By Evelyn M. Rusli And Douglas MacMillan
Yahoo Inc. plans to reinvest a small portion of the cash it made
from an early bet on Alibaba Group Holding Ltd. in another
fast-growing startup: Snapchat Inc.
The Internet portal has committed to an investment in Snapchat
at a $10 billion valuation, people familiar with the matter said.
One of the people said Yahoo is investing about $20 million.
Over the past few months, the mobile-messaging startup has been
working to secure capital from a mix of venture-capital firms,
money managers and companies.
Spokeswomen from Yahoo and Snapchat declined to comment.
By investing in Snapchat, Yahoo may be looking to repeat its
success investing in Alibaba, though at a much smaller scale. Yahoo
paid $1 billion for a 40% stake in the Chinese e-commerce company
in 2005, an investment that has yielded a stake worth tens of
billions of dollars and helped CEO Marissa Mayer buy time with
shareholders while she attempts to turn around the struggling core
business.
Separately, this week Yahoo continued its acquisition spree of
small startups with the purchase of another mobile messaging
company, MessageMe, according to two people familiar with the
deal.
The team at the San Francisco startup, which raised more than
$10 million in venture-capital funding, will likely be working on a
new communications tool at Yahoo, one of the people said.
TechCrunch earlier reported on the MessageMe deal.
With the more than $5 billion Yahoo made by selling part of its
stake in Alibaba, Ms. Mayer has committed to returning at least
half of it to shareholders, raising questions about what she will
do with the rest. An activist investor, Starboard Value LP, last
week took a stake in Yahoo and pushed the company to explore a
combination with AOL Inc.
Snapchat could become an important strategic partner for Yahoo,
as it seeks new ways to distribute its content, apps and ads in the
mobile world.
But at a $10 billion valuation, Snapchat also represents a risky
investment in a startup that has yet to turn its popular mobile
service into a business that generates revenue. The three-year-old
company, whose app lets people send messages, photos and video that
typically disappear after 10 seconds, has more than 100 million
users. Snapchat is planning to debut a new service for vanishing
news articles and advertisements in the coming weeks, people
familiar with the matter said in August.
The move by a large tech company to back an up-and-coming
startup at a lofty valuation resembles Microsoft Corp.'s 2007
investment in Facebook Inc., a deal that valued the three-year-old
social network at $15 billion. The software giant beat out Google
Inc. to make that investment, which multiplied in value and led to
Microsoft's strategic partnership with Facebook around its Bing
search engine.
Yahoo is one of many potential investors that have held talks
with Snapchat as the young company puts together a round of funding
that would make it one of the world's most valuable startups.
Venture-capital firm Kleiner Perkins Caufield & Byers in May
committed to invest up to $20 million in the round, two people
familiar with the matter said last month. Alibaba considered an
investment in Snapchat earlier this year and passed, according to
people familiar with the matter.
At least two previous Snapchat investors, Institutional Venture
Partners and DST Global, have also talked to Snapchat in recent
months about a new investment, two people familiar with the matter
said.
The funding would likely make Snapchat, run by co-founder and
Chief Executive Evan Spiegel, one of the mostly highly valued
startups in history to bring in close to zero revenue. Pinterest,
which was valued at $5 billion by investors in May, began selling
its first advertisements this year.
Rolfe Winkler
contributed to this article.
Write to Evelyn M. Rusli at evelyn.rusli@wsj.com and Douglas
MacMillan at douglas.macmillan@wsj.com
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