According to multiple sources, Snapchat recently rejected a $3 billion all-cash acquisition offer from Facebook. At this price, this would have been Facebook’s biggest acquisition, as it is triple the amount they paid for Instagram back in 2010.
Snapchat has been growing massively over the past 2 years. According to The Wall Street Journal, Chinese company Tencent Holdings recently offered to head an investment that would value Snapchat at $4 billion. Even with all these offers, Snapchat’s CEO Evan Spiegal notes that he will not likely be considering any acquisition or investments until at least early next year.
This resonates with what happen back in 2006, when Mark Zuckerberg turned down a $1 billion acquisition offer from Yahoo. While some may say he was an idiot at the time for doing so, Zuckerberg surely has proved us wrong as Facebook is now one of the most valuable companies in the world, with a $118 billion market cap.
But even so, turning down $3 billion in cash is a hard thing to do for many of us. In a blog post today, entrepreneur and co-founder of the #DominateFund Ben Parr broke down the possible logic for Snapchat’s decision:
1) Snapchat is still growing rapidly: If Snapchat’s growth were slowing down, the decision to sell would be significantly harder. But when you’re sitting on a fast-growing entity that should only increase in value, taking a $3B offer can look small in just a few months.
2) The founders will cash out regardless: From the last line of the WSJ report: “If Snapchat pursues an investment early next year, Spiegel has told investors he would like to sell a block of his own stock, according to people familiar with those conversations.”
Spiegel and his team are going to make millions either way — more than enough to live a happy and comfortable life. It frees the team to “go the distance” because even if Snapchat totally collapses, they will never have to worry about money again.
3) The chance to become one of the greats: Q: How do you become the next Jack Dorsey, Mark Zuckerberg or Steve Jobs? A: You take your company all the way to IPO.
As Parr notes, creating a lasting legacy like the greats take a lot of time and risk. Will Snapchat and it’s founder take it as far as they expect it go? Only time will tell.
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