Fidelity Invests In Snapchat — Holds Valuation Constant

Could Fidelity’s latest investment in Snapchat at a valuation of $16 billion actually indicate trouble for the social newcomer?

According to The Wall Street Journal, Snapchat Inc. has raised $175 million in new funding from Fidelity Investments. This valuation of the social messaging company puts it at the same $16 billion valuation from one year ago, a person familiar with the matter told the outlet.

Snapchat’s inability to raise funds at a higher valuation than a year ago, as WSJ goes on to point out, may be an indicator that Wall Street investors have grown cautious about the social media platform’s trajectory. But Snapchat isn’t alone in this stagnation. In recent months, several tech startups have raised capital at the same or lower valuations than previous rounds, posing risks to their ability to recruit and retain top talent. This trend, as WSJ notes, is also adding to concerns that the era of runaway growth in valuations — particularly in the tech sector — is coming to a close.

Mutual funds in particular have clamped down on their wild startup bets. As WSJ explains, the process by which mutual funds value their own stakes in private companies is a complex one, with values being set by valuation committees that sit apart from portfolio managers who make investment decisions. To date, Snapchat marks one of the most significant divergences of opinion between the valuation committee and the investment manager at the same mutual fund.

Snapchat has raised more than $1.2 billion from investors, including General Catalyst Partners, Lightspeed Venture Partners, Coatue Management, DST Global, Yahoo Inc. and Alibaba Group Holding Ltd. The company’s valuation of $16 billion last March was a 60 percent increase from its previous valuation in Dec. 2014. So, what we’re witnessing now may not be anything more than a natural deceleration … but perhaps it’s an early indication of something more.