

Evan Spiegel's Email Memo - tomashertus
http://www.businessinsider.com/snapchat-ceo-evan-spiegels-email-memo-2014-12

======
kylelibra
Here's his response to the leak:
[https://twitter.com/evanspiegel/status/545308400829997056](https://twitter.com/evanspiegel/status/545308400829997056)

~~~
FD3SA
Wow, is all PR speak from SV companies so absolutely vacuous?

This guy sounded much more intelligent in his private memos. This crap sounds
like a teenager's diary. So many "feels" and "hurts" and "angrys"...really
seems like he's writing to a bunch of young teens.

I don't know how people work at companies like this. Between this and Marissa
Mayer's children's book reading at an all employee meeting, I'd get fired
twice for laughing out loud and calling the CEO of the company a blabbering
idiot.

Anyone care to unravel the mystery of teen mystery PR speak?

~~~
cylinder
It's not PR speak, it's their generation. I'm only a few years older and can't
even relate to it. My peers have even noticed this in our younger male
siblings - they're only ~3 years younger, but they would constantly get into
emotional fights with their good friends (lasting several days), cry all the
time, and generally are a lot more sensitive and emotional. We don't
understand it at all.

~~~
cafard
Pushing 60 here. What age are you talking about? Owing to neighborhood
demographics I seem to know no males between the ages of about 24 and about
10.

------
roymurdock
I place a lot of value on Spiegel's view of the market. As the CEO of one of
the "hottest" startups in the past couple of years, I think he has access to a
lot of people and information that most of us don't. I'm a believer in semi-
strong market efficiency to be sure.

If he is turning down valuation money, he is also explicitly acknowledging
that the fundamentals of the company simply don't justify the leverage of
taking on additional investments.

He uses startup era Facebook to inform many of his decisions. Monetization is
where Snapchat is finally breaking from Facebook's precedent, allowing the
user to opt into ads disguised as high-quality content, and adding a money-
sending service by partnering with square. Personally, I find this strategy a
lot more effective than Facebook's attempts: jamming ads down users' throats,
auto-play videos, breaking messenger off of the main Facebook app, selling
robot clicks and false engagement, etc.

Should be interesting to see how Spiegel is planning to ride out the
readjustment that he is predicting.

~~~
dredmorbius
Yep.

I also found that quite interesting. It's quite similar to my own view ...
let's see, an October 12 variant:

 _Twitter, and much of the rest of the Web 2.0 / dot com firms mostly are
solving the problem of "where can we invest all of this free money the Federal
Reserve is pumping out while real financial returns are so low. The fact that
much of the business model supported by these ventures is effectively
advertising, and that a lion's share of the advertising is itself FIRE
(Finance, Insurance, Real Estate) sector -- also bolstered by easy money /
liquidity / QE2, or electronics goods, dittos, makes me think that this is all
one hell of a massive bubble. At some time it's going to pop, and it's going
to be all kinds of ugly -- the dot-com bust will look like salad days in
comparison._

(Comment on the post in question)

[https://plus.google.com/104119855035793551431/posts/QQrWKvBx...](https://plus.google.com/104119855035793551431/posts/QQrWKvBxKRz)

So, yes, Spiegel's comments on the Fed and money are pretty interesting. Not
sure if it's confirmation bias on my part or just confirmation.

~~~
roymurdock
I'd be interested to hear how you're betting on the bubble. Are you shorting
stocks? Buying puts? Some kind of real estate ETF? Are you actively betting or
just sideline speculating? Not trying be passive aggressive - I've just been
trying to come up with a good strategy myself to bet on an imminent bubble.

Also, could you provide more detail on how QE money is ending up in VC
pockets? I was under the impression that most of the large-scale-asset
purchase money is simply sitting in bank reserves - check out the 2nd graph
showing how much of QE has actually made it into circulation [0]. I'm not sure
exactly how the "free money" of the Fed is ending up in Twitter's coffers.

[0] [http://www.frbsf.org/economic-
research/publications/economic...](http://www.frbsf.org/economic-
research/publications/economic-letter/2012/july/monetary-policy-money-
inflation/)

~~~
dredmorbius
I'm taking a longer-term view and investing in personal capital on the basis
of that.

Money in bank reserves doesn't, of and by itself, provide revenue growth.
Banks put the money someplace else.

Some of that goes back into Government paper. Some into offshore tax havens
(the avoided tax is an immediate gains). Some 10-20% of all finanicial wealth
is there -- $21 - 30 trillion as of this past July:

[http://www.winnipegfreepress.com/opinion/editorials/close-
do...](http://www.winnipegfreepress.com/opinion/editorials/close-down-
offshore-tax-havens-267286871.html)

Other funds end up in various investment operations -- some are HFT, some are
speculating in commodities or other real assets (stories of Goldman's
operations in this area are interesting), some ends up chasing tech
opportunities -- it's one of the few economic sectors offering much promise.
Though I suspect a lot of it's overrated.

Most present "investment opportunities" strike me as quite ephemeral, though
the volatility may allow for gains for the extremely astute. Or lucky.

------
glifchits
Though this seems obvious in retrospect, this is an interesting insight:

    
    
       VC dollars are being spent on user acquisition despite unknown LTV of users ...
    

I think some of the tech "bubble" is being driven by speculation in what
customer lifetime value could be. There would need to be some pretty
devastating event for investors to no longer believe that having millions of
users doesn't have potential for a lot of value. It would have to be a fairly
counter intuitive epiphany.

~~~
Mandatum
As soon as FB Messenger or WhatsApp introduce a "view once" feature to their
products I'd instantly stop using Snapchat.

~~~
qq66
Do you use Facebook Poke?

~~~
vxNsr
See that's a seperate app that exists on one platform, while FB Messenger is
cross platform and already used by most people, so adding one feature (while
anathema to the way companies are doing this atm, opting to make each feature
an app) would instantly overtake a lot of the value of snapchat.

------
ricardobeat
For some reason I found this hilarious: "Going from a college frat boy to the
CEO of today's hottest new startup isn't easy."

~~~
rhizome
Because it's easier than any other way.

------
mathattack
I think it takes a lot of courage to say "No, you can value us at $800 million
instead of a billion." There are reasons to do that, but it means some money
is being left on the table either via dilution or lower capital raise.

There's a secondary question (can someone answer?) of is it tax advantageous
to do this? Does it benefit the first a lot to issue options at a cheaper
price?

~~~
titanomachy
That's what they were discussing in the emails regarding 409(a)... from what I
understand, the taxable-benefit value of options is determined by the IRS's
fair market valuation of the company. So the same options contract becomes
more valuable (and more taxable) as the company becomes plausibly more
valuable. Spiegel's response indicates that he's unconcerned by this, though,
so maybe options aren't a huge part of their compensation package.

~~~
zaroth
IRS requires paying taxes as restricted stock vests (or up front if you so-
elect) based on the fair market value of the stock. Or, if options, based on
the intrinsic + time-value of the option. So maintaining a low common stock
valuation becomes a crucial exercise if you want to actually be able to issue
any meaningful number of shares to your employees.

You can value investor preferred shares at a significant markup to your common
stock by giving a non-participating liquidation preference. So you can raise
$50m at $800m and not completely wreck the next round of options. It's called
the "Thin Common" strategy. The idea is I sold X shares for $50mm, but since
they also got a $50mm preference as part of the deal, the common share value
is still no-where near $50mm / X.

What Spiegel is saying, which is spot-on, is that having revenue will
encourage a Section 409a valuation based on discounted cash-flow for common
stock which will be minuscule compared to the investor value on preferred
shares. 409a is about gaining a safe-harbor where your valuation is presumed
reasonable and harder for the IRS to contest.

This allows them to keep moving shares into employees hands at a reasonable
rate, or if options, then issuing them without an impossibly high strike
price. The problem Mitch is pointing out is the Facebook offer also plays into
the 409a to some extent. If someone offers you $3 billion cash, it's hard to
claim you are worth less than $3 billion.

If you are issuing restricted stock, or RSUs, you have to price them at fair
market value, and either the employee PAYS you that money, or the value of the
shares is taxable income as they vest.

If your valuation is too high, any modest stock grant (remember they are only
30 employees) requires someone to pay ~40% of that amount in cash as taxes. So
it becomes quickly impossible to give a meaningful number of shares -- the tax
consequence is just too immense.

For example, lets say they issue 1% of their shares to their 30 employees next
year. They have a 409a valuation based on $0 revenue, 13 months of runway, and
a plan to hopefully possibly achieve $20mm of revenue in the next 12 months.
Their accountant says that equals $200mm common stock value, so they owe taxes
on $2mm of income. Not so bad. But if the IRS comes back and says, wait just a
minute, those shares were worth $3 billion at the time, you owe us $15mm in
taxes and another $30mm in penalties....

Anyone who STARTED at Snapchat early on would have received shares at PAR
value, and if they were restricted, would have done an 83(b) election to pay
tax up-front at the current value, instead of paying tax at the market value
as they vested over time.

If anyone at Snapchat has significant vesting shares and did NOT do the 83(b)
election to pay tax at an early-days valuation, they are now totally fucked,
because every month they vest more shares, they owe millions of dollars to the
IRS and they have no liquidity with which to pay the tax man.

The system is stupidly broken. The way I would do it is that freshly minted
common stock should transfer tax-free until a subsequent transfer or sale (not
including transfers through probate). Then the full value should be taxed at
short or long-term capital gain. There's absolutely no reason to tax, or even
attempt to value, the initial issuance of unregistered and non-transferable
securities of a private company. Simply wait till they are first sold, or
otherwise encumbered, and collect taxes from the market value at that time.
Registered stock could remain under the current rules.

In a sense, even declining an offer from Facebook cuts off new hires from
obtaining reasonably priced shares, thwarting Snapchat's ability to hire and
retain the best talent. It's an interesting "damned if you don't" scenario.

~~~
yummyfajitas
An alternate way to handle it would be to pass a law saying the IRS must
accept payment in-kind for taxes on in-kind payments. I.e., the IRS can make
up whatever valuation they want but you have the option to pay them in
snapchat shares.

~~~
zaroth
Now that would be the day! :-)

    
    
      "You owe $15 million in taxes on those Snapchat shares that just vested."
      "You say we're worth $3 billion? Fine, here, have some shares!"
      "Oh, oh, what? No revenue? Yeah, your shares are worth shit!"
      "So what about the tax bill?"
      "Yeah, pay up in cash, or as they say in Monopoly..."

------
npalli
1\. His views on the general tech market are somewhat banal (though impressive
for someone who was only 23 at the time). It is your standard zerohedge
analysis that fed is printing money and it is causing a tech bubble. Can
anyone track and connect the dots from fed bond buying to increase in Facebook
share price? I don’t think anyone knows.

2\. His comments on facebook are much more fascinating though. One thing I did
not understand is where all the mobile money on facebook is coming from. Looks
like it is from app installs (don’t think FB breaks it out) which in turn is
created by VC funding bubble. The VC's fund because they see mobile on
Facebook is taking off. Close the loop, classic bubble. So the whole scheme is
likely to end pretty badly for facebook (sounds plausible). PG talked about
the dot com bubble and the impact of VC funded ad buying that led to
increasing market cap for yahoo until it burst

“By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were
excited about the Internet. One reason they were excited was Yahoo's revenue
growth. So they invested in new Internet startups. The startups then used the
money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth
for Yahoo, and further convinced investors the Internet was worth investing
in. When I realized this one day, sitting in my cubicle, I jumped up like
Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"”

[http://www.paulgraham.com/yahoo.html](http://www.paulgraham.com/yahoo.html)

Edit: I should have guessed, people are more interested in supplying ready
made narratives from the past five years for point 1 (which is not that
interesting) than point 2. SMH. Some cool narratives are being provided which
I heard almost verbatim at various points in the past five years that
“explained” how --

1\. We will have world wide inflation of epic proportions (reality: world is
fighting deflation all over)

2\. ECB is doing a great job compared to the fed continuing with QE2 in 2011
(reality: recession in Europe vs the US)

3\. Gold will soar through the roof (reality: slump)

4\. Oil prices will rise forerver (until they collapsed)

5\. House prices in China will go to sky (until they stopped doing)

6\. Apple was up 100% in late 2012 (until it collapsed by half six months
later)

Etc etc. I would have thought some humility would have set in the “FED is
printing, things are inflated to sky crowd”. Nope, just doubling down. Always
stay with the narrative explain something else until we get it right ☺. At
least I admit I don't know how things work :-).

Consider, there are $20 Trillion dollars of SWF’s in the world investing all
over. What is the impact of these as opposed to QE?

~~~
memnips
> One thing I did not understand is where all the mobile money on facebook is
> coming from. Looks like it is from app installs (don’t think FB breaks it
> out) which in turn is created by VC funding bubble.

In July re/code put the App Install Ads at $400-$800m in revenue per quarter.
I'd guess it's on the upper-end of that spectrum and is out-pacing other
revenue lines. It's not unusual for a top tier game to pay up to $3-5 for a US
install.

This is why Twitter is so keen (desperate?) to replicate what FB is doing.

[http://recode.net/2014/07/24/why-doesnt-facebook-want-to-
bra...](http://recode.net/2014/07/24/why-doesnt-facebook-want-to-brag-about-
its-billion-dollar-app-ad-business/)

~~~
npalli
Good link, thanks. Interesting that Spiegel was aware of the trend at least a
year earlier.

------
tomashertus
What do you think about his view of the market? Anyway he kind of surprised me
with his attitude towards building large company. Seems like he has vision to
turn Snapchat into the platform(buzzword alert). Anyway his opinion is very
mature.

~~~
hellbanner
They've put in payment sending -- I think FB does this too.

Also have advertised spots. They're definitely trying to expand.

------
danhak
> _[Snapchat] is valuable because it has fundamentally changed the nature of
> digital communication in <2 years and will continue to do so for the life of
> the Company (may it be long and prosperous)._

------
guelo
What is the legality of Business Insider publishing what amounts to stolen
trade secrets?

~~~
dmaz
Protected by the First Amendment - [http://www.washingtonpost.com/news/volokh-
conspiracy/wp/2014...](http://www.washingtonpost.com/news/volokh-
conspiracy/wp/2014/12/15/can-sony-sue-media-outlets-who-publish-the-stolen-
sony-documents/)

~~~
k-mcgrady
Is that still applicable considering Sony is a Japanese company?

~~~
andrewfong
Unless Business Insider has Japanese assets or employees that Sony could go
after under Japanese law, yes.

~~~
k-mcgrady
Ok, so they could sue non-US sites reposting the hacked information I guess.

------
afar
I thought his comments about available capital (specifically) to social
communication companies was interesting.

There was so much homogeneity in tech in '99/'01\. So many companies doing
very similar things.

I guess I'm wondering: Are we (the tech market) sufficiently diversified in
what our companies do? Enough to see segments of the industry pop but not the
entirety?

------
einrealist
I think, his summary is somewhat realistic. But that also applies to his own
company.

My base line: Valuation of (consumer) software products is still hard. And
given the current monetary politics, it is even harder to tell what a
reasonable valuation looks like. It is a gamble, as usual. But at least he has
a business and is propably doing his best to keep it, along with the souls in
it. Good luck.

------
hellbanner
"For Snapchat to capitalize on market conditions in next 3 years, it is
imperative that we become a revenue-generating company," .. no shit, sherlock.

~~~
bedhead
Actually, this comment is stupid and more broadly indicative of why we have
today's current tech bubble: not a second of thought about profit. Revenue is
the goal, no consideration to the underlying business model. God forbid one of
these companies try to make money.

~~~
robszumski
Surely some form of revenue comes before profit, right? I think he's just
staying focused on one piece of the puzzle at a time.

------
suyash
Snapchat is a child of a bubble, my doubts are confirmed, it has no real
revenue.

------
michaelochurch
Ugh. This is thinly-veiled native advertising for the persona of a 24-year-old
executive, presumably as insurance for him against possible business issues
(read: building up his personal reputation to prepare for Snapchat headwinds).
Anyone who can't see that is delusional. I almost wonder if he paid to have
"I'd rather not burn another $100mm of OPM _[other peoples ' money]_ before we
find out whether or not we have a business" leaked so he can present himself
as frugal, should the chips go down in the next year or two, and people accuse
him of being the opposite.

If that email is "very impressive", then I'm Jesus H. Christ. Any lepers need
cured?

First, he's a bad writer. He'd barely get a C in a freshman English class, and
that's with grade inflation. He doesn't know where to place commas or how to
use punctuation. (That doesn't make his business emails unusual for the genre,
but it rules out calling him "impressive".) Second, the only thing that is
impressive or unusual (for that age) about his communication style is that,
yes, he has an above-average level of confidence, and most 23-year-olds from
middle-class backgrounds are still scared of their bosses, not talking about a
business like they run the place. But who wouldn't have that confidence, after
having so much handed to him?

This isn't damaging like his frat-boy communications but it's not really
interesting. Sure, he knows some things about the business that he's the CEO
of, but if he were 30 or 40 and wrote that email, people would be underwhelmed
at his mediocrity, expecting better.

This bizarre age-curving is irritating because (a) what should really matter
is where people are, and where they're headed, not whether they're 24 or 67 or
38+√(-163), and (b) because so much early success in the Valley is
manufactured and delivered via connections rather than merit. (Silicon
Valley's ageism is an expression of its classism.) Given that a 40-year-old
CEO who wrote an email like that would (and rightfully) be considered somewhat
off-the-ball, we should apply the same standard to Mr. Spiegel.

~~~
billsossoon
I was curious to see how you'd react to this, since Spiegel's success has been
such a thorn in your side. So let's see, you opened with conspiracy theory
nutjob (so maybe the real purpose of the Sony hack was to leak Spiegel's
private email and bolster his personal brand??), and segued nicely into
grammar nazi pedant (as if anybody, anywhere called the email impressive due
to its punctuation).

> _First, he 's a bad writer. He'd barely get a C in a freshman English class_

> _Any lepers need cured?_

And you probably spent as more time writing your comment than Spiegel did
writing his email.

> _Given that a 40-year-old CEO who wrote an email like that would (and
> rightfully) be considered somewhat off-the-ball_

No. Maybe all the 40-year-old CEOs who privately email you write exceptionally
well, but that hasn't been my experience at all.

~~~
michaelochurch
_I was curious to see how you 'd react to this, since Spiegel's success has
been such a thorn in your side._

I don't care about him, personally. He's boring. I care about frat boys being
funded at the expense of people with actual ideas. I care about a generation
of technologists that has been sold out because a bunch of smooth-operator,
manipulative invaders have come in and outcompeted true technologists for
funding and coverage, and the VCs have let it happen. If they were worth their
millions per year, they simply wouldn't. If they could actually spot talent
sufficiently well to justify their obscene salaries, they wouldn't be funding
frat boys. I react strongly because this nonsense is very bad for the world.

If Evan Spiegel wasn't part of something that's setting technology back by
decades, I wouldn't give a rat's ass about him or his billions either way.

 _So let 's see, you opened with conspiracy theory nutjob_

No, you misunderstand. Obviously, he didn't intend for the Sony hack to
happen. My contention is that, after the hack happened, he got quickly to work
on figuring out how to use it best to bolster his reputation.

An effective sociopath doesn't expect to control the world, because that's
impossible, but only to exploit events as they come for maximal personal
benefit. Clearly, Spiegel had nothing to do with the Sony hack. I'm arguing
that his PR apparatus engaged shortly afterward.

Given that Snapchat Beliebers (employees?) have come out of the woodwork to
downvote me into oblivion, it's not _that_ far fetched. His PR team (which may
include the whole company) clearly managed to find my posts on a Wednesday
afternoon. This means that they respond quickly to events large and small...
and what I say on Hacker News is clearly less newsworthy than the Sony hack.

 _And you probably spent as more time writing your comment than Spiegel did
writing his email._

I see what you're trying to say, and it doesn't work. Emails to investors,
because your employees' livelihoods depend on them, deserve more time than
Hacker News posts. Writing them quickly, when not well, isn't something to be
bragged about. Granted, he's probably going for neoteny to some extent, and
I'm sure he uses uptalk when interacting with investors, but even still... he
should learn to communicate clearly and professionally.

~~~
nemothekid
_No, you misunderstand. Obviously, he didn 't intend for the Sony hack to
happen. My contention is that, after the hack happened, he got quickly to work
on figuring out how to use it best to bolster his reputation._

I agree with the above poster (I too was interested to see your thoughts), but
this is really weak. Between believing that 1.) Evan Spiegal is a sociopath
who drafted not only a grammatically correct email from Mitch Lasky but also a
grammatically incorrect email from himself in a fake convo, and took advantage
of his connection with the Sony CEO to "leak" this report vs. 2.) This was
just business as usual and the result of an already very public Sony hack, I'd
choose the one that didn't take me 90+ words to explain.

I'm going to call Occam's Razor here. Other than that the rest of your post
has little to do with the _content_ of the email. If Einstein had presented
the theory general relativity to me, I'd be rightly less concerned with the
fact he could use a semicolon.

~~~
napoleond
_> Between believing that 1.) Evan Spiegal is a sociopath who drafted not only
a grammatically correct email from Mitch Lasky but also a grammatically
incorrect email from himself in a fake convo, and took advantage of his
connection with the Sony CEO to "leak" this report vs. 2.) This was just
business as usual and the result of an already very public Sony hack, I'd
choose the one that didn't take me 90+ words to explain._

No horse in this race, but I assume parent is actually implying a third
possibility, where the email exchange is real but cherry-picked by parties
friendly to Spiegel.

~~~
michaelochurch
_No horse in this race, but I assume parent is actually implying a third
possibility, where the email exchange is real but cherry-picked by parties
friendly to Spiegel._

Right. Or, it's "real" insofar as it actually happened. His stated interest in
building a quality business and being careful with "OPM" is obviously not
_genuine_ , but the conversation actually happened and, at the time, he would
not have known that the Sony leak would happen in the future. He didn't write
that particular email with the intention of it being leaked.

After the leak, Spiegel needed to lend credibility to the idea that he's not
some careless frat boy and he (or, just as likely, his PR team) decided to
focus attention on a particular email. Since the email itself was poorly
crafted, an influential third party was paid off (bought social proof) to say
that it was "very impressive" for his age.

------
onedev
I think that the people at Snapchat do realize how fucked they are.

That's why they're making a spree of acquisitions and media deals to try to
stay prepared.

~~~
nostrademons
Every startup is completely fucked until they start raking in money through a
sustainable business model.

The ones that get there are the ones that proactively take steps to avoid
being fucked.

