Snapchat Fetches $16 Billion Valuation in Latest Financing - Update

By Douglas MacMillan 

The demand to own private shares in Snapchat Inc. has become so fierce that its newest investors are willing to receive second-rate stock in exchange for their money.

The messaging service on Friday revealed in a filing with the Securities and Exchange Commission that it has raised about $537 million in new funding from investors.

The financing values Snapchat at $16 billion, said a person familiar with the matter, a 60% bump from its previous round in December when the company began stepping up plans to make money.

An unusual stipulation of this round is that the investors-- which include Chinese e-commerce company Alibaba Group Holding Ltd. and two hedge funds--received common stock, instead of preferred stock, said the person familiar with the deal.

As standard practice, venture-capital investors typically receive preferred shares when they invest, meaning they receive certain rights over common stockholders. Those privileges can include voting rights and, perhaps most important, getting paid back first in the event of an acquisition or liquidation.

Snapchat's ability to sell common stock at such a large valuation underscores investors' strong desire for a piece of the fast-growing mobile-messaging service.

In fact, Snapchat's previous funding round completed in December at a $10 billion valuation also involved common stock, the person familiar with the matter said.

Investors in that round included Kleiner Perkins Caufield & Byers and Yahoo Inc.

Only earlier investors, which include a number of venture-capital firms such as Benchmark and Institutional Venture Partners, own preferred shares.

Investors in the latest round include Glade Brook Capital Partners in Greenwich, Conn., and New York-based York Capital Management. The startup could raise up to $650 million in the new round, which hasn't yet closed, according to the filing. CNBC earlier reported on the valuation and investor names.

News of the funding comes days after Chief Executive Evan Spiegel said at a technology conference that he has a plan for an initial public offering but offered no details about its timing. Mr. Spiegel also said this week that he has no desire to field any acquisition offers.

When asked at the Code Conference this week about the current climate around tech investing, the 24-year-old CEO and co-founder said he predicts a "correction" is coming and he has factored that into his plans. He notes, like many observers of the recent boom in fundraising have, that low interest rates have spurred much of the activity.

In March, The Wall Street Journal reported that Alibaba invested $200 million in Snapchat. That investment is part of this newest round.

Other investors in Snapchat include General Catalyst Partners, Lightspeed Venture Partners, Coatue Management, DST Global and Alibaba's rival, Tencent Holdings Ltd.

Including the new round, Snapchat has now raised a total of more than $1.3 billion in funding.

The company runs one of the most popular messaging services in the U.S., especially among teenagers, in part because of the ephemeral nature of its messages. Its text and photo messages disappear after a certain amount of time, limiting the possibility that content will come back to haunt the user. The company now has nearly 100 million users who log on each day.

But it has only seriously started generating revenue this year, selling ads to marketers including Samsung Electronics Co. and Universal Pictures. With its appeal to teens, Snapchat aims to go beyond messaging and become a next-generation media business.

The company has joined with media brands including ESPN and Yahoo on its Discover service, which shows news articles and videos that disappear after one day.

Lisa Beilfuss contributed to this article.

Write to Douglas MacMillan at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires