Snapchat brings in $538 million from investors

Snapchat brings in $538 million from investors
Snapchat co-founder and Chief Executive Evan Spiegel gives a commencement address to the USC Marshall School of Business at the Galen Center on May 15. (Patrick T. Fallon / For The Times)

Snapchat Inc. has raised an additional $538 million as it prepares for an initial public offering.

The latest private investment puts the reputed market value of Los Angeles' most famous technology start-up at more than $15 billion and brings its total capital raised to $1 billion over three years.

Snapchat's co-founder and chief executive, Evan Spiegel, who turns 25 on Thursday, said this week that the company plans an IPO, though he declined to offer a timeline.

The new cash will help expand Snapchat's workforce. In February, more than 200 employees worked at Snapchat; today, more than 330 do. It's hiring people in Venice, its headquarters, as well as in New York City and Chicago. Online job postings seek computer engineers, ad sellers and recruiters. But a batch of other positions represents the social media company's multiple ambitions: for instance, "political junkies ... willing to travel to exotic locales like Iowa and New Hampshire."

"They've seen a phenomenal growth," said Tejas Mehta, a mobile industry research analyst at Parks Associates. "But they need to take the next steps to compete with the other players."

Millions of teenagers and young adults consider Snapchat their main smartphone app to stay in touch with friends and celebrities through photos, videos and text. On Snapchat, content is automatically deleted after a short time by default, unlike most other social media apps, a feature that attracts young customers.

But other start-ups and well-funded giants such as Facebook and Google are adding new features too. Snapchat must keep pace or risk losing users, now almost 100 million a day, Mehta said.

Snapchat now gives users music videos and news articles, Mad-Libs-style posters that can be edited, and the ability to transfer money. The "political junkies" are expected to give users a close look at the 2016 presidential race. Snapchat recently hired a top CNN political reporter and a Fox Broadcasting comedy development executive to lead content production efforts. Capital is needed for acquiring both people and technology to come up with even more ideas.

"The valuation and funding that players like Snapchat are bringing in shows that the key thing is [that] messaging is becoming more than messaging," Mehta said.

The new investment, disclosed in a Securities and Exchange Commission filing Friday, comes as Snapchat seeks deals with a wider range of advertisers. The company curates public postings from specific geographic areas into videos, some viewable only by users in the same region, others across the world. In addition, Snapchat serves text and video content from about a dozen media outlets. Both include video ads.

A steady revenue stream is key to investor confidence. Thus far, ads serve as the company's only significant revenue source. Recent advertisers include Warner Bros. Pictures for its new earthquake disaster film "San Andreas" and Maybelline New York.

Snapchat has pushed a new format for video ads, requiring them to be vertically oriented — viewed with a mobile phone held the normal way, not on its side. More new ad designs and fresh sources of revenue will probably materialize in coming months.

Snapchat has yet to make a profit, but investors continue to see potential.

Sam Rogoway, whose Santa Monica start-up Victorious Inc. helps YouTube stars develop their own mobile apps, said the explosion in mobile video is steering investment capital toward start-ups like Snapchat and his own company. Victorious raised $23 million a year ago and has gone from five employees to more than 60 in nine months.

"Investors like to go where fish are swimming, and they're swarming in the mobile video ponds," he said. "Mobile is becoming the first screen, not the second or third."

Participants in the latest investment include Fidelity Investments, York Capital and — according to CNBC — Glade Brook Capital. CNBC also reported that the new cash puts Snapchat's total market valuation at $16 billion.

Last year, Snapchat spent nearly $100 million through a combination of cash and stock to buy at least three start-ups, including Vergence Labs, a maker of camera-outfitted eyewear similar to Google Glass, and AddLive, a chat software developer.

It also bought, whose bar code technology was recently incorporated into Snapchat. Users are assigned personal bar codes others can scan to add them as a contact.

The rising valuations for tech start-ups in general are boosting prices for such acquisitions. That could lead instead to partnerships or investments

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