Tech startups might be becoming overconfident when it comes to buy-outs.
The problem is that many think that Instagram should have held out against Facebook’s offers. The company which Facebook bought for a billion is probably worth $5 billion to $15 billion today.
So when Snapchat were also wooed by Facebook they turned down a $3 billion offer thinking that they could earn just as much.
Snapchat CEO Evan Spiegel confidently told the world that he would not be looking at any buy-outs or venture funding until next year.
But according to Slashdot, that is the sort of thinking which could really stuff a company up.
Snapchat earns no revenue. It is popular among users who want their online messages to self-destruct after a short, preset amount of time so their parents cannot see them.
Facebook already replicated Snapchat’s functionality with its Poke app but wants Snapchat’s user base. The chances of it actually making money when its sole function is to erase data the moment it appears has not occurred to anyone.
However, according to Slashdot, Snapchat thinks it can score a better deal within the next few quarters. If they are right, then they will be praised for being smarter than the folks at Instagram who sold for a “measly” $1 billion.
But the risk is that the value of their company will go down instead of up. Relying on a teen audience, which traditionally runs after the next shiny thing, is risky. Snapchat could be out of fashion by next week along with other fads.
But there is a very real risk that other startups will follow Snapchat’s lead and simply go under waiting for that big deal.
The startup hold out is being seen as evidence of a Silicon Valley tech bubble about to burst. Particularly when business heavy weights like Carl Icahn think there was a chance the stock market could suffer a big decline.