Kleiner Perkins Caufield & Byers, one of Silicon Valley's best-known venture-capital firms, has agreed to invest in the rapidly-growing transient message service Snapchat Inc. at a valuation of close to $10 billion, according to sources with knowledge of the matter. Kleiner committed to invest up to $20 million in May, one of the knowledgeable people said. Snapchat has talked to several potential investors in recent months, and is in the process of raising a large investment round that would make it one of the world's most valuable private tech startups despite virtually no revenue, according to The Wall Street Journal.
A Snapchat spokeswoman said, "The valuation of our business and our capital requirements are the least exciting aspects of supporting the Snapchat community. We have no further comment at this time."
Snapchat's value of about $2 billion a year ago has skyrocketed, despite the startup lacking a concise business model. Last year, Facebook offered to buy the company for $3 billion, but was turned down by co-founders Evan Spiegel and Bobby Murphy, who started the app as students in a Stanford University dorm room. Investors are aware of the potential to profit from million of teenagers and college students using the app, which has been in business for three years. Teenagers and college students are highly targeted by advertisers, and are becoming increasingly difficult to reach through traditional media.
Additional revenue could help Snapchat prepare for its first attempt into advertising, which is expected later this year. The company has held talks with media companies and marketers in recent weeks about a new content service called Snapchat Discovery, according to the Wall Street Journal. The service would allow users to read daily editions of publications, video clips and ads by holding down a finger on the screen, similar to what they do with photos and other messages on the app, before disappearing.
More than 100 million people now use Snapchat every month, with roughly two-thirds of those users logging on to the service daily, according to a person who has been briefed on the company's internal metrics. By comparison, WhatsApp, a messaging app acquired by Facebook this year for $19 billion, said this week it has more than 600 million monthly active users. Twitter has 271 million monthly users with a market capitalization of about $29 billion.
The investment is a surprise to some, due to the fact that Snapchat doesn't have a true business model. Snapchat is known for its app that permits users to send photos that can disappear within 10 seconds, and has yet to begin monetization efforts. It will be interesting to see where the company goes now that they have the resources.
Edited by Alisen Downey