Snapchat this morning disclosed in a regulatory filing that it has raised $537 million in new venture capital funding, with the possibility of raising upwards of $600 million. This means that the instant messaging giant has raised around $1.2 billion in outside funding to date, at a valuation that is said to be in excess of $15 billion.
But the number of dollars may be smaller than the significance of the deal’s financial structure, in that all of the $537 million was done in the form of common stock. Or, put another way, any new investors — including Alibaba Group (BABA) — are subordinate to all of Snapchat’s earlier investors, and lack many of the investor protections (namely liquidation preferences) that are almost always associated with private tech company fundings (even large ones for “unicorn” companies).
To underscore how unusual this structure is within VC circles, you can note that Snapchat’s filing indicates the first securities in this round were sold on February 17. That means Snapchat has been raising this round for months, even though it’s in the red-hot stratosphere of companies that can essentially just pass around the hat. Moreover, the round remains open (at least in theory). Were Snapchat raising preferred stock, it’s almost a sure bet that this round would have been wrapped up a while ago.
So why is Snapchat selling common stock? Basically because it can. Investors are desperate to be in hypergrowth tech startups, and Snapchat is so flush with cash that a slow (or even soft) fundraise won’t have too much internal impact.
All that’s left to wonder now is if others will follow Snapchat’s lead. It seems unlikely but, then again, not too long ago it was unheard of for so many private companies to raise over $1 billion at even higher valuations…
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