SNAP TARGETING UP TO $22 BILLION IPO
Much-anticipated deal by the parent company ofmessaging app Snapchat would be largestU. S. tech public offering since China-basedAlibaba in 2014
Setting the stage for the largest tech IPO in three years — and one Silicon Valley experts hope will prompt more local startups to take the plunge — Snap on Thursday revealed plans to go public at a valuation of up to $22 billion.
The Venice-based parent company of disappearing messaging app Snapchat initially was seeking a $25 billion valuation, according to earlier media reports of a leaked confidential filing. Snap publicly released new details on its IPO plans Thursday in an updated filing with the Securities and Exchange Commission.
Seeing Snap come out with a more conservative number was a “little bit surprising,” said Eric Kim, managing partner at San Mateo-based venture capital firm Goodwater Capital. But he said the discount isn’t steep enough to cause concern.
“I think it’s potentially to drum up more interest,” Kim said, “and make a lot of people interested in the stock when they go out.”
Snap plans to raise about $3 billion, offering 200 million shares for between $14 and $16. If Snap prices its shares at the high end of that range, it would give the company a market value of about $22 billion, according to analysts at Renaissance Capital, which manages IPO-focused exchange traded funds. That calculation is based on the company’s number of “fully diluted” shares, which takes into account a complicated set of outstanding share options.
Snap was last valued at $18 billion as a private company, according to venture capital database CB Insights. It has yet to turn a profit.
Snap is expecting to price its IPO on March 1, according to Reuters.
The much-anticipated deal would be the largest U.S. tech IPO since China-based Alibaba went public in
2014, according to Renaissance Capital, and it would make Snap the largest U.S. tech company to go public since Facebook in 2012.
Just like those massive offerings, Snap’s IPO will be an “iconic event,” said Venky Ganesan, managing director of Menlo Ventures and chair of the National Venture Capital Association’s board of directors.
In one sense, Snap, because it is a household name, may not present too many lessons for smaller startups eyeing the IPO market.
But it’s significant that Snap’s founders have decided to take the 6-year-old company public, Ganesan said, at a time when many tech startups instead are choosing to stay private and continue amassing venture capital cash.
“It says the waters are safe, get out,” he said. “And at some point all of us need to grow up. … Part of life is growing up, and you cannot grow up without going public.”
As Snap grows up, it’s also attempting to evolve, as is made clear by the company’s Thursday filing.
“Snap Inc. is a camera company,” the document states. “We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate.”
Originally known as Snapchat after its signature messaging app, the company rebranded as Snap in September. In November it released its first hardware product — sunglasses with built-in video cameras, known as Spectacles.
By rebranding in that way, Snap is trying to differentiate from companies like Facebook and position itself as more of an entertainment and media company, rather than a social company, Kim said.
Snap is targeting the television industry, Kim said, and trying to get more people to watch videos on the Snap mobile app.
While Kim and other Silicon Valley experts are eagerly waiting for the Snap offering to inject life into the sluggish tech IPO market, the proposed deal already has faced some backlash.
In an unprecedented move, Snap’s leaders have decided voters who buy shares in this offering will have no voting power within the company. As a result, co-founders Evan Spiegel and Robert Murphy will hold nearly 89 percent of the voting power, according to Thursday’s SEC filing. The rest will be held by other Snap executives, board members and investors.
“Mr. Spiegel and Mr. Murphy, and potentially either one of them alone, have the ability to control the outcome of all matters submitted to our stockholders for approval, including the election, removal, and replacement of directors and any merger, consolidation, or sale of all or substantially all of our assets,” the document states.
The founders will retain that control even if they leave Snap, but if they die, they will forfeit some of their voting power nine months after their deaths.
Snap’s filing acknowledges that its IPO will be the first on a U.S. stock exchange to issue shares that don’t come with voting rights.
On Feb. 3, a group of institutional investors, including the California Public Employees Retirement System and the California State Teachers’ Retirement System, sent a letter to Snap objecting to the company’s plans to issue non-voting shares.
Snap’s proposed model has negative implications for corporate governance, they argued.
“We are concerned that Snap Inc. plans to go public with a structure denying outside shareholders any voice in the company,” the investors wrote, “and request to meet with you and your advisers to discuss our concerns.”