This year has been pretty busy, we have met several different startups and all of them are working hard to accomplish a mission. It’s hard to say what startup is the best of the year, because everyone is the best. If you are able to fund a company, get good traction, have costumers and create new jobs, you should already make it as best startup of the year. What we mean is that we love every startup which doesn’t fail and succeeds.
However, we had to make a decision and nominate the best startup of the year. Our best startup decision is not based on how good the company will perform in the next few years, how profitable it is nor how they are planning to expand. We have focused on three main aspects: valuation, interaction and hotness. The first criteria is the valuation, as normally a great idea comes with a great valuation. The second one is interaction, what we wanted to point out here was the number of interactions that the user/costumer has with the startup. Finally the third one is hotness, if you are hot everyone talks about you.
We think Snapchat is the startup that deserves to be the startup of the year. Even though we are still skeptical on how they will perform in the next couple of years and we are wondering if this is a trend or a sustainable business, we definitely believe that Snapchat is the “Startup”.
Facebook offered something close to $3B in order to acquire Snapchat. Instead of being acquired by a company that is currently worth more than $133B, Snapchat has turned down the offer. The total funding is up to $123M divided in a seed stage, series A, series B and a series C, which was recently closed at $50M and has probably given to the company a valuation between $2B-$3B. Snapchat is just a two year old company with less than thirty employees. The growth of Snapchat is impressive, given the fact that it is very young and that it’s so simple. Even though we can surely say that speculation is playing a good role, there are still people who are willing to invest in a company that doesn’t make money and that is unlikely to make money in the future.
In this world what matters most is not how much money you are making, but how many people are using your service. Interactions make the price. It’s a silly thought, but seen from a different point of view, it’s the start to turn an unprofitable company to a billion dollar one. Snapchat is seeing more than 400M snaps shared per day, which means that Snapchat has got more interactions, in terms of pictures, than Facebook and Instagram combined. The number of interactions are growing day by day, given the fact that in September, the CEO reported 350M snaps a day. They have achieved an increase of 50M snaps in just two months.
Without a doubt, Snapchat is hot. People between 18-25 are constantly using it. Its hotness has started a trend, getting snapchatted has become a more common phrase than you would ever have thought; especially in Universities, where students tend to go out very often and end up taking “remarkable” snaps of their friends. There is always the excuse to snap someone. Whether you are in the bathroom (yes, people keep sending me snaps while they are busy in the bathroom) or in a lecture.
What we have tried to see behind this phenomena is the real entity. Is this just a trend or something that has some roots? Snapchat is a trend, it’s not a sustainable business, and it’ll probably be overwhelmed by another product soon.
We could say the same of thing about Facebook, “it’s a trend”; but the penetration rate of Facebook is too big. They have been able to expand with different products and services that now are very useful to everyone. Snapchat is not useful, it’s just fun; but fun can be easily found in other ways. That’s why we are still skeptical about the whole product. When I see my 81 year old grandfather on Facebook, I think “this is it”, but when I see that the Snapchat adoption rates between teenagers, I think that changes in tastes take generations.
However, Snapchat deserves to be the the startup of the year. They represent what we have been talking about for the last twelve months and after having closed the recent Series C round at $50M, I guess we’ll probably hear more about them in 2014.
Would I have sold the company at £3B to Facebook? Yes.