By Douglas MacMillan
The demand to own private shares in Snapchat Inc. has become so
fierce that its newest investors are willing to receive second-rate
stock in exchange for their money.
The messaging service on Friday revealed in a filing with the
Securities and Exchange Commission that it has raised about $537
million in new funding from investors.
The financing values Snapchat at $16 billion, said a person
familiar with the matter, a 60% bump from its previous round in
December when the company began stepping up plans to make
money.
An unusual stipulation of this round is that the investors--
which include Chinese e-commerce company Alibaba Group Holding Ltd.
and two hedge funds--received common stock, instead of preferred
stock, said the person familiar with the deal.
As standard practice, venture-capital investors typically
receive preferred shares when they invest, meaning they receive
certain rights over common stockholders. Those privileges can
include voting rights and, perhaps most important, getting paid
back first in the event of an acquisition or liquidation.
Snapchat's ability to sell common stock at such a large
valuation underscores investors' strong desire for a piece of the
fast-growing mobile-messaging service.
In fact, Snapchat's previous funding round completed in December
at a $10 billion valuation also involved common stock, the person
familiar with the matter said.
Investors in that round included Kleiner Perkins Caufield &
Byers and Yahoo Inc.
Only earlier investors, which include a number of
venture-capital firms such as Benchmark and Institutional Venture
Partners, own preferred shares.
Investors in the latest round include Glade Brook Capital
Partners in Greenwich, Conn., and New York-based York Capital
Management. The startup could raise up to $650 million in the new
round, which hasn't yet closed, according to the filing. CNBC
earlier reported on the valuation and investor names.
News of the funding comes days after Chief Executive Evan
Spiegel said at a technology conference that he has a plan for an
initial public offering but offered no details about its timing.
Mr. Spiegel also said this week that he has no desire to field any
acquisition offers.
When asked at the Code Conference this week about the current
climate around tech investing, the 24-year-old CEO and co-founder
said he predicts a "correction" is coming and he has factored that
into his plans. He notes, like many observers of the recent boom in
fundraising have, that low interest rates have spurred much of the
activity.
In March, The Wall Street Journal reported that Alibaba invested
$200 million in Snapchat. That investment is part of this newest
round.
Other investors in Snapchat include General Catalyst Partners,
Lightspeed Venture Partners, Coatue Management, DST Global and
Alibaba's rival, Tencent Holdings Ltd.
Including the new round, Snapchat has now raised a total of more
than $1.3 billion in funding.
The company runs one of the most popular messaging services in
the U.S., especially among teenagers, in part because of the
ephemeral nature of its messages. Its text and photo messages
disappear after a certain amount of time, limiting the possibility
that content will come back to haunt the user. The company now has
nearly 100 million users who log on each day.
But it has only seriously started generating revenue this year,
selling ads to marketers including Samsung Electronics Co. and
Universal Pictures. With its appeal to teens, Snapchat aims to go
beyond messaging and become a next-generation media business.
The company has joined with media brands including ESPN and
Yahoo on its Discover service, which shows news articles and videos
that disappear after one day.
Lisa Beilfuss contributed to this article.
Write to Douglas MacMillan at douglas.macmillan@wsj.com
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