Snap Inc. is a company built on its future. Despite having a level of internal secrecy rivaling that of Apple, Spiegel has captured the attention of the media, investors, and mostly, millennials. While Snap’s messages may be ephemeral, the Silicon Valley’s obsession with finding the next tech decacorn isn’t going anywhere anytime soon.
Nobody Wants to Be Left Behind
Snap’s pipedream $24 billion I.P.O. has taught us that early stage tech investors are not afraid to shell out cash for a vision. Spiegel has never had any real problems when it comes to attracting massive funding. As early as their first funding round, the team behind Snapchat attracted attention from some of the Silicon Valley’s most legendary investors.
After an initial seed investment of $485k, Lightspeed Venture Partners now holds 43,314,760 shares of Snap worth a whopping ~$2 billion. Similarly, the elite firm Benchmark now holds a position worth ~$3.2 billion after a $21 million investment during Snap’s Series A funding round in 2013.
There’s only one thing that investors fear more than losing money: missing out. This is universal despite the massive amounts of money investors consistently lose trying to chase the next dark horse unicorn. From inexperienced angels to California’s mythical accelerators, the desire to predict the future is strong in pretty much every investor.
Though every individual invests with different priorities and for different reasons, everyone can agree that backing a company that takes off is much more enjoyable than going down with a sinking ship. This is human nature. People are embarrassed by failure, and for investors, there is no worse failure than being the one that missed out.
Snap’s success may not seem very different from its predecessors, but it indicates a few large shifts in the early stage investment mentality of the Silicon Valley as a whole.
Investors Are Starting to Prioritize Strong Visions
It’s probably not a shock to hear that the Silicon Valley’s latest social media giant has had (and is still having) its fair share of problems. Despite this, Spiegel has never really had to hear the word “no” when it comes to seeking funding. Investors have always loved Snapchat for Spiegel’s supernatural ability to attract and capture the dedicated attention of millennials.
Early Snapchat investors weren’t funding a finished, profitable product. In fact, Snapchat started out with no clear plan of how exactly it planned to bring in any money at all. Most of Snapchat’s early backers were betting on Spiegel himself. While Snap’s app and product releases have changed over the years, the company’s vision has always remained the same.
Seed funds and early stage investors are starting to prioritize the founder’s vision more so than the company’s current metrics and performance. This is largely because great ideas rarely reveal their true value in the early stages. Snap still struggles with monetization–but the vision is there. Snapchat has always had the innate ability to make friends carelessly share photos of their lives with each other.
This is what investors are looking for, especially in early stages when a startup is built almost exclusively upon the vision of its founders. If you want to attract the attention of popular Silicon Valley investors, you need a vision that extends far beyond monetization and positive profit.
Tech Startups Are Getting Cheaper to Start
To get an investor, you need to make them believe you’re going to be successful. To be successful, you need to create a product that brings new value to a person’s life. As the price of technology continues to drop, it gets easier for startups to come up with truly new ideas.
Innovation was largely limited by access. It’s pretty easy to see this if you look at the progression of the digital camera. What started the size of a small shoebox has eventually moved into our hands, our pockets, and even our eyewear. As visionaries got access to increasingly more advanced hardware and software, it became easier to build new products of extreme value. This trend can be seen today with lower server running costs, the popularization of cloud computing platforms, and a significant decrease in the price of complex development.
For startups, a lower cost to start up means smaller funding amounts are required to accomplish what they need. On top of the requiring smaller investments, startups are also trending towards earlier stage funding rounds. Smaller VC funds have started to jump on early stage seed rounds and capitalize on shockingly low capital. In the greater scheme, larger, more famous VC funds have started to witness this action and join in themselves.
Funds Want to Invest Early for Quick Iterations
Right now is a great time to seek early investments from experienced angels and VC’s. The current resources for early startups make it much easier to build a great product fast. In the Silicon Valley and the rest of the tech startup world, you need speed to stay alive. As experienced investors continue to realize this, funding will begin to occur progressively earlier in the lives of startups.
Early money is being used to innovate and iterate. Late money is being used to protect and expand. Seed money is largely what gets the wheels turning, and you need to have a strong start to have something worth protecting.
Investors Care More About Where You’re Headed Than Where You Are
As it becomes easier for startups to launch a product, early stage funding becomes significantly more important in order to build it and iterate on it before anyone else does. It’s not uncommon to see large investments from famous VCs at unusually early entry points if the startup is led by a potentially valuable grand vision.
Silicon Valley investors are adopting a somewhat aggressive mentality when it comes to funding potentially successful startups. Angel investors and VCs know the resources are there for founders to build almost anything they can dream up. Snapchat crushed it in funding rounds because Spiegel’s vision of photos as a form of communication truly resonated with the younger audience.
When it comes to future Silicon Valley investment trends, expect to see increasingly large seed and early series funding rounds in startups with an innovative vision and strong product-market fit. Investors don’t want the current big thing, they want the next big thing. If you want to attract the attention of experienced investors, focus on building something truly new.