Acquired - The Snap Inc. IPO

0:00people misused the crap out of literally. And they're like, oh, he literally had him eating out of his hand. It's like, no, we didn't eat figuratively had him eating out of his hand. But last year, the, whatever, Marion Webster added an additional definition to literally, to mean figuratively. So it literally means that some total of everything that it means and everything that it doesn't mean. Welcome to episode 32 of acquired, the podcast where we talk about technology, acquisitions and IPOs.

0:38I'm Ben Gilbert. And I'm David Rosenthal. And we are your hosts. Today's episode is the Super Bowl for our world, the Snapchat IPO. It's been long awaited, highly speculated, and everybody's got an opinion. And they are not all the same. So we're recording right now on Friday, March 3rd, exactly 21 hours after trading originally started. Trading is underway for day two.

1:06And hopefully we should be able to get this out to you guys by probably tomorrow over the weekend and get some pseudo real-time discussion going here on Snapchat. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, LaGora, the agentic operating system that is redefining how the world's best legal teams work.

1:31Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm.

1:57for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts, and it pulls every key term into a grid a lawyer can actually work with. Lagora's bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

2:26And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time. Legora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months. Truly insane numbers and that is the real test.

3:19Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. All right, listeners. So as you know, we also like to try new things on the show and We have a little bit of a format switch today, which we'll tell you about. One thing that I wanted to try is reading some of our iTunes review here on acquired. When you guys leave one that we think is particularly worth reading on the air, or funny, or an extra complimentary, or something, we're going to read them. Kind of like the Bill Simmons mailbag, but for iTunes reviews. Here's one. They aren't scalpers that want to create fake problems or to short a stock.

4:15Well, thanks, Spencer Camp, we appreciate it. And here's another. It's as if you are reliving the story with them as an insider from Peach 1987. Let's thank you. We appreciate that. Ben has been a real trooper here. He was post-surgery and now he's back great show. MGMG, MGMG3141. Well, to whoever knows me personally and knows that I had knee surgery last year. Thank you, MGMG. We really appreciate that.

4:45Ben has indeed been a trooper. Yeah. Thank you, David. That's all good. You're welcome, Ben. You know, excited to talk snap. So if you like the show and want us to read your comment on the air, leave a review on iTunes. And we've also got a slack. I just looked. We are 475 strong of blue.

5:07of people hanging out talking M&A, IPOs, tech and general. And there's so much great discussion on the SNAP IPO. Shout out to everyone in Slack. Yep, yep. And honestly, there's a lot of good content on this show that came from the discussion yesterday. So join us, it's fun. So without any further ado, Snapchat. Yeah. David, we're talking about this before the show, but we should really only spend a couple minutes, I think, on the history of the company. Yeah.

5:35Listeners, if you listen to episode 12, a lot of you, I think have joined us since then, but we talked about this, what if acquisition where Facebook made a three billion dollar offer to buy Snapchat back in. Shoot them, but it was the end of 2013, right? Time runs so fast. Anyway, it was episode 12 for the, you know, as Ben mentioned, we're not going to cover the sort of all the story and drama around the founding of Snap, which was that Snapchat in the early years here, but go listen to that episode. I listened to it again yesterday to get prepped. And if I do say so myself, I actually think it held up really well, even though the show has evolved a lot since then. It's a good episode. We recommend it. Yeah, that was the episode. It's funny when you do these things that

6:30When you do something new for an episode, it sort of raises the bar and you can never go back down. And that was one of the episodes where David and I did much more research than we had previously done before in kind of set a little bit of a new standard for ourselves. So, you know, I like that episode. I'm cursing it a little bit, but, you know, I...

6:49I also feel like it holds up so that's sort of the that's part one of the Snapchat story. This is part two and we will all likely have a part. I think I think the only thing that we know for sure going forward is there will be more parts to this story. It is not over. So with that, we pick up our story.

7:11For for Snapchat in last we left them it was fall of 2014 and Evan and Bobby the plucky co-founders had fended off the previous year a three billion dollar acquisition offer from Facebook They'd launched Snapchat stories They'd hit 50 million daily active users. They just settled the famous lawsuit with their Alsted co-founder, Reggie Brown, that we talked about a lot on the last episode. Interesting that that has been a total non-narrative in the IPO. I think I'd saw one new story about him. Hey, it's settled. What's it? It's settled.

7:49So things are going pretty well for the Snapchat founders and the company. Fast forward through the next two years, you know, it kind of would have been easy for them to say, yeah, like we're going to ride this gravy chain, but they have been pretty hard at work since then. They are not resting on their laurels. So since fall of 2014 in rough order, here's kind of what's happened with Snapchat.

8:18they've launched Discover which then became publisher stories They launched lenses. They launched geo filters. They launched a whole ton of new chat features which are actually pretty cool and I probably use that more than anything else on Snapchat these days. They launched memories, being able to save snaps. They acquired Bitmoji. They integrated that into Snap and they launched Spectacles, which we've talked about in hot takes in the past. On top of it all, they're now a hardware company. On top of it all, they're a hardware company now. On the business side, they've also been hard at work. Revenue has grown.

8:58almost 10X over the past year but they also this past October, October 2016 they launched their ad API which was a huge milestone that advertisers can now buy ads through partners and through agencies and buy at scale without ever talking to SNAP so huge achievement for them.

9:21So, you know, I mean, you could sort of say that the freight train has been rolling down there in Venice Beach in Southern California. Yeah, and that revenue stat's interesting because in late 2014, that's when they made their first dollar of revenue. So it's really only been, you know, just over two years, and now they're doing $400 million a year in revenue. And obviously all these multiples that we're going to talk about are just, you know, absolutely bananas for any sort of comparable stock public market stories that you would tell about it. But in two years to go from not monetizing your users at all to doing about 400 million in revenue is quite the acceleration. Yeah, very impressive.

10:09But along the way, there is one thing that happens to foreshadow later in the episode here that we're going to talk much more about later. In the last six months, their user growth has slowed.

10:27Some say many say that that's a result of something else that happened in August 2016 and that's Instagram launched Instagram stories so much more to come on that front later in the show But an important very important moment in the last last year of Snapchat's life But undonted, they proceeded with their much rumored IPO filing. Almost exactly a month ago, February 2nd, they publicly file their S1. And it's pretty clear when you read this document kind of right off the bat that this is not your ordinary dry SEC S1 filing. Others have talked about this, including Ben Thompson. But if you haven't gone and read it,

11:16Seriously recommend it. This is an incredible document. Whatever happens with Snapchat in the future, go read at least the our business section which starts on page 93 and we'll link to this in the show notes. It's been a lot of time talking about this document. It's incredibly compelling, concise, clear writing and the personality of the company just bleeds through. I think this is almost, I think this might be a watershed moment.

11:45in thinking about something we've talked a lot about on this show but what is the tool of going public? You get to write this document and you get to speak directly to this huge audience base that especially for a company like Snapchat is not currently your core user base and it's a tool that clearly the company thought about it and this way and is using it as such.

12:10Yeah, and so one of like one for listeners who haven't read the S1 because why would you go read S1's but David and I did and there's there's a point where they talk about how part of Snapchat's culture and ethos is that they're kind and this is a quote when we say kind we mean the kind of kindness sorry When we say kind, we mean the type of kindness that compels you to let someone know that they have something stuck in their teeth. Even though it's a little awkward.

12:42You know, and even been you know, you said why would you know why would you go read an s1 like I really think this is this is a document worth reading. Yeah, for many reasons also the roadshow video it's like an incredibly well-produced way that that snap really told their story and I'm not I'm not totally sure if it's still available because I think they pull those things down after the.

13:05after the IPO, but there's lots of little clips of it floating around and it's not just your standard person standing in a conference room next to a PowerPoint narrating it for a bunch of investment bankers. It's really like a consumer grade compelling story. It's almost like something that came out of Hollywood because it did. So we'll get to the actual IPO pricing two days ago in a minute, but sticking on the S1, you know, the most surprising thing I think is just the nature of this document. But there are two other surprises in the document that I think a lot of the investor community wasn't necessarily expecting. And the first one is that there's a unique voting structure for the common shares that are being offered in this IPO. And what's unique about it

14:02is you don't have a vote. So, this has literally never happened before. Companies have gone public with dual class or even three classes of share structures that allowed management and founders to retain effective voting control of the company. And David, those examples are, there's Facebook and Google didn't go public this way but have modified to sort of have this sort of structure. I think they did both go public with those dual class share structures. And it's something they learned from the New York Times. Yeah. So historically, a bunch of media companies have had this news corpus had it, the New York Times, and a bunch of others, it was for whatever reason, it was invoked with publishers and media companies, you know, at some point in the 20th century. And tech companies have really sort of

14:55taken this tool and run with it. But this is breaking your ground here. The thing about those other IPOs, Facebook, Google, even the media companies, usually there's a 10-to-1 voting structure where each share of the founder's stock has, or the CEO's stock, has 10 votes to every one of the public stock. And there's a market for those stocks.

15:23Founders and CEO sell the stock then you know if you can buy that with with separate voting shares and that's important because you know, not for individuals voting necessarily, but like activist hedge funds, activist hedge funds have made use of this to amass a voting block in a stock and then use that to agitate to try and get a representative elected to the board of directors. It's been a tool they've used. So snaps is and for other reasons too to like the Carl icon has done this with with Apple and I think with eBay to advocate for a a buyback or a distribution more dividends or all sorts of things. And there's a view probably not unjustified that that's really an annoying thing that you want to avoid. But you know, this is an extreme case of no, you get no votes, not now, not ever. And what a what a baller move to to say like, Hey, you know, we're going to sell what is like 19% of this company.

16:30You know, and we think at this price point that even with no ability to have any influence, even if all of you get together on the future of this company, it's still going to be over subscribed. Yeah. And what's crazy is it's not even just, they're actually three classes of Snapchat shares. There's what they're selling to the public. You get no votes. There's shares that existing investors, VCs have in the company. They get one vote. And then there's shares that Evan and Bobby have.

16:58and they get 10 votes. And if Evan and Bobby ever sell their shares, then they automatically convert to the other investor shares. So there is one vote, but essentially it's set up such that if something were to happen to one of them and they've actually filed proxies with each other, then this is in the S1. If something happens to one of them, the other gets essentially full voting control and perpetuity of the company. Wow.

17:28Crazy. So that's one and then and then the other surprise in there and this actually I'm really surprised that this has not gotten a lot of press There's this thing. I don't know if you saw this been this little thing called the quote CEO award in the S1. Now this is what this is I have never seen this before so Evan Evan speak all the CEO of Snapchat Upon completion of the CEO of the IPO on Wednesday, he got essentially a bonus of an additional 3% of the company after the IPO. So he already had a 24% equity share in the company and the company essentially gifted him as a bonus for completing the IPO. Another

18:19even after the delusion of the IPO. And so at the $17 IPO price, which we'll talk about in a sec, that's worth $625 million that the company gave to Evan for successfully completing the IPO. Well, this is, I've never seen this before. That's a weird incentive. Like, I mean, it'd be interesting to see like when, I guess once you already committed to going public, it sort of makes sense to incentivize Well, what's the only audience here is you know, I mean, why would his incentives not be aligned? I mean, he owns 24% of the company, which at the IPO was worth almost $4 billion, you know, but somehow I would, I'm sure it will never come out, but I would love to know how those negotiations went down. Well, it's him negotiating with the board or with the syndicate investors taking in public. Well, it must have been everybody.

19:16but it has not gotten a lot of press, and I'm quite surprised about it. And then I could imagine a situation if you have an external CEO come into a company and you can incentivize that person by a bonus if they successfully complete an IPO, but this is where Evan's literally a founder and along with Bobby, the largest shareholder in the company. Very, very interesting. Yeah. So despite that, On Wednesday, March 1st, two days ago, as we're recording this, Snapchat prices its IPO. They priced it at $17 a share, which is above the range that they'd indicated of $15 to $16, which is, there's a whole theatrics to this. You always want to price a lot of the range. But a good bit below what the sort of murmur on the street was for months before, right? People were thinking more in that, that $20 range. Yep.

20:13Not that much higher. I don't remember exactly what it was, but not that much higher than the share price that they sold equity in their last private round at. But regardless, that gives them a $24 billion market cap at pricing, which yesterday on Thursday.

20:33that is an up-round from their previous financing despite talks of that that $14 to $16 per share range would have been a down-round and that would have been that would have been kind of crazy because that would have been bad yeah yeah a whole bunch of you know recently issued stock options that are actually currently worth less than their stock price. If that had been the case, then there would have been a lot of finger crossing that the stock did pop and that by the time employees could sell it, when the lockup time ended, it would actually be above the initial strike price of their option grant. None of that's an issue. It actually did price above their last round. It did price above and like we said, at a $24 billion market cap pricing,

21:16opens trading yesterday and the market likes it. So 44% pop on the first day of trading, close the first day at $24.48. Almost over 200 million shares were traded, which is a lot. And the market cap, the valuation of the company at the end of the day, $34 billion. And then this morning, Friday morning, The market continues to like it. It's up another almost 20% trading in the kind of $29 range. So so far, a successful IPO, we have not had any Facebook like disasters. No, and they did take longer to start trading yesterday. But that was by no means because of a technical hiccup like with Facebook.

22:11you know, because actually the despite the fact that the IPO price was $17 started trading immediately at $24. So, you know, the trade-offs there when you look at who won and who lost, snap left a good amount of money on the table about a billion dollars on the table by not initially setting it in that $23.24 range.

22:34uh... snap syndicate investors that uh... uh... or bankers that took them public didn't get their their cut of that that billion dollars but everyone that bought the IPO at 17 got to take advantage of that short-term bump. And realistically, we'll talk about this as we grade the IPO, but this all really accrues as value to snap because in getting this positive momentum, it's great for hiring, it's great for customers, it's great for the story around the company that they went out. The amount of buzz has been huge. And that this...

23:09you know, by all indications thus far has been a quite successful IPO is going to be great for the company. But that said, you know, we're talking, this is a lot of mechanics here. And even one day in. And one day in. And even though we're, we're lauding the S1, it is still pretty, a lot of it is pretty dry stuff. You know, what we want to spend the bulk of this episode talking about, and the really interesting thing to think about is like, okay, you know, what?

23:38What happens next? There's all this buzz out there right now. People have all sorts of different opinions about, you know, snap is doomed, Instagram is going to kill them or Evan Speagles, the ones in the generation, you know, product genius. Where does the truth lie? And so that's what Ben and I have been thinking about over this past week and we thought we thought we're going to the best way to do this is we're going to introduce a new section to the show that we might use for IPOs going forward. And we're going to call this narratives. And our idea is that there are really two narratives that are being told throughout an IPO. There's an IPO process. There's the narrative that the company wants to tell through their S1, through their road show.

24:31all of the statements that they get to make, both written and otherwise. And then there's the narrative that pops up around it in the media, in the investor community, in the tech community, everybody reacting to what's happening. And so we thought we distilled what we think are kind of the three most important points of both the narrative that Snap has been trying to tell over the past month, and the narrative that the media and the investor press has been telling. And we're going to talk about each of them and sort of judge how much we agree or disagree with them. We are. So, so let's start with Snap. You know, you read the S1, you watch the Roadshow video.

25:19And what immediately pops out and this got tons of press. But I think it was just a brilliant way of positioning that the company took. You know, they say you read it and it says we are a camera company. They don't say we're a mobile company. They don't say we're an app company. They don't say we're a social network. Snap is a camera company. Yeah. I mean, the first thing that came to mind, I'm.

25:47like reading a lot of the S1 cynically. So the first thing that comes to mind is, oh, I see, they don't want to be comped against Twitter. That makes sense. But the interesting thing is you start to read more and more and more. And this is my biggest takeaway from this whole thing based on the insane, like, let me just give a quick, like, snap at their $33 billion market cap is trading at about 80 times their sales.

26:12Facebook IPO to like 28 times their sales, even Twitter was like 56. We're just in like off the charts territory for what their market cap is relative to the revenue that they're doing. And when you start to peel apart, like, why are they saying they're a camera company? The big thing that stands out here is that they don't want investors to buy this IPO based on the product right now, the social graph right now.

26:41the growth rates in the last six months, like they don't want to be priced on any of that. They want you to believe that they've done these incredible innovative things, transforming what we think of as a camera and what we use cameras for. And they want you to buy on the idea and hold on the idea that they're going to continue to do that and reinvent the camera for the future and that they, you know, in typical Evan Spiegel Snapchat fashion, they're unique. And they believe that they are indeed a different and new type of company. They're going to do things their own way. And like who are you to say what kind of company this is? They're a camera company and you don't even know what a modern camera company looks like. Well, this is what, you know, when I say this is brilliant, it's just, it's such an

27:38unexpected and audacious statement to put out there that it captivates you. And then when you read through the S1 and you watch the Roadshow video, it's very compelling how they present it. You know, the sort of, you know, famously at this point, the first user manual for how to use Snapchat is the S1 and they go through and just really exquisite detail about all the product thinking that has gone into how they've created Snapchat. But what it does, you know, and this is what I said when I introduced this, what it does by positioning it as a camera company, is it completely draws attention away from what here to for and still is the narrative on the media investor and tech side of the aisle here.

28:32about Snapchat, which is that they are a social network, which is competing with the social network, which is Facebook and Instagram and WhatsApp. Yeah. The other two things I want to say quickly about this idea and positioning of Snap as a camera company is one, it makes lenses really interesting. So lenses, you know, obviously it evokes a camera.

28:59But lenses are the one sort of piece product feature that Snapchat has that Instagram doesn't yet. And what's interesting is you read through the S1 and I was thinking like, okay, well, how many people actually use lenses? And apparently a third of Snapchat users use lenses every day.

29:21And that's what, you know, and you read through all the technology investments and infrastructure investments that Snap is making. A lot of that is going into the technology powering lenses, which starts to make you think about the next generation after mobile and augmented reality. And then, of course, their spectacles, you know, is Snap kind of setting up using The IPO and their S1 to set themselves up as being positioned for the next wave in tech and putting a stake in the ground that they believe that's going to be augmented reality. Oh, man. Yeah. And it's super interesting to think about, you know, when they say, you know, snap is a camera company. Well, like code act was a camera company. And then like today, like, is Apple a camera company or, you know, Sony and Samsung make the actual.

30:17the actual actual lenses that go in there. So are they the number one camera, quote unquote camera manufacturer in the world? And, you know, I'd be a little bit more skeptical of snap saying they're a camera company, except that they have, they actually do the full stack in making the hardware now of spectacles. And realistically, those are probably OEMD and by the same folks that make the actual lenses and actual sensors that are in smartphones. But as you continue to extrapolate that, So let's look at Apple as a camera company. We crossed over from like pure optics based cameras into hybrid optics and software based cameras.

31:04Like several years ago in the smartphone generation, there's with such tiny little lenses and sensors, and they're so close to each other, there's not a lot of like actual physics that would produce high quality images. And we have to like do a lot of really tricky faking and kind of like post-production and software that the user is never exposed to. And that's suddenly with the iPhone 7 Plus become extremely...

31:28Visible with with the fact that there's two lenses There's a they never expose the fact that you're switching from wide to telephoto There's just this like you know smooth slider into 2x and the thing that it's really doing there is like it's always in real-time compositing a a Mashup of the two lenses and doing a lot of really advanced computation on the fly not just for portrait mode But always to be taking advantage of of both of those lenses and so and I think that's that's actually a great analogy to what Lenses in Snapchat are doing, right? That is augmented reality. And that requires a lot of processing power. And augmented reality thus far in virtual reality have been these really clunky things that nobody wants that cost a lot of money that it's unclear what you do with them. But Snapchat just makes that really easy. It's just all behind the scenes. And as we learn, we'll talk about this in a minute.

32:24It's costing them a lot in hosting fees and technology resources to be able to do that. Yeah, totally. So to close on that, what I think when they say they're a camera company, the world has moved to a place now where a camera is not just a physical thing. A camera is a full hardware software services stack. And that starts when you think about what a quote unquote camera is that way. And the fact that maybe it's a hardware software services network stack.

32:51That starts to lend a lot more credibility to OIC. Snapchat is really the full stack of the modern camera. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI first world, that doesn't hold up anymore. Yep, your risk surface changes every week now.

33:19A vendor turns on an AI feature or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this, quote unquote, shadow AI running with no security review at all. Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta agent.

33:47Think of it as a GRC engineer that's governance risk and compliance except that it's software and it doesn't sleep. It finds the issues drafts the fixes and cuts the time that you'd spend on vendor assessments in half. In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like ramp, cursor, and snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor.

34:15Every AI tool, the whole environment. And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here. And literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you.

34:45So we go on to number two. Yeah, let's do it. So the the second main point in snaps narrative that they'd like you to believe is that they are a brand advertising business which is fundamentally different than the gigantic elephant in the room major major ad networks on the internet right now of Facebook and Google. And what they're really saying there is we are attacking TV not print media.

35:07And for anyone who's who hasn't played around with the snap ad platform versus Facebook or Google's ad platforms on Facebook and Google you can do pretty incredible targeting and you get to really finally get extremely granular on what type of demographics you're you're reaching. And you also, you know, like when you're when you're using Google remarketing and things like that, like you can you can track people around the web and you can do all sorts of things. Snapchat is this super like At least right now, privacy first, we are not going to give you incredible targeting. You buy big broad swathes like you would a television commercial and you just reach a bunch of people. So they are fundamentally driving for scale there, the way that you need scale for brand advertising businesses. And the other thing is that you can't really click through a Snapchat.

35:59There's no way with those Snapchat ads to land on someone's site and have them optimize conversion rates and all these things. In the same way that Google and Facebook with their app install platform, that's what they are. Totally, it's like conversion machines. Yeah, yeah, it's more like, here's a new Chevy. Think about Chevy a lot. Yeah. Well, and there's just like, there are a couple really, really important points here. One, Snap is making the argument here.

36:29that as Ben said, they are going after TV, after television. They are not going after, in a lot of ways, the internet advertising to this point has been a reinvention of the classified ad. The director's response, TV has persisted, but TV is not measurable in anywhere near the same degree that traditional Online advertising is and it's smaller like the the number of people in the US who watch TV Is large but relative to the number of people who use Google who use Facebook, you know, etc. Like it's much smaller But what TV has that Facebook that Google don't is engagement and the whole Snaps whole narrative around this is we have engagement yes, we're smaller

37:25then Facebook. Yes, we're smaller than Instagram. Yes, we're even smaller than Twitter. But they make, they make go to great lengths in the S1 talking about, you know, the average Snapchat user opens the app 18 times a day. This is on average for a 25 minutes, 25 to 30 minutes in Snapchat every day. And they argue that that is the same level of engagement that television has historically seen.

37:54Yeah, and we should call out that despite the fact that there's way more time spent in front of a screen be at desktop or. of phone screen interacting with apps in the web, then there is on TV. That sort of happened a while ago where people are spending more time on the internet than they are in front of a TV. But until 2017, this is the first year that this is actually going to happen, the ad spend has totally lagged it. So the ad spend on television has outpaced digital ad spend. And finally, we're going to have this catch up where the dollars are five to 10 years behind the switch in engagement.

38:32Snap is I think they even say this in their roadshow video and possibly they're S1 that they really have a tailwind here of you know The the the dollar spend from from advertisers is they're looking for a place in a digital format because that's where all the ad buying is shifting because that's where all the attention and engagement is and They're looking to buy the sorts of you know incredibly broad Coca-Cola style blanket the entire world with advertising for their brand. And they're looking for a place to deploy those dollars in the produce the effect that they were used to spending. And brand advertising is just, I actually don't know their numbers, but it's significantly larger than this direct response advertising that's dominated the web to date.

39:21And so then let's jump to the third piece, critical piece we see in Snaps Narrative, which is really the, you know, taking one, you know, we are this revolutionary camera company. We are not what you think we are. We're a new vision. And we're going after this market that is very different from what other internet companies have gone after before.

39:49The reason we're able to do this is that our founder, co-founder and CEO, Evan Spiegel, is a once-in-a-generation product genius. And this has been a narrative around Snap for a long time. Actually, again, to plug our previous episode, shameless self-promotion here, the previous Snapchat-chap episode, We actually dive into Evan's history. And he's not just some random kid who dropped out of college to found another app company. It was pretty clear.

40:23from his early days at Stanford that he was, he had some very special talent. He talked his way into the D-school, which is normally reserved only for graduate students and is probably the most famous design school in the world. David Kelly, who founded the D-school and was the founder of IDO. The consulting firm ended up becoming Evan's, you know, direct advisor. And Scott Cook, the chairman of Intuit and famous Silicon Valley Illuminary. He met Evan while he was at Stanford. He hired him immediately to help work on a product that he thought was super important into it. He does have a lot of talent. And that is on display in the S1. I mean, you read the product section and like Ben was saying, I mean, it's some of the most clear thinking, really compelling understanding of users and problems and why snap

41:22Product why their products are built the way they are totally and it's we should also call out They talk about they don't really in the in the s1 talk about Evan Spiegel as the product genius that's sort of like the the Hint hint nudge nudge and like the way that the media has sort of spun this but they talk about you know snap is an innovation company and that We as a company have done these things and they they definitely don't refer to him as like a once in a lifetime product genius but The implication is clearly what they want to imply yeah, yeah, and You know that they have an Apple-esque secrecy about them, but it is it would be really interesting and we'll probably hear this in the ensuing decade from folks that have left Snapchat to kind of talk about you know how what is the product development process there and and how does it?

42:12You know, does it sort of all come from the top or are there a lot of trusted lieutenants and I do know from Just kind of talking to a couple of folks there that they do the kind of old school Microsoft style thing of having internal teams that compete. So it's in actually the same way Apple sort of did to with you know two different teams working on the iPhone at the same time where you know that a vision is laid out and and there are two people working in secret that don't know what the other person is working on kind of leading very small teams that are seeing who can who can better fulfill that vision and often you don't necessarily know that that there's another person working the same thing that you're working on but there's definitely this notion of you know what we're doing

42:55requires a lot of creativity and a lot of invention and a lot of newness. And that comes from multiple people exploring different incarnations of the same vision. Yep. So that snaps narrative here. You know, one, work, camera company. We're not a social network. Two, we're a brand advertising business or attacking TV or not attacking Facebook and Google. Three, we as a company and our founder.

43:24co-founder Evan. And actually, if you watch the Roadshow video, Bobby Murphy, the CTO and co-founders is super elevated in that as well. So it's wrong to say just Evan. But Evan and Bobby are, this team is once in a generation. We are the next Apple and Steve Jobs here. That's the Snap narrative. So let's talk about...

43:47the investor narrative, the media and the investor narrative. And actually taking a quick pause, I didn't even, you know, we were laying out the structure of this episode and I'm formulating my thoughts. I didn't really realize that the picture there, they're painting by taking these little, you know, we're product innovators and we respect your privacy and we're a camera company and we're not a software. Like all these things are like, we're the next Apple. Like comp us against Apple, don't comp us against Twitter.

44:17Yep, exactly. There's just one problem with that, and that's that Snapchat is an advertising based business, not a consumer products business, at least today, which is the perfect lead-in into what the slightly more skeptical investor narrative is, and point number one here, which anybody who's been following, the story is, will be unsurprising, is Hey, Snapchat has a growth problem, a user growth problem, and that problem's name is Instagram. Yeah. Yeah. And there's a pretty interesting graph of their, their user growth that looks a lot like an S curve, like kind of slower in the beginning of 2014 speeds up. You get a nice steep slope till about what Q two of 2016. And then you have like

45:13three quarters in a row of kind of like leveling off. And that really aligns kind of coincidentally with the, the, the, the lots of Instagram stories. Yeah, exactly. And that's why Kevin Sistrim, you know, it says like, Hey, Snapchat invented this format and.

45:32We are taking this format and we are bringing it to our network because the Facebook universe is the dominant social network. And yes, Snapchat will tell you they're a camera company. But like, you know, you share your pictures with your friends and we are the friends company. Yeah. And it's interesting to give a little bit more context to. So Snapchat has what like 160 million active users.

46:01Something SNESO snap has 158 million daily active users and you know when you when you look at that it totally pales in comparison to Instagram and Facebook proper but the important delineation there is that It's basically domestic versus international Like there are, Snapchat's got real good saturation in the US. They have very, very little adoption in other countries. And not only do they not have a great adoption, but they're not monetizing well elsewhere anywhere. Well, and here's, here's where, yes, very true, but this is where the rubber really hits the road. You know, in since Instagram launched Instagram stories to compete much more directly with Snapchat,

46:51product-wise in August 2016. From the quarter before then, until now, Instagram has added 100 million daily active users. They went from 300 million to 400 million in seven months, which is an acceleration of their growth, a huge acceleration. In that same time, Snapchat is flatlined. They added 15 million DAU in the same period.

47:21which is lower growth than much lower growth than they had earlier than that. This is not a good narrative for Snap. Then the question is, if you start to think about what each of these companies has going for them, Facebook and Instagram have a structural advantage where they can buy their time and weight and know that they have great teams that can implement these features in an appropriate way for those platforms, and then get those insane 100 million DAU spikes like that by figuring out the right way to incorporate that mechanic into their product. What Snapchat has going for them is they fundamentally believe that, or I guess to invest in Snapchat right now, and we can revisit this later in the conclusion, you have to believe that Snapchat can do things that are

48:10More innovative and more interesting in a product sense for new users Then Facebook will be able to leverage their structural advantage in the industry and copy and so what that sort of comes down to is Can because I don't think there's necessarily like a time window advantage. Let's say Facebook copies everything three months or six months after after Snapchat. I don't think that snapchat's going to have this advantage of like they're going to get out ahead and they're going to get enough users in that short window. I don't think that's going to happen. I think the thing that you have to believe is that Snapchat can figure out a thing to do that gets a whole bunch of new daily active users.

48:52That Facebook is not in the position to copy that having that existing network and that those existing products doesn't give them the leverage to you know keep building these roadblocks for Snapchat.

49:07you know, in our episode that actually is going to come out after this, but that we recorded earlier this week with a crossover episode with the internet history podcast coming out next week. Thank you, Brian. That was blast. But I talked about how in the Uber DD episode, we did with Brad Stone this episode and that one that's coming out next week really has made me think about competition and modes.

49:37And man, this Facebook and the Facebook universe, the Facebook app universe, including Instagram, they have this enormous mode. As long if you think about this as a competition between social networks, Facebook is the social network. They have it. It exists. And then you look at who, where is Snapchat's core user base? It's in preteens and then teens who were building their social graph online for the first time and they could build that on snap but Facebook has literally the entire existing world so snap can go after the young folks and that's you know they have certainly made inroads and Facebook is definitely paying attention but Facebook and Instagram have everybody that they can bring they can bring a gun to a knife fight yeah and then that the

50:32I continue to think we'll snapchat be able to come up with something where that's actually not an advantage. Exactly. Imagine there's a battle and a canyon and there's the incumbent that's got 100,000 soldiers that are all blocking the middle of the canyon. Is there something where Snapchat can get up on the side of the canyon and tip to a long?

50:58waltz past all of them and they can't do anything about it because they can't get up the canyon. Like, is there another dimension here other than tons of users that are already using that app on their phone that is just going to completely blindside Facebook? You know, is it? I think this is hardware that they're not on. Is it? It's hard to imagine what these things could be, but the dollars into Snapchat, I think have to be a bet that they will figure that out. Yep. And I think this is, this gets at the heart of what Snapchat is trying to say, which is, we're a camera company. And to be a bull on Snapchat right now, you have to believe that they are, they are going to basically pivot the market into a dimension that Facebook can't compete with them on. And they are doing that. Like, you know, they have lenses.

51:56Facebook and Instagram can't match them on that. The technology is fundamentally better and different with Snapchat. But when you start thinking, where does that play out? Does that lead us into augmented reality? Well, of course, Facebook has Oculus. But I would also say they have stumbled a bit.

52:21So it is a much more even playing field there. But I think that's the bet you have to make if you're going to bet on Snapchat right now that they're going to outrun Facebook into this new paradigm. Yeah. And perhaps, you know, one of the things or actually the criteria that we evaluate if an IPO was successful or not, which we actually we won't be able to fully do on this episode since it's so recent. But what did that capital infusion? In this case, the 3.4 3.4 billion dollars that they raised from selling those shares. What does that capital infusion allow the company to do that they wouldn't have been able to do otherwise? Did they effectively use IPO-ing as a vehicle to raise capital to code do something new as a company? Maybe it's to do new hardware stuff. Maybe it's to fear what that next frontier is. Well, they've already shown.

53:14You know, they think of themselves as a hardware company. Right. Right. I think actually now they're selling it's it's not just the many machines with with spectacles. I think they sort of quietly stood that up online and you can order them. I have them shipped now. I think that's all right. Um, so that's, uh, yeah. Oh, we we've rattled on that but they're really quickly to cover and then wrap up on narratives. Um, there are two other aspects to to the, you know, the sort of press narrative about Snapchat right now. Um, one is that Snap has an infrastructure problem. They've came out as part of the IPO that they've agreed to pay Google. They primarily run on Google Cloud Engine $2 billion over the next five years. They're also paying Amazon and AWS another billion dollars to supplement that with AWS. As a result of all this spending relative to the still large and impressive.

54:11Minor revenue they have compared to Instagram and Facebook. Snapchat's actually gross margin negative or was until very recently, so... their infrastructure costs were higher than the revenue they were making from advertising. That's before even paying any of their payroll costs or their hardware costs. Yeah, and in fact, the losses are so huge. This may actually be the first company to file for an IPO that has a cost of revenue alone higher than revenue in the trailing 12 months before IPO. Yeah, we've joked on the...

54:42you know, Uber DD episode about ride sharing, going gross margin negative, like, well, Snapchat is gross margin negative as well, or it was until very recently. And it's almost entirely due to infrastructure costs. I think a second, a second cost there is rev share to, to publish our partners. But I mean, the cost of revenue in 2016 was $452 million. So A large amount of that, I mean, if you figure out how much they're paying to Google year over year, a lot of that is for the Google Cloud infrastructure. And I think the way that Snap wants you to view this is we are paying a lot of money to stay nimble right now. Like you, that people that are pushing back on Snap would say, number one, why don't you have your own infrastructure to buy now? Why don't you invest in your own data centers? Number two,

55:34how the heck are you using so much compute in Google status centers? Why is it so expensive on a compute per user basis? And I think it's just the nature of all this really advanced augmented reality stuff that they're doing completely on the fly. I think it's lenses. Well, I think it's a combination of lenses and the fact that they are delivering and storing Just an enormous amount of it's not photos. It's video on snap. I mean, the bandwidth costs are enormous. Yeah. And the thing you have to wonder is also the thing you would have to believe as an investor to want to want to do this is does paying a ton for Google to handle their infrastructure and keep that completely outsourced allow them to try things faster, which is the

56:27true inherent value of the company is that they can experiment, get things right and roll out really good products quickly. Do you believe that and do you believe that it's worth all these computationally expensive things that they're doing on a per user basis? Because the cloud costs, it's not like those are fixed and that it'll be amortized by all these users coming on. That skills linearly with users, yeah.

56:54Yeah, so number one, I think you have to say, is it worth it to be paying that on a pre-user basis? Number two, should they be paying that premium to keep it outside the company so they can move? Yeah, and then, so that's the second part of the press narrative. And then the third part is, actually, I think, and when you look at how the IPO performed when it was priced above the range and then traded up, had the 44% pop yesterday and is trading up again on day two.

57:24I think the third part of the world at large narrative is that, yes, despite those problems, Snapchat and Evan and Bobby really are fundamental product geniuses, and they deserve the credit that they are lavishing on themselves in the IPO. But I think the market has shown over the last two days that They're willing to give Snapchat a pass for now, but they better deliver soon. Uh, yeah, sure. The, I mean, the, the frenzy in the excitement that I'm, I'm, I'm attributing all of the oversubscribed nature of the IPO, the pop and trading, the pop that next day, like, we just haven't had a big IPO in Texans Twitter. Like, I think this is really, you know, the, this is a great stat.

58:2415, the 15 US based tech companies that went public in 2016 raised a total of 1.44 billion dollars and snap raised 3.4. Like it was, it was the first social media. Yeah, the first social media I was in 2013 and Twitter. It's the first tech IPO of 2017. There's incredible pent up demand. So I'm gonna, I'm gonna evaluate the, you know, massive volume of people buying shares at pent up demand. But I think But I think the rationale that you have to believe to buy those shares is that this is a special company. And if you just look at the numbers and you compare it to... And if you think it's a social network and you compare it to Facebook and Instagram, it's not a special company. It's actually a pretty bad one by the numbers. And here's the craziest thing too. Like, their gross margin negative were making bets on the people

59:22theoretically coming up with future products that haven't been invented yet. And we're buying on a story. And that to me doesn't sound like an initial public offering. It sounds like a seed deck. Like it sounds like if I'm an adventure firm, those are the things that I look for, like team, like product sensibilities. Like these are the things that I would write a, you know, one or two million dollar check for for somebody that hasn't built anything yet. Not the sort of ways in which I would be evaluating a public security.

59:52That's such a good point. And I think, man, thinking about this this way, I think nothing better encapsulates the time in which we're living in tech where an IPO prospectus and process looks like a seed deck and a seed process.

1:00:13I don't know if that's a good thing or a bad thing. That's the reality in which we live today. I'm getting all worked up over here and I don't I actually I agree with you. But it is like this company was gross margin negative. I want to highlight this. This company was gross margin negative. That means they were selling dollars for 50 cents or 90 cents or whatever until like a couple months ago and they are now a, you know, 35 billion plus market cap public company. Yeah. And it's, it's not just like Twitter where they weren't profitable because of their massive operations. And then actually Twitter never became. No, no, right. Like going public without being net income positive is is a common thing. Yeah. But going public while being gross margin negative is a very uncommon thing. Yeah. Yeah. David, I, uh,

1:01:09If you have any dollars to sell me, I got 50 cents for you and then go run a business off that revenue. I am a VC. Anyway, so the point of all this, we spent a long time on this section and listeners let us know what you think of it, but I think what's just so fascinating about this event and this company is you can paint it as Snapchat has very effectively as This is the future and this is the most compelling, most interesting company to hit the public markets since Facebook. And that we are writing a very different wave than Facebook. Or you can paint it as like this is the beginning of the end here. And both the moment that we're at right now is just so interesting because there are great arguments on both sides. Yeah, and I think it

1:02:06the best way to summarize it is this is the public market sitting down with Evan Spiegel at a table looking him in the eye and saying and Evan saying to public investors, do you trust me? Exactly. And going back to the start of the show, Evan getting this bonus, this huge bonus, almost more than $600 million in stock grants for a successful IPO.

1:02:33It's really coming down to that. Yep. Yep. All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making.

1:03:01AI security for an enterprise at scale is not a small concern, like the risks are real. Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower. Yep, AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs.

1:03:28Every device on your network, every permission across every system, every AI agent, visible and secure in one place. And service now can do this because they've spent more than 20 years building the operational backbone of the enterprise, the workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. Service now already runs more than 100.

1:03:54billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

1:04:17So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. All right. Should we move on quickly to the rest of the show and do what would have happened otherwise? Yeah. Yeah. So I mean, the thing I'm sitting here wondering is do they have to go out now?

1:04:37Could they have continued to fund their operations by what they had in the bank raising more private money? Is it advantageous for them to go out now? Love to hear your thoughts on that. They had no choice. I mean, they were burning money. I think where did I put the, I had the numbers in my notes.

1:04:57Don't have a mob hand but I think Snap had even after the huge amount of money they just raised in the private markets like less than a year ago They had just about a billion dollars in cash on hand and they burned free cash flow of almost I believe $700 million last year and that's I'm sure gonna be even larger this year so like they were gonna be out of cash if they didn't get this capital infusion one But two also I think like we've talked about like this was their opportunity and this was the time for them to tell their story. Yep. Yep. I guess the name of the section is what would have happened otherwise so that we have to sort of explore other options. Could they have been acquired and who would have acquired them at this point? There are 10 times more valuable than the last time Facebook tried to acquire them but I mean for what they dumped on WhatsApp.

1:05:53Would they have let's say it was even let's say it's the standard public market 40% premium like they they I think what was the they went out at a 24 billion dollar market cap so you know would what like 33 34 35 would Facebook have paid that much for them and would they have accepted it? I don't know. I mean we ended up our last Snapchat episode with, you know, I was arguing that we were asking the question, should Facebook have offered more to try and buy Snapchat back in 2013? And I argued no, because just the vision and the culture of Snapchat and their vision of their product is just anathema to what Facebook is.

1:06:53We've seen that play out even more so now. I mean, Facebook, you know, they have Instagram. They have Instagram stories. That's doing great. Instagram's growing faster than ever. Um, why would they pay $35 billion for Snapchat right now? Yeah. You're right. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Let me throw out another hypothetical future for you. And this could still happen. So this is not somebody buying Snapchat, but rather the reverse. So we live in a world where Twitter I'm sorry, Google and Facebook are the vast majority of social network based advertising that's being bought and they're totally eating into all programmatic in display also. The mega giants and Facebook gets these economies of scale for their advertisers by adding additional networks into the portal.

1:07:46They have channeled these advertisers. The advertisers are used to buying ads on Facebook. They buy Instagram and then suddenly bam. Now I can also just upload a different image size and advertise on Instagram too. So what if Snapchat's way of getting into that competition is starting to aggregate anyone that's left? So, you know, right now Twitter is valued at $11 billion. Their market cap's $11 billion and That's probably too high. Like if that was lower than somebody would probably actually pick them up, but right now they're kind of priced too high for anybody to feel good about that purchase. If they continue to topple, Snapchat's got new money in the bank. They've got this really, you know, really high market cap where they could do a stock deal. Like what if Snapchat bought Twitter and then enabled advertisers to have a single portal to buy?

1:08:39by advertisements on both platforms and then sort of went on a spree. It feels completely antithetical to me to Snapchat's DNA and perhaps there actually is no economies of scale since those ad formats are so different, but it sure paints an interesting picture of what could Snapchat start to do with this cash they've just raised and this concrete public market validated valuation. Yeah, actually, that's really interesting. I think what Another interesting question is, what if it's not Twitter, but what if it's Fox, or what if it's a television media company that Snapchat would buy? Well, they've got that relationship with Viacom. I don't know if that's still exists, but Viacom was, I think they might have dissolved that, but Viacom was their channel sales for a while for all the Snapchat ads.

1:09:36Yeah, I mean in Snapchat is they are an LA based company, you know the chairman of the board is I Believe it's is it Michael Litton? I think who was the Sony entertainment CEO? Yeah, you know that that is in is in many ways Hollywood and media and television is as core to Snapchat's DNA as Silicon Valley and tech is totally Totally and though the one other before we talk to move into tech themes and this is probably this sits right on the border of what would have happened otherwise in tech themes Is there a it was this the right way for snap to go out and did it get them the right investors so what I mean by that is you know snaps a company that Even more so than any of these other tech companies is gonna

1:10:28potentially have a real tough time with these quarterly earnings. And if they got themselves a bunch of retail investors that were short term and excited for the pop and got in because it was all this like excitement and demand and they didn't get these long term investors like that. Here's the here's the counter example. Amazon was extremely clear in their S1 and and somehow built this incredible investor base who was willing to wait decades for them to start being profitable. Yeah, it's that great line that Tom said on our episode of, you know, that Jeff always says you get the investors you ask for. Yep. Yep. And big question for me here is did Snapchat ask for the right investors? Did they get the right investors and will they be able to stand up to the scrutiny of quarterly earnings calls for those investors? But here's where it comes back though to the beginning of the show. You know,

1:11:19the investors they got, what do they not have? They have no say in the company whatsoever. That's right. Huh. So does it matter? Well, I mean, it matters in the sense that like their share price would, like, well, yes, of course they have a say in the share price, but snap just to raise all this money that they can use to fund.

1:11:44all the product development for the next, you know, at least a couple of years, they have this room to run. Honestly, they just raised, they basically raised. They just have their seat ground for their next wave that they're tackling. Interesting questions. So we move on to tech themes. Yeah, let's do it. So we'll be quick here since we spent so much time on And I feel like covered a lot of this on the rest of the show. But for me, I mean, the biggest one here thinking about all this was just, you know, what we've talked about so much on the show of waves and technology waves and thinking about how Snap, very clearly, despite what they're saying in their S1, you know, they started with the mobile wave and they were a social network on mobile. But

1:12:43the future of SNAP, if it will be the one that they want, is going to be them writing a very different wave. And I'm just reminded of two things. One, the Facebook story and our Facebook IPO episode and how, you know, Facebook was writing the web 2.0 wave and then realized through the IPO process that they needed to paddle over and conquer the mobile wave. And I wonder, It seems to me very clear that something similar is going on with Snap right now. Yeah. And are they paddling over into the AR wave? Is that what you're, uh, well, whether it's AR or, or, you know, I don't know how yet how we're going to characterize this wave, but it is, um, it is, uh, well, it's, it's, you know, I think Snap says it really well. It's the camera wave, you know, it is, um,

1:13:39when a camera becomes about inserting technology into the world around you. Yeah. Yeah. It's interesting. Most of my tech themes we've covered, you know, a lot of, like, winter-take-all network effects and the ability to copy well, cord cutting, moving from TV to mobile, ephemerality, how it's the anti-facebook, you can really be yourself. But the one that we haven't really touched yet is that, The viral coefficient of Snapchat is different than the more successful social experiences like Facebook. And there to me, a big risk factor is that their key product pro is also potentially their key business con where on Facebook,

1:14:34and LinkedIn and Twitter, it's a follower grab. I am directly incentivized to have a wider audience because the way that you use those platforms is to try to get as much engagement as you can on those platforms. It's this called social media because it's truly media. It's you speaking to an audience and people engage with you, but it's more media than communication. And with Snapchat being more communication, and the way I use Snapchat is there's like five to 10 friends that I have a that I snap with at all and that happens in kind of a power law distributed way where like and maybe that's not exactly the right mathematical distribution but like there's one person that I snap with the most then a few other people that are kind of and then the rest of those that those ten are not that much and so the reason why I think their product has such high engagement but

1:15:26the issues that we're talking about are in growth are the fact that the product itself lends itself really well to engaging a bunch with a very small set of users which isn't great for growing into new markets. So as we start to think about the network effect here, like the fact that there's a ton of people in North America using it and some people in other markets using it, it doesn't necessarily mean that it's going to catch on in Belarus because There's nobody in Belarus that has somebody that wants to snap them somewhere else because it's all about these small pockets. Yeah. Yeah. It's interesting. You're seeing apps like snow, which is no part of line, I think. It's the Chinese Snapchat. I think it's either Japanese or South Korean. But anyway, it's that.

1:16:19You know, Asian Snapchat. It's a really good point. Reminds me of, you know, the Uber versus Airbnb. Like, Airbnb is a very clear global network effect because people try to Uber not so much. Yeah. Is something similar happening here. Yeah, totally. That was a, we talked about that with Brad Stone listeners on the previous episode. And Brad made this great point that Airbnb actually has a stronger global network effect than Uber does because with Airbnb, you're traveling to all these places. You're bringing Airbnb to new places. You're looking for Airbnb in new places. And with Uber, other than the technology being hard, there's not as much of a network effect mode because how hard is it really to download whatever the version of Uber is in another city? And that's why we're seeing all these clones get so much traction. Yeah, and maybe I'll pile on with one more real quick tech theme.

1:17:11while we're talking, that episode with Brad too was just, it was such a treat to have him on, can't recommend it enough to listeners. But one of the concepts he talked about was that like, There was this idea in ride sharing that raising capital was a moat and an advantage and it turned out not to be And looking at snapchat like it made me think about that as well like Snap has raised so much money and now with the IPO even more money But they're still you know, they were gross margin negative You know, that hasn't helped them build a Great business thus far. Yep. Yep. All right. Should we grade it? Cool. All right. Let's grade this sucker. Cool. So listeners, we should again clarify that we are grading on the criteria of what will this move allow them to do? Like was the IPO a good move and and did the idea of doing this IPO? Number one, was it well executed? Number two, does it? Does it put them in a good position? And so.

1:18:21I have to set aside a lot of my feelings of the company in general, like if I feel like they're set up for success and they're not way ahead of their skis in terms of the... Well, actually, I guess they're related because the fact that they've got a market cap that is so ahead of revenue is totally tied into this.

1:18:51I guess the point I'm making is, if they were going to IPO and they needed to IPO, they did it extremely well. I am an A on execution on this thing so far a day in, and their ability to raise the capital that they, you know, fight or flight, do or die needed to raise.

1:19:12do it at least so far really well. And I think that that's an A with a ridiculous amount of variance. I thought about, Dave and I were talking about before the show, like, should we even grade it? I mean, I think that it's too early to tell, but an A on execution, an A on what it sets them up to do in the future, staying nimble, potentially making interesting acquisitions.

1:19:34I don't know actually how this will help them grow into new markets. I think that's still the biggest, scariest thing for me. But in terms of how to go raise money and the way that best set them up for success, this is an A. Yeah, well, and I think the parallels to our Facebook IPO episode are just so great right now are so perfect and so apt.

1:20:01you know, we graded the Facebook IPO, and I think we gave it two grades, you know, a grade for the actual IPO itself, and then a grade for how that event influenced the trajectory of the company over time, and the IPO was terrible. But what we learned from that story was that experience really made Facebook what it is today. It kind of drove them to much further greatness. And I think I completely agree with you. This IPO was brilliantly executed by Snap. They told their story so well and positioned themselves perfectly.

1:20:47One need only look at how the performance has gone over the last two days granted it still very early but versus Facebook's first two days But the question and the real grade that matters You know, we're gonna have to come back for at least you know round three if not four and five down the road on this one Yep, yep I totally agree. I almost feel silly for giving it a like, there's just so much variance and so much we don't know, but. Well, but I think we can definitely create execution on the IPO and no question. This wasn't a, you know, they took, they were a huge headwinds here with, you know, Instagram stories launching and growth flowing and being gross margin negative. And they've spun this, this.

1:21:31Great story about snap as a camera company snap as a brand advertising company snap as the most innovative and interesting product company of our generation And and it's worked really well Totally totally before we move on to carve out I have a couple little kind of fun fun points to note about this IPO One is that there's a great Chris Saka tweet from yesterday where he points out that he's like, you know, congratulations to Snapchat, but guess who who's not celebrating and making a big from this IPO? And it goes me, the guy that didn't answer this email and he has this email that he just has unanswered in his inbox from from Bobby in 20. 13.22. 12.12. Yes. Hey, really enjoyed your talk. We'd love to have you at the office and chat.

1:22:24And yeah, it's just it's a reminder of what a crapshoot seed stage investing is. Totally. We'll put a we'll put a link to that in the in the show notes. And then another one is really interestingly, so you get this sort of 24 hour window to go and talk publicly about all your financial stuff after your IPO before you start being really held to all the SEC regulations about what you're disclosing and when. And normally you see all these execs taking advantage of this going on all these different shows and talking to media outlets on the day their IPO drumming up support for it.

1:23:05and all the other execs weren't anywhere to be found. They headed over to Goldman Sachs, which was one of their IPO managers, and it wasn't their lead left because Morgan Stanley led the IPO, and they hung out there for the day, and they did one example, one interview with the LA Times to kind of promote the LA startup ecosystem. And it's just like Snapchat going to be Snapchat, you know? They don't do things the way everyone else does things. I think if there's one lesson from You know, the whole all of Snapchat story thus far is exactly that. Yep. Yep. Yep. Cool. Shall we move into Carbabs? Let's do it. All right. So mine, so listeners for acquired, we have done three episodes this week. We did the episode with...

1:23:53With Brad Stone we we've got this one and then shortly here after we'll have a super cool episode with Brian McCullough from the internet history podcast as it crossover So I've not been doing as much much reading as I'd like to this week, but I have I did listen to Bentopson on the Bill Simmons podcast and I haven't listened to the Bill Simmons podcast in a while. It's so freaking good like There's it's largely about sports so if you don't like sports most episodes won't apply to you but Number one, the episode with Ben is great. He compares Bill has these incredible sports analogies, so he compares like Twitter, Twitter is like the Milwaukee box of tech companies and they have like this great analysis of that. That's good. And it's just so- What's Snapchat? I don't know. I don't think they got there. See, they're the cabs of the warriors, or maybe it's the team that will de-throw in one of them. I don't really know. Yeah.

1:24:50Instagram and Snapchat, you know, who's the cabs and who's the warriors? Right, right. But that episode's great. The Malcolm Gladwell was on a few episodes back that was really great. And it's just such an enjoyable personality to listen to when I feel like, honestly, David and I as podcasters are always looking for who's producing really great content and how they're doing it and things we can add to this show. So I know that I've definitely taken a page from from Bill's book. Yeah.

1:25:18Mine, I'll do real quick, but it's apt. I started listening to... Sunsu's the Art of War this week on audiobook, and I finished it because it's incredibly short, which I'd forgotten I'd read it a long, long time ago. Oh, that's so appropriate for Snapchat. So appropriate because as we talked about on the last episode, after Zuck came down to LA, and I can't remember if it was when he offered to buy Snapchat, or when he said, hey, we're gonna launch poke and we're gonna crush you.

1:25:51I think it was the first time when he said, yeah, we're going to launch Pope, we're going to crush you. Evan went out and he bought copies of the art of war and he gave them to each one of his employees. But it's such a good book and applicable as many, many, much ink has been spilled to business and so many other things in life. But the coolest thing about it, and I think what doesn't, a lot of people don't appreciate about it is that the book is about not fighting and that the idea that the the best victory that you can achieve is is a whole victory where you don't destroy the other side you capture the other side and and that

1:26:41actually fighting and actually entering into battle is terrible because even if you win you're damaging what you want to capture and you're sustaining damage yourself and I think it's just so apt for when you think about how Snap has...

1:26:59Played this whole you know in the past couple years really but but this whole IPO process we're not gonna fight Facebook directly You know, we're not a social network. We're a camera company like it's got Sunsy's fingerprints all over it Love it. It's perfect. All right listeners now is a great time to talk about one of our favorite companies Statsick Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn

1:27:47what changes actually created value for customers. And how fast you can use that signal to guide what you shipped next. This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to Statsig.com slash acquired.

1:28:16to get started. I think that's our show. Listeners, thank you so much for joining us. We love iTunes reviews. Leave us a good one and we'll read it on the Mailbag next time.

1:28:29It helps us grow the show. It helps us bring on more sponsors potentially. It helps us bring on better guests. It helps and more listeners find us and set the flywheel in motion. So we really appreciate that. Any sharing you want to do Twitter, Facebook, obviously, all those things help Snapchat. It's actually unclear if it helps since it's unmeasurable. Join us in the Slack. Go to acquired.fm. It's pretty easy to join. A little sidebar on the right.

1:28:59We have great conversation there. Till next time. We'll see you next time. Thanks everyone.