“There is no higher God in Silicon Valley than growth. No sacrifice too big for its craving altar. As long as you keep your curve exponential, all your sins will be forgotten at the exit.” –David Heinemeier Hansson
Snap Inc. went public last week. Offering price was $17. Closing price on the first day was $24.48. Given that the company is not profitable and may never be profitable (their caveat, not mine), many people have been asking: Is a valuation somewhere around $34 billion justifiable?
This is a common question when it comes to tech companies. And the answer usually comes down to something along the lines of this:
The Snapchat story “is all about growth,” Mr. Nathanson said. “It’s not about economics.”
It’s about the future.
I love Snapchat and I think the company is run by a very creative founder. But now that Snapchat Stories was stolen by Instagram, they need, in my humble opinion, something new and killer to stick.
How else will they meet their growth targets?
On a related note, I recommend you read a piece by David Heinemeier Hansson called: Exponential growth devours and corrupts. That’s where the quote at the top of this post is from.
Here is an excerpt:
What sucker wants to earn $10 million/year at a 52.5% tax rate when you can get away with hundreds of millions in one take at just 15%? Nobody, that’s who.
It’s hard to argue that boards, founders, and their financiers aren’t just doing exactly what the incentives are coaxing them to do.
Which is why growth is now everything and residual value is nothing. In fact, the latter can be outright harmful to the former. When you’re being priced on the hopes and dreams of potential, reality can be a dangerous and undesired competitor. Best just to appeal to the exponential curve and let the imagination roam free. An epic capital gains score awaits!