When Snap Inc. filed to go public on Thursday, it announced it planned to raise $3 billion from public market investors. But for the company once known as Snapchat's earliest investors, Snap's imminent IPO will mean a fortune-making, Midas touch-caliber windfall that will run into the billions of dollars.
Snap boasts 158 million daily users today who create 2.5 billion of its temporary photos and videos known as snaps. But when math whiz and native Australian Jeremy Liew met the company, founders Evan Spiegel and Bobby Murphy were still young fraternity brothers at Stanford, with an app that their fellow students and techies who got wind of it thought would be no more than a way for teens to send each other nude photos. "Sexting, sexting, sexting. That was the narrative for the first year," Liew told FORBES in 2015. "And Evan said, 'No, listen. I am 21 years old. I don’t need to sext. I just go have it.' ”
Liew's venture capital firm Lightspeed Venture Partners bought into the young CEO's grander visions of a low-key Facebook alternative and led a $485,000 seed investment in Snap in 2012. As of Thursday's S-1 regulatory filing, Lightspeed now owns 43,314,760 shares of Snap's Class A and Class B common stock each: 8.6% of the company, second-most of any holders outside its founders. (Snap's S-1 provides a total share count as of December 31 that does not include additional restricted stock units or options that could vest ahead of the offering.)
At a reported expected high-end valuation of $25 billion at IPO, Lightspeed's Snap position would be worth about $2.1 billion.
The largest outside shareholder in Snap is the company's second VC investor, a firm with something of a legendary reputation in Silicon Valley: Benchmark. The firm invested $21 million in Snap when the company raised its Series A in early 2013. The partners told FORBES in 2015, when that stake was already valued at $2 billion, that getting into the highly competitive round had been a team effort. Partner Matt Cohler, well-known for a key early role at Facebook, helped put the hooks in. Partner Mitch Lasky, who'd built out a mobile startup of his own, Jamdat Mobile, in Los Angeles, sealed the deal and took a board seat right as Snap was planning to move away from Silicon Valley for the Venice beach.
Benchmark now owns 13% of Snap, according to the S-1, through 65,799,720 shares of its Class A and Class B common stock. At the $25 billion valuation, Benchmark's position would be worth a whopping $3.2 billion.
Other major investors in Snap include Institutional Venture Partners, which led a Series B funding in the company, and General Catalyst, which took a large stake in that raise. General Catalyst partner Hemant Taneja tells the story of big return that could've been even bigger—only Snap was hard to get into. "They'd just raised their seed round and we met them when it was just Evan and Bobby on campus," Taneja tells FORBES. "We liked what they were working on, and we were quite interested in what Evan had to say and what he was thinking about, the problem he was solving."
General Catalyst offered Snap around $2 million to $3 million in funding at a valuation of $22 million but couldn't close the deal as Snap went with Lasky and Benchmark, Taneja says. When it came time to raise a Series B just a few months or rapid growth later, Spiegel and Murphy did right by their earlier suitors. "We had a long dinner and we shook hands, and that's how we got in," says the investor. Today General Catalyst owns a little more than 1% of Snap, which would be worth just north of $250 million.
Snap would take on a host of additional investors on its march to IPO, including Coatue Management, Tencent, SV Angel, Graph Ventures and later Kleiner Perkins Caufield & Byers, the government of Singapore's investment fund, Rizvi Traverse, Yahoo, Grupo Arcano, as well as Alibaba and Fidelity among others. In all, Snap raised more than $2.6 billion in funding along the way, according to data from PitchBook.
While Liew and Lasky couldn't speak prior to the IPO due to SEC regulations, Snap also reached the milestone while maintaining a culture of secrecy that investor Taneja says makes the public offering a bit surprising. "I think Evan wanted to get away from the echo chamber, and they always thought about metrics differently," says Taneja. "Growth was important but they cared more deeply about engagement. And when people ask if it's like Twitter or Facebook, they say neither."
Spiegel and cofounder Murphy retain the largest stakes in the company and overwhelming control the way they structured their shares.
In a cutthroat environment in which competitors like Facebook look to replicate Snap's successes and features, Spiegel's focus on constant feature improvements meant the company was prudent to stay unusually quiet, its investor adds. But looking at Snap's own story so far, Taneja says it's been one of creating a new principle for design. "Evan wanted technology to conform to us as humanity. Correspond to our behaviors. And he has defined this phase of innovation and technology."
But the IPO has come faster than the Series B investor imagined as that culture of privacy will now face hungry scrutiny from Wall Street. "It's definitely happened faster than I thought, not in terms of the company being this big but that they're going to go tap the public markets already," says Taneja. "There are a lot of great advantages, so it's a great way to start 2017."