Snapchat should learn from Groupon

From the archive: First published on November 16, 2013. This is a time capsule, not a present-day investment view. Company values, outcomes, and my own conclusions have all had time to change.

Once upon a time, Google offered to buy Groupon for billions of dollars, and Groupon declined. When Andrew Mason turned down the offer, it was clear the company had its mind set on an IPO. I remember thinking about the risk of such bold—perhaps foolish—optimism.

Fast-forward two years: Groupon had gone public, was worth less than the offer it had rejected, and Mason had lost his job. To me, the certainty of the earlier offer looked better than the path the company had chosen.

About a year before writing this, I had shared a post by one of Snapchat’s founders about how the app began. I had not used Snapchat, but I was moved by the story: failed startup projects had helped produce another idea.

Then rumors surfaced about a bidding war for Snapchat. Many called its valuation a bubble. I was also surprised by the price attached to an app with little revenue and an unclear path to earning enough to justify it.

Still, I thought an acquisition could make strategic sense for Facebook. Teenagers were moving away from the platform, and Snapchat offered a new way to reach a generation whose attention Facebook could not afford to lose. The purchase price looked enormous in isolation, but much smaller next to Facebook’s total value.

From Snapchat’s side, I worried that holding out for an eventual IPO confused possibility with certainty. Groupon’s experience offered a warning: a future valuation is not the same as money on the table today.

Looking back, the most interesting part is not whether each prediction proved right. It is seeing how confidently a moment can make the future appear knowable.