exit that deems him a billionaire which my guess at this point would need to be a $5B acquisition (assuming cap gains tax for his piece)
[+] [-] pmarca|12 years ago|reply
[+] [-] OnyeaboAduba|12 years ago|reply
[+] [-] joelrunyon|12 years ago|reply
What's the best country to hang out on with a beach & super fast wifi?
Costa Rica always gets thrown around - but wondering if there's anything better/warmer/cheaper/faster.
[+] [-] kenneth|12 years ago|reply
1. Facebook figures Snapchat is worth $3B, and
2. Snapchat figures Snapchat is worth more than that, and refuses the offer.
The valuation multiples lately have gotten me to wonder what I'm doing. I'm quite familiar with a growing startup that has 9 figures in yearly revenues, and a 9 figure valuation. It makes almost as much money as Twitter, but the valuation is less than 300x smaller. It makes infinity times more money than snapchat, but has a thirtieth of the valuation. What is going on?
[+] [-] IgorPartola|12 years ago|reply
[+] [-] seehafer|12 years ago|reply
Hence, more money going into bits. And more instant billionaires. Also no cure for cancer, or flying cars or (insert 1950's projection of the 21st century here).
edit: I'm borrowing Peter Thiel's "bits and stuff" metaphor here.
[+] [-] mahyarm|12 years ago|reply
At least snapchat is not psychologically exploitive company, like zynga, the guys who make clash of clans and such.
[+] [-] kamaal|12 years ago|reply
You already see the results of this don't you. If people were half serious about something like medical electronics the way they are about Facebook. The cost of diagnosis and testing etc would be way lesser.
Ultimately we only get what we want.
[+] [-] callmeed|12 years ago|reply
I also think you don't give enough credit to "dumb luck". Sometimes timing, external forces, chance encounters, and coincidence can make silly things take off and useful things get lost in the mix. The key is to maximize your opportunities as best you can.
[+] [-] danso|12 years ago|reply
Just a decade or two ago, newspapers also had this kind of buying power and tendency to acquire rather than create...the New York Times bought About.com for $400M in 2005, and then sold it last year for $300M (in cash).
I was never a big user of About.com, but the way its layout didn't change much over the years, and how it seemed to be built on a not-very-flexible CMS, makes me think that if instead, the NYT in 2003-2005 (when it had even more money to spend) just had an in-house team of technologists and a budget of $20-40M a year, could've built a much-better info source, and one that would've, by now, been as dominant as About.com, but with the quality of NYT-in-general.
http://mediadecoder.blogs.nytimes.com/2012/09/24/times-compl...
I know Facebook's clone, Poke, ended up being a failure...but it can't be just because the engineers and thinkers who work at FB are, on average, worse than the SnapChat inventors. How much management and political baggage did it have? (I'm assuming that the cost to build Poke was also under $1 billion...I hope)
[+] [-] crystaln|12 years ago|reply
SnapChat is a brand with users. Not a product. The product itself is worth very little.
[+] [-] bcbrown|12 years ago|reply
[+] [-] nhance|12 years ago|reply
IMO, this is why you avoid investment money. Can you imagine VC "partners" forcing you into a decision like this?
$3 Billion dollars _IS_ changing the world. How much more could you possibly want? What kind of future is preferable to the one you'd have had you taken this deal?
Can anyone make sense of this?
[+] [-] mercuryrising|12 years ago|reply
I recently got a new phone, and I got hooked in to all the services my friends were talking about in recent memory - instagram's dead, twitter's dead, snap chat is in flux. Not for all users, but in my group of friends these services aren't used as much. There isn't really anything keeping you from moving onto something new - your digital life isn't really that valuable. It's probably better to not read the conversations you had a year ago. The pictures are always nice, that's probably the only thing that people would care about, but with Snapchat they're gone (unless you hit save). I'm not sure what I'm getting at, but this company isn't worth $3 billion dollars.
[+] [-] mikepmalai|12 years ago|reply
Those gains were basically wiped out when the CFO said, "We did see a decrease in daily users specifically among younger teens."
With that one comment $18B in value disappeared.
I have no idea if Snapchat is worth $3B but what happened Oct 30 should give you an idea of how valuable that demographic is to Facebook.
On a side note, Google should buy Snapchat and integrated it into Youtube and use it as their new commenting platform (half kidding)
[+] [-] tsunamifury|12 years ago|reply
Facebook is (rightly or wrongly) perceived by the market as:
1) Losing its cool
2) Suffering from user flight
3) Still not offering significant competition to short-message social networking
For a $116B company, offering 2.8% of its total value to fight off what might be a a future 20%+ loss in value is a no brainer.
[+] [-] greedo|12 years ago|reply
[+] [-] kayoone|12 years ago|reply
[+] [-] the_watcher|12 years ago|reply
[+] [-] thatthatis|12 years ago|reply
I'll say now about SnapChat what I said about Facebook at the time: They probably know something about their market that we don't that leads them to credibly believe they're worth more than $x bn.
[+] [-] habosa|12 years ago|reply
Snapchat is a GREAT product, but the potential for monetization is limited and there are a lot of negative things about its security coming out lately. Seems like a good time to "take the money and run", but maybe they'll prove me wrong.
[+] [-] jobowoo|12 years ago|reply
[+] [-] byoung2|12 years ago|reply
While that was part of the reason, there were other reasons as well. They were concerned that regulators would block the sale, so they were seeking a bigger "breakup fee" than the $800 million Google offered.
http://www.businessinsider.com/groupon-google-deal-turn-down...
[+] [-] wcummings|12 years ago|reply
[+] [-] minimaxir|12 years ago|reply
I suppose waiting the year added another $2 billion.
[+] [-] rebel|12 years ago|reply
[+] [-] lotso|12 years ago|reply
[+] [-] trendoid|12 years ago|reply
[+] [-] aclements18|12 years ago|reply
Why is that? Economics of a venture fund. Say a VC recognizes this is likely to be the biggest winner in their fund. If I run a $400 million dollar fund and I am trying to return 3 times that to my investors that means that I have to make my investors $1.2 billion. Considering my fund only owns 10% of the company, a sale for $3 billy ain’t gonna cut it.
Yes, this would be one of the 30 investments I made from this fund, but I am only expecting 3 of those to really knock it out the ballpark. I have to extract all my returns from those three.
I certainly don’t know that this is the case for Snapchat, but it has been the case for some. While this may sound like it’s holding founders money hostage, this is the game they (hopefully) knew they were getting into when they took that first dollar. Best of luck to them, they are still very much killing it.
[+] [-] swalkergibson|12 years ago|reply
[+] [-] bentcorner|12 years ago|reply
Why would Facebook offer SnapChat $3B? If they believed like most others would, why wouldn't they just ignore SnapChat and let it die like the fad it seems to be?
It's not just SnapChat that thinks they're worth more, Facebook does too.
[+] [-] rl12345|12 years ago|reply
My background is in Finance, I have traded and followed the markets closely for nearly a decade and I've studied or read about basically all major bubbles that happened around the world for the past millennium.
Price cycles are an inherent part of capitalistic markets, periods of both over and undervaluation will always happen, that's basically a part of the games rule.
In the late 90s happened the web bubble. When is the mobile one going to take place?
Now back to Snapchat. They are looking more and more like what I imagine the poster boy of the mobile bubble would look like. Also, the macro conditions (tech stocks making new highs after new highs, investors throwing easy money at basically anything related tech etc.) are currently very bullish, which means perfect conditions to the birth of a new a price bubble.
That being said, I wish the Snapchat crew the best wisdom and luck of the world in navigating both the good and the bad times, whatever comes next.
[+] [-] joeldidit|12 years ago|reply
If I had stumbled onto Snapchat and Facebook offered me $3 billion, I would've grabbed the money before I could blink. I'd probably even throw them a party to thank them for being so nice.
There will be too many imitators, and this privacy problem will be solved in other ways. It will all cause Snapchat to die off. It will never realize these lofty valuations.
[+] [-] acconrad|12 years ago|reply
Is Snapchat really worth $3b? Apparently they are, because someone was willing to buy them for that much. It doesn't matter if they make 0 revenue, or if they 0 users, or the worst possible financial metrics. At the end of the day, if someone is willing to buy them, then the founders and investors will get their return on investment. The VCs won't care if they are hemorrhaging money as long as at the end of the day, there is some sort of exit that is a multiple of their initial investment.
I think the revelation I've discovered since diving into entrepreneurship is that worth is not simply as black and white as how much money you're bringing in versus how much you are spending. Part of a business model appears to now be acquisition - it's like the analogy of do you want to offer a product for $100,000 to 10 users and earn $1mm, or do you want to sell a product for $10 to 100,000 users? In this case, it's selling 1 product (your business and it's userbase) to a customer (the parent company) for a large sum.
When you look at it that way, businesses are simply commodities just like the products that are offered within them. The business itself is the product. In that sense, the customer-facing product is simply just a mechanism to the greater product, which is the sale of the business.
I hope I've articulated myself clearly enough, but that seems to be the rationale that makes the most sense to me when I see seemingly "fruitless" businesses valued at exorbitant amounts.
[+] [-] pmarca|12 years ago|reply
You're sort of right. The other part that fills in the logic is "what is the value of business X to acquirer Y" -- seen through the eyes of acquirer Y -- business X when it becomes part of Y.
When Y buys X, X's opinion or the market's opinion of what X is worth is only one input. The more important input is usually what Y thinks X will be worth as part of Y. That is hard to understand from outside of Y. I am aware of deals where the purchase price was way more than X thought they were worth, but Y still got a bargain -- and every other permutation you can imagine.
For this reason it's very hard to have an objective view of what X is worth in the abstract -- the takeout price in an acquisition depends on who is buying it at least as much as any other factor.
[+] [-] alexkus|12 years ago|reply
...but actually just renamed to a .nomedia extension and left on the HDD?
[+] [-] disdev|12 years ago|reply
Groupon turned them down, thinking they were worth more and then went the IPO route.
Now, in late 2013, Groupon has a market cap of $6.8 billion.
Moral of the story? Take the money and run.
[+] [-] adventured|12 years ago|reply
We're also due for another recession shortly, just going by the averages.
The clock is ticking Snapchat.
[+] [-] swalkergibson|12 years ago|reply