Benner on Tech: Investors Pile Into Snapchat

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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Based on Bloomberg’s report that Snapchat raised $537.6 million by selling common stock, it seems that investors really, really, really want to get into the startup. Most private companies with sky-high valuations -- this investment would put Snapchat at $16 billion -- sell preferred shares that come with, at the very least, guarantees that investors won’t take a loss, even if the company sells for much less than its optimistic private valuation.

But common stock typically doesn’t come with such generous protections. If investors are willing to pile into a speculative private company without much in the way of safety nets, there are a few ways to read the situation.

a) This is a new form of irrational exuberance gone wild and more evidence that we’re entering a private company valuation bubble.

b) This is a new form of irrational exuberance, but only for a single company.

c) There’s nothing irrational about it because Snapchat is going to be the next Facebook.

Let me know which option makes the most sense to you.

Bloomberg already reported that Snapchat is becoming a media and entertainment company, rather than just a disappearing messaging company, which could explain why people are so enthusiastic about it.

And Snapchat investor Mitch Lasky shared with Chief Executive Officer Evan Spiegel some thoughts that hedge fund manager Glen Kacher had about the startup, per an August 2014 e-mail exchange that was leaked amid the Sony Pictures hack. Lasky wrote to Spiegel:

[Facebook]’s failure at Local with the Like-driven company profile page could be a boat anchor culturally, similar to the way that Geocities helped Yahoo miss out on the real wave of social networking.  The most obvious O2O players in the U.S. seem to be Google with its Now/Maps products and Apple with its somewhat broken Maps/Siri “products.”  Snapchat could also be a player.

In plain English, Kacher -- a public company investor who owns a lot of Facebook stock -- thinks Facebook isn’t going to be a competitor in the business of getting people to use their phones to buy stuff from the brick-and-mortar world. This business is thought of as one of the biggest money-making opportunities staring Internet companies in the face. Kacher thinks Google and Apple will probably be big players, and that Snapchat could be a contender too.

Broadband’s Second-Class Citizens

Cable consolidation, our growing dependency on the Internet for productivity and the need for ever faster broadband speeds are creating a situation that could make it harder for the world’s poorest people to access the Internet, especially the high-speed Internet. (New York Times)

Some places are going to be left out. Cisco said speeds in Latin America will go from 7.2 Mbps to 16.9 Mbps by 2019, while the Middle East and Africa will reach only 14.9 Mbps then. In Asia, both India and Indonesia will have rates even lower than that. Many people in those places won’t be able to do the sort of online activities that increasingly matter in the global economy.

Ventureland

Uber is building a massive headquarters (heavy on the use of glass) in San Francisco’s Mission Bay neighborhood. (San Francisco Chronicle) Carnegie Mellon’s National Robotics Engineering Center is struggling after Uber hired at least 40 researchers and scientists from a program that did work on self-driving cars and for the U.S. military. (Wall Street Journal).

Formation 8’s confidential presentation about its new hardware fund reveals the firm wants to invest in all the things that are super hot right now: drones, wearables, robots and connected home devices. (BuzzFeed)

People and Personnel Moves

Ross Ulbricht, the man who ran Silk Road, was sentenced to life in prison without parole. (Mashable)

George Zimmer, the ex-CEO of Men’s Wearhouse, started an “Uber for tailors” startup called zTailors. (Wall Street Journal)

Companies

Intel said it would buy Altera for $16.7 billion. (Bloomberg)

** Related: Margin pressures are pushing semiconductor companies to merge. (Wall Street Journal)

Amazon says it will spend hundreds of millions of dollars to build data center facilities in Ohio that should bring more than 1,000 full-time jobs to the area. (Bloomberg) Just like its rival Google, Amazon is offering its own special products for kids, with a “Kindle for Kids” special bundle. (the Slanted)

Google sold 17 million Chromecast devices. (Variety) The company acquired Pulse.io, a company that helps companies improve their mobile apps. (Bloomberg) The company is working with Infineon Technologies to make a tiny chip that can detect gestures. (Bloomberg) Two recent advancements mean Project Loon could be commercially deployed next year: the company partially automated the balloon launching process, and it devised a way to pass Internet signals between balloons in midair. (Bloomberg)

Security Watch

The U.S. attempted a failed, Stuxnet-like attack against North Korea's nuclear weapons program five years ago. (Reuters)

As the government’s broad surveillance powers under the Patriot Act were set to expire, the Senate said it would likely pass a version of a House measure that curbs government spying powers, a piece of legislation the key senators had opposed. (the Guardian)

Level 3 Communications Internet is blocking traffic to servers it believes could be controlled by criminal hackers. (Wall Street Journal)

News and Notes

Advertising agencies are increasingly being forced to compete with tech companies like Facebook, Google, Maker Studios and new media startups for top talent. (Wall Street Journal)

Some tech that prevents phone use while driving may not actually make us safer drivers. (New York Times)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Maria Lamagna at mlamagna@bloomberg.net