Monday, November 18, 2013

More Money Than Brains

"More money than brains."  That self-explanatory expression is one that my father would often use to describe people making unwise financial decisions.

Snapchat, the app that lets users send and receive messages that disappear after their viewed, just turned down a $3 billion acquisition offer from Facebook last week.

Snapchat just celebrated its second birthday in September and although it hasn't made a single dollar, social media behemoth Facebook was willing to shell out $3 billion to buy it - an unfathomable amount of money to buy a company that won't return a single dollar to them on day one or possibly ever. 

Despite all the brain power that exists at Facebook, an offer of this magnitude based on Spanchat's unproven potential is simply a more money than brains offer.  The only thing that could be dumber is to refuse it.

After only two years on the job, the founders of Snapchat could have joined Mark Zuckerberg in the "more money than brains" club. They passed up the cleanest exit strategy they will ever get.

It's been suggested that Snapchat's founders believe it can one day exceed last week's $3 billion valuation, as they see high potential for generating revenue selling virtual goods.

The obvious problem is that Snapchat is more valuable without virtual goods.  If investors are given a balance sheet, there is no way they'll get to $3 billion.  The numbers simply don't pile up as fast when users must become customers.

But without one, in its cozy make nothing, sell nothing virtual reality, Snapchat still has limitless potential to those with more money than brains.  For their sake, I just hope they never have to prove it.

As always, thank you for reading and for sharing.

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