Online businesses are growing continuously, and some companies are taking advantage of this opportunity. A perfect example is Snapchat, a mobile message service looking for investors.
Mobile messaging service Snapchat is reportedly courting offers for additional funding. The company's latest fundraising effort seeks to bring in an additional $200 million in financing. The company's total value is somewhere between $3 and $4 billion.
The new fundraising effort comes in response to widespread interest in the company, which lets users send photos and videos called "snaps" to friends. The photos are immediately removed from all devices within seconds of being viewed.
Snapchat has received attention from the media due to the potential for explicit images being sent through the service.
The public attention has led to interest from a variety of potential investors, including Facebook, according to some reports. Recent rumors have implied the social media giant might seek to acquire the messaging service, but Snapchat CEO Evan Spiegel has made public his lack of interest in selling.
Rumors of Facebook's $1 billion offer to buy Snapchat have inspired heightened interest in the company, including a number of hedge funds.
Triple growth in 2013
Earlier this year, Snapchat raised $13.5 million in funding from Benchmark Capital and $60 million from a variety of other sources. At the time of this second round of financing, the company was valued at $800 million, according to Gigaom. The dramatic increase in the company's valuation has some experts calling for a recount.
When compared to Instagram's valuation of $1 billion, it's easy to see why; Instagram has 150 million monthly users, compared to Snapchat's reported 26 million users each month. Snapchat's popularity with teens, as well as the buzz surrounding the app, has some asserting its value has been inflated.
Business valuation is a tenuous activity, as Princeton Capital LLC's Ken Ducey told BusinessesforSale.com. Overall, valuation comes down to risk, Ducey says, with most investors more concerned about how a business will perform in the next few years.
Snapchat's valuation is perhaps an indication of high hopes for the company's future, whether it eventually accedes to a lucrative offer from a much larger company or attempts to continue as a standalone operation.
Meanwhile, Snapchat's popularity is on the rise. The company stated in September that it was processing 350 million snaps per day, compared to only 200 million in June. The company pointed out that while its active user base might be smaller than that of other services, its users come back to the app repeatedly throughout the day.
Additionally, Snapchat's appeal to the desirable teen demographic is of interest to both businesses and advertisers.
Facebook, on the other hand, has admittedly failed to capture the teen demographic, many of whom think of the social media site as something for older generations. The success of Instagram with younger users doesn't help Facebook's attempts to reach out to youthful users.
Whether Facebook was interested in incorporating Snapchat into its own site or running the service separately, as it has with Instagram, is unknown. Unless Snapchat changes its mind about selling, it's likely the public will never know.
IVP's Dennis Phelps said the June investment round for Snapchat was among the most competitive financings he's ever seen. The buzz surrounding the service is only continuing to grow, leading many to wonder whether the app will live up to the hype over time.