China-based media group Tencent’s reported decision to be preparing to lead a $200m round for US-based instant messaging service Snapchat appears at first glance to be a double-edged sword unlikely to be grabbed.
The news of Snapchat’s planned $200m round at a $3.6bn to $4bn valuation was broken by AllThingsD.
On valuation, this would be a leap from the $60m round, at a reported $800m valuation, from venture capital firms that closed in June. But it would be comparable to the rapid increases in funding and valuation seen as other fast-growing peers, such as Rakuten-backed scrapbooking company Pinterest, which raised $225m at a $3.8bn valuation.
On strategic logic, however, it becomes more questionable, even if editor Toby Lewis did last week presciently call for people to “fix your eyes on China-San Francisco traffic”.
Tencent launched its WeChat instant messaging service in 2011, while SnapChat’s service already shares 350 million photos per day from its users, according to news provider TechCrunch.
Why, therefore, would Tencent help Snapchat break into Asia and if an investment is to gain insights into Snapchat to forestall such a move why would Snapchat accept the money?
There have been some precedents.
Tencent has invested in the space before both in the US and in Russia-based peer Mail.ru, the latter in a $300m deal for a 10% stake.
But behind the scenes for the Mail.ru (then known as Digital Sky Technologies, DST) deal was Tencent’s own corporate venturing backer, South Africa-based media group Naspers – last year’s Firm of the Year. Naspers was also a large minority investor in Mail.ru from its early days but has avoided investing directly in the US to broker any deal with Snapchat.
And operational engagement might be worked out. Last year, Tencent struck a partnership with US-based discount coupon provider Groupon that saw their Chinese voucher service merged.
But, overall, that Tencent (see our profile here) is a model for Snapchat is obvious – the US company’s founder said as much at a TechCrunch event in the summer with an eye on the Chinese company’s $100bn valuation – but no reason for a deal to happen just now.
If it did, it would indeed by a Big Deal but could be one of those stories that disappear, just as the sexting photos do on Snapchat.