I've formed a perspective that in these situations it's actually the institutional investors who are driving the decision to turn down offers and go for more. Digging deeper it's even possible to absolve them of mere stupidity when you see the pressures they are driven by. I think I'd enjoy the question more if it were "As a founder of Snapchat" but in all cases, given my understanding of Snapchat and the low quality of it's key metrics, my answer is SELL.
I'd already formed a pretty derisive attitude about a company that responds to weakness in their vanity metric (counting recipients is the most inflated measure possible) by trying to throw out an opposing metric (the 88% send to a single user). The 12% of multiple recipient mail could actually be >50% of the volume of the 400 million shares.
@BillLehecka, I'm oversimplifying on the suggestion that they are playing to their desired outcome and not reality. Let's say an institutional VC fund investor raises a few hundred million under premise they will invest in 10 companies and 1 of those will 20x their money. They invest 25 million in snapchat at a 200 million valuation. 3 billion is only a 15x ROI... "hey let's turn that down guys, we can get 4 billion easy!"
@snapster, I suppose, but to me, if they're already under shaky footing and then say "Yeah, let's push for that full ROI", I think you're playing with fire.
Didn't think kind of happen with Zynga? Or am I thinking of another company... I seem to recall someone (EA, maybe) offering Zynga a ridiculous amount of money to sell, and they rejected it... a few months later, Zynga's valuation went down the crapper. Granted, annoying social media games might not be your best course of action into a sustainable business model, but they probably should have sold and be happy.
Then again, maybe Snapchat knows something we don't. Perhaps they are the cusp of Internet communication. Or perhaps they're loony.
@Kevin, the VCs collectively could have more than any single founder shareholder, but more than likely they'd also have super powers granting them say in acquisitions. Also, they could control the board vote which on a day to day basis is what governs the company decisions.
It's also definitely not uncommon for founders to have less than controlling interest - if they had a hard road with a concept that needed lots of cash before valuation rose.
In Groupon's case it looked like the founders were convinced to hold out after a large round of funding in which they actually did sell significant stake to other investors.. creating a best of both words scenario.
It's all in the context. If you were offered $4 billion, but it was going to take a few more months to work out the details, you'd pass on the $3 billion offer, right?
I've formed a perspective that in these situations it's actually the institutional investors who are driving the decision to turn down offers and go for more. Digging deeper it's even possible to absolve them of mere stupidity when you see the pressures they are driven by. I think I'd enjoy the question more if it were "As a founder of Snapchat" but in all cases, given my understanding of Snapchat and the low quality of it's key metrics, my answer is SELL.
this is a week old now but I just found it - it explores nicely the low quality vanity metric that snapchat is using.
http://www.buzzfeed.com/jwherrman/the-great-snapchat-mirage
I'd already formed a pretty derisive attitude about a company that responds to weakness in their vanity metric (counting recipients is the most inflated measure possible) by trying to throw out an opposing metric (the 88% send to a single user). The 12% of multiple recipient mail could actually be >50% of the volume of the 400 million shares.
@BillLehecka, I'm oversimplifying on the suggestion that they are playing to their desired outcome and not reality. Let's say an institutional VC fund investor raises a few hundred million under premise they will invest in 10 companies and 1 of those will 20x their money. They invest 25 million in snapchat at a 200 million valuation. 3 billion is only a 15x ROI... "hey let's turn that down guys, we can get 4 billion easy!"
@snapster, I suppose, but to me, if they're already under shaky footing and then say "Yeah, let's push for that full ROI", I think you're playing with fire.
Didn't think kind of happen with Zynga? Or am I thinking of another company... I seem to recall someone (EA, maybe) offering Zynga a ridiculous amount of money to sell, and they rejected it... a few months later, Zynga's valuation went down the crapper. Granted, annoying social media games might not be your best course of action into a sustainable business model, but they probably should have sold and be happy.
Then again, maybe Snapchat knows something we don't. Perhaps they are the cusp of Internet communication. Or perhaps they're loony.
"Perhaps they are the cusp of Internet communication." Dick pics have been floating around since digital cameras were invented.
@kevin, LOL, true, but at least they don't keep them!
@Kevin, the VCs collectively could have more than any single founder shareholder, but more than likely they'd also have super powers granting them say in acquisitions. Also, they could control the board vote which on a day to day basis is what governs the company decisions.
It's also definitely not uncommon for founders to have less than controlling interest - if they had a hard road with a concept that needed lots of cash before valuation rose.
In Groupon's case it looked like the founders were convinced to hold out after a large round of funding in which they actually did sell significant stake to other investors.. creating a best of both words scenario.
It's all in the context. If you were offered $4 billion, but it was going to take a few more months to work out the details, you'd pass on the $3 billion offer, right?
@snapster, So if they are so small, why would they reject a $3 billion number unless they're pathologically insane or hippies?
@snapster, So would the VC convince the owners to not sell? The VC only has 12% of equity, according to the example.
Would a company like SnapChat sell off more than 50% of their equity? Is that what happened to Groupon?