Investments

Investments Continue To Perk Up And Snapchat Snaps Back

It has been an interesting roller coaster ride for the team over at Snapchat for the last six months or so, particularly where its funding and valuation are concerned.

As autumn was coming into focus last year, Snapchat was everyone’s favorite cautionary tale about enthusiasm run wild in the investment marketplace when the reports of its diminishing valuation started to circulate. Snapchat got its Halloween scares in a few days early when reports circulated that Fidelity, a large mutual fund investor in the social messaging startup, quietly marked down the value it placed on its holdings in the firm by an eye-catching 25 percent.

Overnight, Snapchat went from a $16 billion valuation and one of the go-to tales of Silicon Valley dominance in the era of Web 2.0 to a $12 billion valuation and the go-to example of a firm that was not able to show enough bottom line profitability potential, despite the sky-high enthusiasm it had generated.

“Were we seeing the ‘twilight of the tech unicorns?'” became a rather fashionable question to ask as it seemed that Snapchat and Dropbox, among others, were unable to live up to those great expectations.

“[Snapchat] is just one of many indicators that the overall market assessment of technology companies has adjusted, in terms of valuation,” said Harry Weller, a general partner at venture capital firm NEA, which has invested in Uber, among other highly valued startups. “I think that people have already felt it.”

Flash forward from Halloween to early March, and the situation was stabilizing, if nothing to sing about exactly. Snapchat managed to raise another $175 million out of Fidelity, which has the effect of holding its valuation at $16 billion.

But while $16 billion was enough to get 2015 breathlessly excited for Snapchat’s future, holding steady in 2016 was not nearly so encouraging to watchers.

Snapchat’s inability to drum up a higher valuation year-over-year looked to some like investors had suddenly developed a sense of caution about the social media platform’s trajectory.

Again, Snapchat was far from alone. The story of 2016 has been the story of once hyper-hot tech startups finding they need to raise capital at the same or lower valuations than previous rounds. And that was a trend that seemed to mean just one thing, according to The Wall Street Journal: the era of runaway growth in valuations is over, or at least winding down.

Or is it?

Snapchat came roaring back last week with a funding round only and best described as a monster.

The social messaging firm snapped up a potent $1.81 billion in funding, the company reported in a U.S. regulatory filing on Thursday.

Perhaps investors are not so tired of Snapchat or massive valuations as previously thought. Venture capital database Estimates put the firm’s valuation at $17.81 billion to around $20 billion, up from $16 billion at its most recent financing in February. Investors in this latest round include General Atlantic, Sequoia Capital, T. Rowe Price and Lone Pine, among others, tech blog TechCrunch reported on Thursday, citing unidentified sources.

The big funding pick up followed reports earlier in the week, unearthed by TechCrunch, that Snapchat is/was working on a $200 million funding round that would firmly place the firm’s valuation at $20 billion.

The regulatory filings on which TC based its report show that the Series F round was opened back up.

“They get offers all the time,” one investor close to the company told TechCrunch. “And once you start to grow on this path, many people come to give you money. You don’t know how to value the company, so the best way to do that is to do some kind of rolling funding. When you have a hot company and many people are approaching you, you do a market of discovery.”

It seems the discovery process has been good, and investors are ready to throw some dollars at Snapchat again.

But Snapchat still faces challenges, namely in turning its extremely popular platform into an actual revenue generator. So far, revenue is generated almost wholly by its advertising business, which has only existed since last October.

Snapchat, however, has the base of extremely loyal 13 to 24-year-olds and carries with it the potential of catching those young, impressionable consumers and hooking them on brands. The company has more than 100 million active users, about 60 percent of whom are 13 to 24-year-olds.

So Snapchat has snapped back, and is back on the money train. Can they stay there?

Stay tuned. The last six months were pretty exciting and reversal filled.

Investments for the week ended May 27

The pace picked up a bit in terms of investment activity, as the week that ended May 27 saw $366 million (and then some) flow into corporate coffers.

Of the Top 5 deals in the week, as measured by dollar amount, the two biggest ones, and the only two to cross the triple-digit threshold, came from China. In the biggest deal of the week, peer to peer lender Weidai, which grabbed a Series C funding round led by Vision Knight Capital to tune of $153 million, will use that funding to further its automobile secured lending platform. The loans, as has been reported, are usually one month in duration with an average interest rate of 11 percent.

The next biggest deal of the week came as Benlai Life garnered $117 million, with a series C round that allows the fresh produce eCommerce delivery play to boost its supply chain and move into more areas within China.

Much further down the totem pole was TransferWise, with a $26 million investment round that valued the company at unicorn status, at just over $1 billion.

Since this is the end of the last full week in the month, we can see that May crossed the $1 billion threshold, with a domination, yet again, and as seemingly always, by FinTech.

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