with raising money at a $3b valuation, even considering liquidation preferences, etc. you severely limit your exit opportunities. A $3b acquisition is technically a possibility but I would assume everyone is looking for at least a 2x exit, so now you need to be purchased for $6b. Taking money at such a high valuation can be a serious risk because if you can not get to that $6b IPO or acquisition (in snapchat's case I do believe that would be very difficult to pull off) you will not be in good shape.
These late stage investments are looked at like they are really low risk when in reality, it is always a substantial risk until you have a working business model. We say cash flow is king, but invest in the exact opposite fashion and flock to vanity metrics. Look at how Fab (a company everyone assumed would become the next monster e-commerce company) is flailing and trying to raise money every month while losing all viewership. I fear companies like twitter can foil the public market because less informed investors just equate them to facebook and there is some substantial chance this looks like a pump and dump in a couple of years.
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with raising money at a $3b valuation, even considering liquidation preferences, etc. you severely limit your exit opportunities. A $3b acquisition is technically a possibility but I would assume everyone is looking for at least a 2x exit, so now you need to be purchased for $6b. Taking money at such a high valuation can be a serious risk because if you can not get to that $6b IPO or acquisition (in snapchat's case I do believe that would be very difficult to pull off) you will not be in good shape.
These late stage investments are looked at like they are really low risk when in reality, it is always a substantial risk until you have a working business model. We say cash flow is king, but invest in the exact opposite fashion and flock to vanity metrics. Look at how Fab (a company everyone assumed would become the next monster e-commerce company) is flailing and trying to raise money every month while losing all viewership. I fear companies like twitter can foil the public market because less informed investors just equate them to facebook and there is some substantial chance this looks like a pump and dump in a couple of years.