Venture Capital and Social Media
By Ariel Dufresne, Head of Social Media & Writer
Venture capital is an investment by one or more investors into a private company. The investor's objective is to participate financially in the development of innovative companies with high growth potential and to realize a substantial capital gain when selling their securities. Throughout history, Venture Capital has had a significant effect on the growth of social networks. The following examples are investments that have worked out remarkably well.
Created in 2009 by Jan Koum and Brian Acton, the WhatsApp startup followed a relatively rare growth model. Instead of calling on several investors during its first step of fundraising (series A) in 2011, it only trusted Sequoia Capital, which contributed $8 million. After this operation, the value of WhatsApp increased to $78.4 million.
The development continued, and the results were fantastic. In 2013 new resources were needed to continue the journey, and Sequoia remained the only investor. The stake rose to over $50 million (Series B), while the company’s value increased to $1.5 billion.
At the beginning of 2014, Facebook announced the takeover of WhatsApp for $19 billion, the largest takeover operation carried out by a private company on a company backed by a VC fund. This was an excellent deal not only for the founders but also for Sequoia Capital, which saw its investment of $60 million turn into a nice capital gain of $3 billion. This operation is considered one of the finest in the history of the VC.
In 2005, Facebook launched its first (series A) fundraising with Accel Partners and Breyer Capital investors. These two funds provided $12.7 million in exchange for 15% of the company. At that time, Facebook was valued at $87 million, which already seemed huge. But that was nothing compared to what happened next.
In 2006, a new funding round took place for $27.5 million. Funds such as Interpublic Group and the Founders Fund embarked on the adventure. The company's results were excellent, and its value climbed to $468 million.
In 2010, Accel resold its Facebook shares for $500 million, but that did not prevent Accel from achieving one of the deals of the century. When it went public on May 18, 2012, Accel Partners' stake was valued at $9 billion. This made the Accel IX fund one of the most successful in the history of VC.
SNAPCHAT
Created in 2011 by Stanford students, the Snapchat platform has enabled its investors to make excellent capital gains. In 2012, a first round was launched, and the Lightspeed Venture Partners fund provided $480,000 during this first phase. In early 2013, Benchmark took a $13.5 million stake, the only investor in this new round.
A few months later, $60 million was raised from new investors like Tencent and General Holdings. The platform continued to grow, and the number of users exploded in May 2012; 25 snaps were sent every second, and by November, 20 million per day.
After more fundraising and never-ending growth, Snap Inc. went public in 2017. The company was then valued at $25 billion. One of the first investors to have believed in its potential, Benchmark Capital Partners, saw its stake increase to $3.2 billion. Lightspeed Venture also took home a nice profit, as its shares were obtained for $8 million and were now worth $2 billion.
Those three platforms started their first funding step with Venture Capital and are among the most prominent social media channels today; Facebook has even expanded to create the big Meta social media giant.