Deals: Snapchat Raises $175 Million From Fidelity at Flat Valuation
Snapchat Inc. has raised $175 million in fresh funding from Fidelity Investments, valuing the messaging company at the same $16 billion valuation from one year ago, a person familiar with the matter said.
Fidelity bought shares at $30.72 in February after paying that price last March, the person said. In the fourth quarter, a separate valuation committee at the mutual fund marked down the price of the shares to $25.75.
Snapchat’s inability to raise funds at a higher valuation than a year ago may be a sign investors have grown more cautious about the company’s prospects. In recent months, tech startups have increasingly raised capital at the same or lower valuations than earlier, posing risks to these companies’ ability to recruit and retain talent and adding to concerns that the era of runaway growth in valuations is ending.
This Fidelity investment was technically considered part of last year’s funding round, because Snapchat had already authorized the sale of these shares as part of that round, the person familiar with the matter said.
Even so, Snapchat was unable to sell shares at a higher price after a year of growth. Venture investors began tightening their purse strings and pushing back on high valuations last fall amid a volatile stock market.
Mutual funds, in particular, have clamped down on their startup bets. In the fourth quarter, these funds made 10 new investments in startups, down from a peak of 32 in last year’s second quarter, according to Dow Jones VentureSource.
The funding also highlights the complexity of how mutual funds value their own stakes in private tech companies. Those values are set by valuation committees that sit apart from portfolio managers that make investment decisions.
Snapchat is one of the most prominent examples so far of a significant divergence of opinion between the valuation committee and the investment manager at the same mutual fund.
On Thursday, The Wall Street Journal published a new interactive graphic, The Startup Stock Tracker, that follows the share prices for startups valued over $1 billion as estimated by mutual-fund investors over the past four years.
Snapchat has now raised more than $1.2 billion in funding from investors including General Catalyst Partners, Lightspeed Venture Partners, Coatue Management, DST Global, Yahoo Inc. and Alibaba Group Holding Ltd.
The company’s valuation of $16 billion last March represented a 60% bump from its previous round in December 2014.
Some investors who bought into the company last year agreed to receive common shares, instead of preferred stock, two people familiar with the matter told The Wall Street Journal at the time. Startup 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.