What Does Snap Inc.’s IPO Mean For Silicon Beach?
Today Snapchat's parent Snap Inc. priced its hotly anticipated IPO. The Dow Jones reported the IPO is priced at $17 per share.* Just a shade above what investors were expecting ($14 to $16 per share). There will be a lot of people excited about this IPO regardless of the price. In fact, Reuters stated it is 10x oversubscribed at the $17 per share mark.** Ask anyone in the finance industry, pricing an IPO is much more of an art than a science. Price it too high and book runners (Morgan Stanley and Goldman Sachs) could be left holding onto pricey shares that they can’t move. Priced too low and founders (Evan Spiegel and Bobby Murphy) and funding partners (Sequoia and KPC&B) leave a lot of money on the table. See Crunchbase for a list of 24 of the 157 investors.
But, whether the price is right or whether the IPO will be a success (I’m hopeful-see disclaimer) isn’t the point of this article.
The point is to discuss the impact the IPO will have on the tech and startup ecosystem in Los Angeles. But if you came here to learn a bit more about the IPO and the Snap story stick around—there are plenty of fun tidbits below.
First, the IPO will be great for LA’s image. Maybe I should stop right here. LA is a city that cares more about influence than net worth (cue, “how many Instagram followers do you have?”) This will be great for the image of LA’s startup scene.
There is no question that this story has the intrigue of a Hollywood script (Social Network) and even a lawsuit to boot (see TechCrunch article Snapchat paid Reggie Brown $157.5M to settle his ‘ousted founder’ lawsuit). It stars the hometown kid, Evan Spiegel. Even though he started the company in San Francisco while attending Stanford University.
Spiegel was born in LA and grew up a stone’s throw from Silicon Beach in Pacific Palisades, California. The two millennial co-founders (Murphy and Spiegel) are twenty-eight and twenty-six respectively and hold over "70% of the voting power" in the company, and own around 45% of the total stock. Meaning both of them will be worth over three billion dollars’ when the bell sounds tomorrow morning.
Yes, the Snap IPO will be great for LA’s image of a rapidly growing tech and startup scene (see Laurel & Wolf, DogVacay, SpaceX, Hyperloop One, and OUYA) and recent exits (Dollar Shave – 1 billion, Oculus VR – 2 billion). Many are even predicting that this IPO could edge out NYC and elevate LA as the second largest community in the country. It has been too long since the last high profile tech IPO (Alibaba - 2014) and even longer since the last great story (Facebook - 2012). I for one am excited about the Snap story and to watch how the show plays out.
Entrepreneurs will almost undoubtedly profit from the IPO as a renewed sense of enthusiasm and optimism will sweep the city. It has been too log since the holy grail of exits (a successful IPO) has been achieved.
We have had to watch
founders become billionaires from acquisitions (Oculus) rather than watching them bring their companies through the hellfire of investor and analysts scrutiny to sell it on the world’s largest financial stage.
Murphy and Spiegel are navigating the fickle consumer app market and the majority of their users are in their teens and early twenties. Not to mention the fact that Facebook and Facebook (via Instagram) are trying with every update to weaken Snap's market share (see Instagram Stories). This IPO should give entrepreneurs some hope that all their hard work may be worth it.
BUT whether it will bring entrepreneurs any cash is a bit of a different story…
ANGELS AND VCS
Even though LA has its fair share of great funding partners and venture firms (Upfront Ventures, Crosscut Ventures, Anthem Venture Partners, and Frontier Venture Capital) none of them will bring home massive paydays. That is, they weren't the first in on this deal. Snap Inc. raised their Series A from Silicon Valley investors. The list of Snap’s list of 157 investors is not publicly disclosed, but you can see some of them on this list.
The fact LA venture firms were not in on this home run hits two-fold. First, and most obviously, they do not get to publicly advertise the fact that they saw something when others didn’t. Second they won’t have the cash to put back to work in the LA startup scene
However, sometimes image is more important. With anxious investors from all over the country looking to invest in the next Snapchat, LA VC’s might be able to secure more external financing and launch a new fund.
Like above, a rising tide raises all ships and the accelerators and incubators will receive a steady uptick in deal flow as the ranks of entrepreneurs swell. There will be more entrepreneurs and more ideas to select from.
THE LA COMMUNITY. . . it might be a while
The startup community will grow. Hopefully Snap Inc. will shoot off a fair number of angel investors and draw more talent to the area. But, the social gain may take a while.
Spiegel and Murphy, have pledged to donate up to 13,000,000 shares of Class A common stock to a foundation to support non-profit arts, education and youth programs. The only catch is that these shares will be donated over the next 15 to 20 years.
However, this does amount to roughly 1.2% of all shares outstanding (about $221 million) and a potentially a lot more if the stock goes up.***
IMAGE IS POWER