Snapchat’s 23-year-old co-founder Evan Spiegel recently turned down a $3 billion offer from Facebook to buy his popular photo- and video-sharing app. Snapchat has no revenue, but Spiegel made the right move. Here are five reasons why:
Snapchat is succeeding because it is the anti-Facebook. Unlike most social networks, Snapchat emphasizes privacy. Photos that are shared generally vanish within seconds. The app’s popularity is a sign that people want to take back some privacy in the online world. Do all 300 of your Facebook friends need to see that embarrassing photo of you? With Snapchat, you can send it to one person, and have it disappear after a second.
If Spiegel sold to Facebook, his users might feel less secure, and might use Snapchat less. Or Facebook might succumb to the urge to alter Snapchat’s best selling point, its private nature.
2. It’s more fun to run your own company and shoot for the stars.
Every start-up dreams of being the next Google or Facebook: a company worth billions that changes the world and is dominant for years. When a founder sells, that dream dies. Cashing in means limiting how big Snapchat could become, and how large a role Spiegel can play. Google turned down offers to be bought by Yahoo, and later surpassed Yahoo in value and impact. If Spiegel thinks Snapchat could be as big or bigger than Facebook, why sell?
3. If Spiegel wanted to sell, he should hold out for more money.
There have been reports of investors valuing Snapchat at between $3 and $4 billion. It doesn’t make sense to sell on the low end of that range. Since Snapchat has no revenue now, it’s difficult to value. That is actually an asset in driving up its price as potential owners may be driven by the fear of losing out on the next big thing.
4. Money is overrated.
If Evan Spiegel at 23 is smart enough to build an app that people think is worth $3 or $4 billion, he will have no trouble making gobs of money during his life. Research shows that after $60,000 a year, happiness levels off. He’ll be fine without taking $3 billion from Facebook. Spiegel deserves admiration and praise for not selling out.
5. Zuckerberg has shown that passing on a billion or more can work.
Facebook CEO Mark Zuckerberg was 22 when he turned down a $1 billion offer from Yahoo to buy Facebook. He has done just fine since. When you have a product with great upside, don’t sell it to someone else. Spiegel might only regret what he could have built with Snapchat. He is wise to learn from the history of the man sitting across the negotiation table from him.