In its latest round of funding, Silicon Valley’s “unicorn”, Snapchat, raised $175 million USD from fund manager, Fidelity Investments. The new cash injection however, did nothing for the Snapchat’s valuation which remained at $16 billion USD. This financing brings the total amount raised by Snapchat to $1.4 billion USD.
Individuals familiar with the deal stated that the shares Fidelity paid for were technically bought last year. Hence, the reason there may not have been any increase in its valuation.
Are Investors Being Careful?
While $175 million might seem like a lot of money to certain startups, the reality is that it pales in comparison to Snapchat’s fundraising in May 2015 where they raised $500 million. This lower investment has brought up questions about investor confidence in the company and startups in general.
This is not just happening to Snapchat. Some tech startups have also experienced the same thing as they were only able to match their previous fundraising targets or even get lower funding. This may be due in part, to investors slowing down on their investments and generally being careful about who and what to invest in. In fact, there are indications that mutual funds companies are slowing down on their startup investments.
While some companies may be able to get by until investors become “freer” with their monies, some startups might suffer significant adverse effects as they may be unable to hire and retain the necessary talents required to help them grow.
Snapchat’s Recent Changes
The Snapchat app is centered around user privacy. The company became popular when people found they could send pictures and videos that are “destroyed” within 10 seconds of the user viewing it.
The free app was without any revenue stream until it started selling advertisements and even more recently when it signed an agreement with Viacom. Courtesy of this agreement, Viacom gets the exclusive rights to selling advertising around Snapchat’s content.
Since the beginning of 2016 however, Snapchat has introduced quite a few features that have commercial intent, in the bid to increase its revenues. In fact, its upcoming e-tailing feature that will be found in the Discovery tab is aimed at increasing its efforts to become more commercial.
With 100 million daily users spending up to half an hour on the platform every day, Snapchat can only grow upwards and increase its user base. Will investors continue to shy away? Are they waiting to see some results from their investments? Or are they just reluctant to continue investing in a company that hasn’t made them any profit?
Only time will tell.