Snap Inc is seen by many tech investors as the next Facebook or Google but its founders are pushing far more aggressively than its predecessors in moving from a scrappy startup to public company.
Snap is planning an initial public offering valuing it at more than $20 billion just two years after it first began to generate revenue, even though it has plenty of cash and ample opportunity to raise more on the private markets. It is expected to be the biggest U.S. tech IPO since Facebook Inc's 2012 debut.
It is also defying convention by declining to bring in "adult supervision" to help 26-year-old co-founder and Chief Executive Officer Evan Spiegel and 28-year-old co-founder and Chief Technology Officer Bobby Murphy manage the company.
Imran Khan, a former Credit Suisse banker who played a big role in the Alibaba Group Holdings Ltd IPO in 2014, is emerging as a key figure in his role as chief strategy officer.
Some investors remain concerned, however, that the combination of an inexperienced management team and a sky-high valuation could be problematic.
"It is very clearly an inexperienced team leading a company that's asking for two things: a huge valuation and a very aggressive multiple," said Max Wolff, a market strategist at 55 Capital. "Once you start asking public investors for 30x earnings, the tolerance for mistake, misadventure and learning on the job goes down."
“I think that Snapchat does everything in an unconventional way,” Hemant Taneja, a managing director at the venture capital firm and Snap investor General said. “Comparing it to Facebook or another company is an incorrect way to think about it.”
IPO AS MARKETING
Snap, valued at about $18 billion, has raised roughly $2.5 billion from investors including mutual fund Fidelity Investments, Sequoia Capital, T. Rowe Price and Alibaba. It raised $1.81 billion as recently as May, according to regulatory filings.
The windfall of cash just six months ago, however, did not slow Snap’s IPO talks, which have been ongoing for at least a year, according to sources familiar with the matter. An IPO early next year may help Snap capture pent-up investor demand after a prolonged IPO drought, while also getting out in front of other hotly anticipated debuts from Uber Technologies Inc and Airbnb.
Some investors said the marketing boost and visibility that comes with an IPO is crucial to help Snapchat get more users outside the United States - and outside its dominant user base of millennials. Snapchat says it has more than 150 million daily active users.
“The goal of the company is to grow as fast as possible,” venture capitalist Wong said. “And there are no more 16-year-olds for them to get onto the platform.”
An IPO will give the company a more mature image that will appeal to advertisers, investors said. Snap has told investors to expect $1 billion in advertising revenue in 2017, according to sources familiar with the matter.
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