by Matt Gallagher, Red Herring Journalist
Though their messages may self-destruct in 10 seconds, Snapchat’s potential at monetizing its massive user base that has eclipsed the likes of Instagram and Vine is far from a mission impossible. At least that’s what Institutional Venture Partners are betting after leading a $60 million Series B round that values the company at $800 million.
General Catalyst Partners, SV Angel, Benchmark Capital and Lightspeed Venture Partners also participated.
Snapchat lets users send photo and video messages that self-destruct 10 seconds after they’ve been viewed. The service has been particularly popular with 20-somethings, who use it to send sexy photos or party moments they don’t want pasted all over the Internet. Lately, the service has seen its user base extend beyond the younger crowd to a more mainstream audience.
Though the photo sharing service only celebrates its second birthday this September, Snapchat’s users are sharing more than 200 million messages a day, an impressive surge over the 150 million daily messages the service was logging last April. The company does not disclose actual user numbers.
Nor does it disclose how it will make money. But that does not seem to matter to venture capitalists, who reason that a service that has more shares than Instagram will eventually find some way to monetize.
“It’s no secret that Snapchat has yet to turn on its monetization engine,” blogged Dennis Phelps, a General Partner for IVP, which typically only invests in companies with $20 million to $200 million in revenues. “Despite this fact, the financing was intensely competitive – one of the most competitive financings we have been a part of in years.”
Phelps describes his reasoning for the valuation in a top 10 list, including the facts that the company pushed “mobile first,” was “setting the world on fire,” and was a “big fish in a small pond.” Last but not least was “Because they let us.”
“IVP was one of only a handful of firms that were evaluated to lead Snapchat’s recent financing round,” Phelps wrote. “As dedicated later-stage investors, gaining access to elite entrepreneurs at hyper-growth companies remains critical to our investment model. Almost by definition, if IVP decides to invest, a company has already proven itself… Snapchat is clearly a huge success, and we wouldn’t have invested unless we believed that it will become a much larger one.”
Snapchat will use the new funding to spur further growth.
“…In order to continue scaling while developing the Snapchat experience, we needed to build a bigger engineering team and figure out how to pay our server bills,” the company wrote on its blog.
The company is clearly prospering despite the fact that Facebook targeted it with its own generic version of Snapchat- Poke, which went belly up due to lack of user interest.
Yet don’t expect Facebook to be scooping up the company anytime soon. Rumors abound that Facebook’s Mark Zuckerberg has taken a personal interest in Snapchat, but the company’s 23-year old CEO maintains Snapchat is not for sale.
“Acquisitions can be pretty distracting,” Evan Spiegel, Snapchat’s CEO, told AllThingsD. “We feel like this is early innings in a highly competitive marketplace. We’re just really focused on building right now.”
In addition to the funding, the company announced that Sony Entertainment CEO Michael Lynton will join Snapchat’s board as an independent member.