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from A Round to Apple Inc.
June 26, 2016

Snap Judgment

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Market Snapshot

Indices Week YTD

In a shot heard around the World, British voters unexpectedly chose to leave the European Union by a 52-48 margin on Thursday. What came as a shock to the politicians and pundits is probably “Exhibit A” in why it happened — the ruling elite lost touch with what ordinary people care about.

The divorce will take at least a couple of years and will undoubtedly cause some additional pain as it is sorted out. There will likely be aftershocks from other disgruntled EU Partners like the Netherlands and perhaps France.

While voters were split on the decision, global markets were decidedly negative, hemorrhaging approximately $2 trillion in the 24 hours following “Brexit.” The British Pound suffered a record one-day plunge to a 31-year low, and money poured into safe-haven gold and government bonds. Oil prices slumped 5% amid fears of a broader economic slowdown.

Percent Change in Key International Market Indices Following the U.K. Vote to Leave the E.U.

Source: Yahoo Finance, USA Today, Bloomberg

Snap judgements make for good sound bytes but they are typically short on insight. Similar doom and gloom forecasts were made when the United Kingdom elected to forego the Euro and keep the Pound in 1992.

The broader picture reveals that since Britain joined the European Economic Community in 1973 — the precursor to the EU — the 28 countries that now make up the EU represented 36% of the World’s economy. Last year it was 17%, and falling. At the same time, challenging dynamics have emerged for member countries with vastly different economic needs.

Britain… Take a Bow

What’s been made clear by the “experts” and elites is that if you don’t agree with them on the dire implications of Brexit, you’re an idiot. What’s less clear are the explicit reasons why Britain’s decision to distance itself from a dysfunctional European family will harm the average Brit in the long run. The referendum may indeed prove to be a massive unforced error, but we’ll reserve judgement as the path forward begins to come into focus. Stay tuned for a “Texit” debate in the United States.


Silicon Valley and the global innovation economy more broadly have been no stranger to snap judgements — particularly in early 2016, with NASDAQ dropping nearly 10% from January 1st to February 11th, before ending up flat for the first quarter.

We have also seen markdowns across the board for private companies. The good news is that this dynamic enabled us to acquire shares in Spotify in the fourth quarter of 2015 at a nearly 25% discount to the company’s Series G financing earlier in the year. The bad news is that we have recorded some near-term markdowns to our portfolio for GSV Capital. (Disclosure: GSV owns shares in Spotify)

An example of this trend is Snapchat, where we made a recent investment. Last fall, Fidelity Investments marked down its position in the company by 25%, only to mark it up again 15% in December. In March, Fidelity invested $175 million in Snapchat at a flat valuation to its previous financing. (Disclosure: GSV owns shares in Snapchat)

Founded in 2011, many were ready to write off Snapchat as it quickly ascended to the growing ranks of Unicorns. The conventional wisdom was that the company would disappear as fast as a “Snap” — the company’s signature self-destructing message format.

Instead, Snapchat’s surging popularity is beginning to redefine modern media.

Today, the company has well over 100 million daily users uploading 9,000 photos per second and watching a mind-blowing 10 billion videos per day, up from just two billion in May 2015. Users spend nearly 30 minutes on the app per day and over 66% of users share new content every day.

Snapchat Daily Video Views (Billions)

Source: Snapchat Announcements, GSV Estimates

While Facebook has grown to over 1 billion daily active users, it is increasingly becoming a utility — a news aggregation platform — rather than a dynamic social network. Users are sharing less and less of their own pictures and videos, and instead are reposting, commenting and liking what’s trending on the web. The Information reports that as of mid-2015, total sharing had declined by about 5.5% year over year while “original broadcast sharing” was down 21% year over year (Disclosure: GSV owns shares in Facebook).


We evaluate investment opportunities like Snapchat through a lens that combines the Megatrends that we highlighted with company-specific attributes — an approach we call the “4 Ps”.

The first “P” is for “People” and it is the most important “P” by far. There is no shortage of interesting ideas, but it’s always the TEAM’s ability to execute against the opportunity that determines success or failure. Our experience is that “winners” find a way to win and attract other winners.

The Second “P” stands for “Product.” We want to support companies that are leaders in what they do, have a proprietary product or service, or better yet, a “one-of-a-kind” type of business. Said another way, a company needs to have a claim to fame. “Me too” enterprises are of no interest to us.

Technology, in general, and the Internet, in particular, are all about disproportionate gains to the leader in a category. We want to back businesses that not only survive, but thrive, during their corporate evolution.

GSV Capital’s “4Ps” Analytical Framework

The Third “P” is for “Potential” — how big can the company become? Determining total future market potential is a pillar of our research. Megatrends influence our analysis as they provide “tailwinds” to accelerate growth. Often, the companies with the most potential are where the biggest problems are —the bigger the problem, the bigger the opportunity.

The last “P” is for “Predictability” — how visible is the company’s growth and what kind of operating leverage does it get with scale? For most new enterprises, having any degree of confidence in the forecast is a challenge. But we are looking for business models that create predictability, whether it’s through recurring revenue or a clear articulation of operating metrics that drive the business.


Snapchat CEO Evan Spiegel met co-founder Bobby Murphy at Stanford, where they eventually became roommates. Spiegel recalls in interviews that he would often ask Murphy for help with computer science projects. Murphy remembers being impressed with a line of shirts that Spiegel designed for their fraternity (Spiegel would later draw the iconic “ghost” icon).

Before working on Snapchat, Spiegel and Murphy collaborated on a Web product, Future Freshman, a guide for high school students applying to college. The product failed to gain any meaningful traction, however, and the founders went back to the drawing board.


Source: Business Insider

In July 2011, they launched Snapchat — originally named “Picaboo” — inspired by a friend who lamented sending a photo in a text message that he would never be able to erase. By the end of the summer, it had only 127 users.

The turning point was a decision to take Snapchat from a clunky desktop computer program and instead focus entirely on building a mobile app. By the Spring of 2012, Snapchat had over 100,000 users and the app was going viral, particularly among young Millennials. On any given day, app activity spiked between 9:00AM and 3:00PM — in other words, among high school students.

A year later, Mark Zuckerberg reportedly approached Snapchat with what seemed a like a preposterous $3 billion acquisition offer. Even more preposterous? Spiegel turned Zuck down, despite estimates from Forbes that suggest Spiegel and Bobby Murphy were forgoing a $750 million windfall.

Today, Snapchat is valued at $16 billion, and the company is assembling a team to grow into and beyond its valuation. Despite recent attrition as Evan Spiegel assembles his senior leadership team, recent key hires include Chief Strategy Officer Imran Khan, the former head of Internet Banking at Credit Suisse, and Vice President of Product Tom Conrad, the former CTO of Pandora.


Unlike Facebook, Twitter, or Instagram, the first thing you see when you open Snapchat isn’t a massive feed of information. It’s a camera. (Disclosure: GSV owns shares of Facebook and Twitter)

That’s on purpose, and it’s at the core of Snapchat’s strategy. The whole idea behind the app is to drive users to create content and share it — even if it’s just goofy videos. The push toward creating content as a vehicle to ultimately drive content consumption has paid off, with over 10 billion videos viewed on the platform per day.

Users, Engagement, and Growth Dynamics by Social Media Platform

Source: Yahoo Finance, Company Announcements, GSV Asset Management
*Market Values as of 6/24/2016
**Reported by Fortune and Re/code

The Snapchat platform is built on three core pillars:

  • Private Messaging: At the center of the Snapchat platform is its signature private photo messaging interface, where messages are automatically deleted after they are read by the recipient. For the first-time user, Snapchat doesn’t look or feel like a normal form of communication. Open the app, and you’re greeted with a full-screen viewfinder that looks a lot like your phone’s regular camera app. This is where committed users upload and send over 9,000 photos per second, annotating them with emojis or doodles, or applying one of Snapchat’s constantly changing collection of “filters”.
  • Stories: Swiping right gets you to “Stories”. These are short video clips that run in a series and disappear, typically within 24 hours. You, your friends, and people you follow, can share stories.
  • Discover: Swipe right again and you’ll find Snapchat’s “Discover” channels. Each channel is produced by established media brands such as CNN, ESPN, the Wall Street Journal, Vice, and BuzzFeed, and they offer engaging short-form content optimized for the Snapchat platform.

Snapchat has developed a variety of advertising products that align to these three core areas of engagement.


Source: Bloomberg, GSV Asset Management


The best growth companies have high predictability and gain operating leverage as they continue to achieve economies of scale. This is often a major challenge for young, fast-growing businesses. Snapchat’s growth, and increasingly its predictability, has been fueled by the creation of differentiated, highly effective advertising channels that map to its core areas of user engagement.


Source: Snapchat, GSV Asset Management

A proxy for Snapchat’s impressive level of engagement is that the company’s CPM — cost per thousand clicks — has been way above comparable social media platforms. In some cases, CPM rates that the company charges advertisers has been in the $40-60 level, which is competitive with TV advertisements, according to Adweek. Facebook, by contrast, has CPMs in the $6.00 range, and most other social media sites have CPMs of around $2.00.

Vertical (Made for Mobile), Video (Great Way to Tell Story) + Viewing (Always Full Screen)

Source: KPCB, GSV Asset Management

Recently, Snapchat worked with MediaSciences to study the effectiveness of its various advertising vehicles. The results showed that Snapchat ads generated 2.0x the visual attention compared to ads on Facebook, 1.5x compared to Instagram, and 1.3x more than on YouTube. (Disclosure: GSV owns shares in Facebook and Alphabet)

On the recent Cinco de Mayo holiday, for example, Taco Bell’s sponsored “Lens” was viewed more than 224 million times by Snapchat users, surpassing Gatorade’s Super Bowl campaign which was viewed 165 million times a few months earlier. The average user engaged with Taco Bell’s lens for 20+ seconds before sharing it with friends.

This month, Snapchat announced the launch of “Snapchat Partners”, its long-anticipated advertising API, which will hook up more than 20 tech-minded companies. The API is expected to expand advertising on the platform dramatically.

For the first time, Snapchat advertisements will be sold by third parties, divided into two core groups: “Ads Partners” and “Creative Partners”. The first group will develop software for Snapchat advertisers, enabling buying, optimizing and analyzing of campaigns. Ads Partners includes 4C, Amobee, VaynerMedia, Brand Networks, SocialCode, TubeMogul, Adaptly, and Unified. The Creative Partners represent a mix of players with expertise in social content and experience with Snapchat’s vertical-video format. (Disclosure: GSV owns shares in 4C)


According to Nielsen, on any given day, Snapchat reaches 41% of all 18 to 34 year-olds in the United States. Importantly, the company is rapidly expanding beyond its core Millennial user base. While over 60% of Snapchat users are under the age of 25, half of all new users are older than 25. We see a few key dynamics driving Snapchat’s long term potential beyond a broadening demographic footprint.

Valuation, Multiples, Performance

Source: Yahoo Finance, Capital IQ, GSV Asset Management
*Market Values as of 6/24/2016
**Acquired by Microsoft for $26.2 billion
***Line has filed for an IPO that implies a $5.5 billion valuation
****GSV Estimate

Marketing Validation

Over the past 12 months, the Snapchat has locked in 10 partnerships with independent firms to measure the effectiveness of its advertising channels. Findings from a recent research initiative with Oracle’s data cloud division show that the company’s marketing tools can boost in-store sales — including 92 percent of ads for consumer packaged goods from deodorant to breakfast cereals. As Snapchat continues to generate transparent metrics around the effectiveness of its marketing engine, it will continue to lock in high profile, lucrative advertising deals.


The rise of consumer Augmented and Virtual Reality (AR/VR) aligns directly Snapchat’s long term engagement strategy. Applying interactive “Lenses” to photos has already proven to be wildly popular — AR/VR enables the expansion of this capability.

In recent months, Snapchat has acquired Vengeance Labs (creates eyeglass frames that record videos of what the wearer sees) and Seene/Obvious Engineering (computer vision startups that let’s mobile users take 3D “selfies”. The company has also been on a hiring spree, adding hardware executives from GoPro, Google Glass, Nokia, HoloLens, and Qualcomm. (Disclosure: GSV owns shares in Alphabet)


Source: New York Times, VentureBeat, Company Disclosures, GSV Asset Management

U.S. stocks were down for the week after a Freaky Friday following “Brexit”, with NASDAQ falling 2%, and the S&P 500 and the Dow both off 1.6%. Year-to-date, the S&P 500 and the Dow are both slightly negative, with NASDAQ down approximately 6%.

World Indices

Source: Yahoo Finance, GSViQ

In an unexpected divorce, Softbank announced last week that Nikesh Arora, an heir apparent to Masayoshi Son, was leaving the Company. While Nikesh was aggressively doing deals around the globe — including in his native India — anonymous, disgruntled shareholders voiced their displeasure in his seemingly free rein. Softbank’s loss will surely be somebody else’s enormous gain.

There were two IPOs last week, including Twillo, which popped 92%. Five IPOs are expected this week, with things picking up a bit.

In M&A Activity, Tencent bought Finnish game company Supercell for $10 billion and Twitter bought Magic Pony Technology for $150 million. (Disclosure: GSV owns shares of Twitter)

The volatility that is present in the Market continues to create opportunities for the long term growth investor. Accordingly, we will continue to focus on picking up shares in the best growth companies as they go on “sale”.


by Luben Pampoulov

Grown Up Babies

In April 2012, Facebook said it is acquiring Instagram for $1 billion. The WSJ and many other media outlets were quick to point to the tech frenzy and to the fact that Instagram wasn’t even generating a dime of revenue, implying Zuckerberg must have been out of his mind. But for Mark, the deal was “a milestone” in Facebook’s growth phase, and he had to bid out Twitter which was also after Kevin Systrom’s Instagram.

Back then, Instagram was 18 months old, and had 30 million registered users that had doubled in just four months.

Last week, Instagram announced it passed 500 million monthly active users, with 300 million daily active users, making it one of the top 5 largest social apps in the world (Facebook, WhatsApp, WeChat, YouTube being the other four). Additionally, Instagram began to monetize last year, and given the high engagement and popularity of the app, revenue is beginning to come in strong. According to estimates, this year’s revenue could hit $2.5-3 billion, or three times the company’s purchase price from four years ago.

Considering that user growth is currently about 36%, and monetization is still early in the life cycle, we expect revenue growth over the next two years to be in the high double digits, annually. With 60% DAU/MAU engagement and high operating efficiency, we estimate Instagram’s value to be about 10x its 2016 revenue. This would imply a current valuation of about $30 billion… or a nice, +125% annually compounded return for Zuck’s investment!

Instagram MAUs

Source: Company announcements

Less than two years ago, Facebook went on to make an even “crazier” acquisition, and once again all the dumb media experts went on to explain how the deal was too expensive, etc. In 2014, it acquired WhatsApp for $22 billion. The messaging app was already huge in other parts of the World, but in the U.S. it was just starting to gain popularity. And even few people in Silicon Valley had heard about the 44 people startup based in Mountain View, CA.

What was hugely impressive about WhatsApp was disrupting the entire telecom industry by providing a global alternative to sms. It didn’t matter which carrier you have, or which geography you were in, WhatsApp was the cheapest and best way to text someone (and still is). In late 2013, WhatsApp users were receiving 13 billion messages per day, which was closing on the 17 billion sms that were being received each day around the World. Today, WhatsApp users receive over 40 billion on a daily basis.

When it got acquired in February 2014, WhatsApp had 450 million monthly active users, and 70% of them used the app on a daily basis. Today, WhatsApp has over 1 billion monthly active users, with DAU/MAU engagement still very strong at over 60%.

While Whatsapp is not generating any direct revenue, it plays a crucial role in Facebook’s ecosystem. It provides direct access to over 1 billion people’s smartphones and it is the largest “telephone company” in the world. Last week, Whatsapp announced it is processing 100 million calls per day — only one year after launching the in app calling feature.

WhatsApp MAUs

Source: Company announcements

Pioneer Notes

by Li Jiang

What is Global Silicon Valley (GSV)

Exponential; Global; Inclusive.

June 24, 2016 — a date which will live in infamy — the citizens of the United Kingdom suddenly and deliberately voted in favor of leaving the European Union.

To a millennial living in Silicon Valley (me), this was unthinkable, shocking, insanity, digress not progress, and fear trumping (pun intended) reason.

Who am I to comment on the sentiments of the British people. What I know for certain is that the world that the Brexit voters were trying to bring back no longer exists. No amount of voting is going to make the world less diverse. No amount of voting is going to make the world less interested in making technological progress. No amount of voting is going to make the world less global.

The world would be better off embracing the future, one that might be daunting and uncertain, but one that is global, diverse, and abundant.

Brexits voted for certainty over progress, but progress and change (and therefore uncertainty) are the only things we can be sure of. I don’t blame any of them. They made a choice that seemed safe and appealing in the short term. The much harder thing to do is to try to find a way to participate in this future. That’s really hard. It would mean that people have to work harder, learn more, accept more different people into their communities.

I hope this is merely a speedbump (a very uncomfortable one though) on the road to global citizens building a strong global community that embraces new ideas.

Global Silicon Valley is an idea, a vision of the possible.

It is the vision that every person in the world with a brilliant idea, intense work ethics, creative problem solving skills has the opportunity to build something impactful in the world. GSV is the idea that no matter where someone comes from, she can use exponential technologies combined with an intense amount of work to make a global impact.

Yet unlike many visions, this is an actionable one, a measurable one, and an executable one, now.

There are a few main themes within the Global Silicon Valley vision.

1. Exponential

As my friend Niv Dror (@Nivo0o0) so well articulated in his post “When Exponential Progress Becomes Reality”, we live in extraordinary times of incredible technological progress.

Our progress with computing technology has seen over a century of exponential improvements. For a century, our computing power has doubled every two years or so. That has transformed the tools we use and the way we live.

Source: Niv Dror & Computer History Museum.

But exponential technologies alone is not enough. Technology is an amplifier but it does not know how to aim; it does not know how to deploy itself to better the human condition, that still requires human judgment. The background of founders still impacts which direction we take our exponential technologies.

We need to make technology innovation less of a Silicon Valley-only activity and more of a global activity to source the best ideas and to understand global challenges that can be solved using technology.

2. Global

With the help of the Internet and the layers of applications built on top of it, a new generation of global citizens is being empowered. These citizens approach the world with a planetary mentality, thinking on an unprecedented scale.

The globalization of Silicon Valley is showing up in the data too. Of the 83 startups named in Fortune’s January 2015 article about unicorns — private startups that have achieved a $1 billion valuation—more than half, 57% to be precise, are based outside of the physical Silicon Valley area (Oakland, San Francisco, Palo Alto, Santa Clara, San Jose, and every town in between).

Source: Fortune

This is merely the signs of things to come. As more of the planet literally comes online, we’ll benefit from more brains than ever taking technology and applying it to solving problems from their perspective.

3. Inclusive

Finally, the Global Silicon Valley is an inclusive world where diversity is actively celebrated. To surface the best ideas and best talent, we need to build an inclusive technology community, an inclusive global community.

Traditionally, technology innovation has been the privilege of a few. The recent published data from the large technology leaders confirms this.

We can do better in accelerating minorities, particularly those historically excluded from technology innovation, and get all the best brains working on solutions. We can do much better in creating a more inclusive technology community because frankly we can’t do much worse from where we are today.

In order for our world to truly address the problems facing global citizens, we have to do more to let those who viscerally experience the problems to be the founders who tackle them.

Massively Transformative Purpose

For me, the vision of Global Silicon Valley is also a purpose that we are actively pursuing. We can build this future; we must build this future.

For almost all of human history, the ability to create massive change (and massive value) has been the privilege of a few. Now, we can cultivate a global and inclusive community to access exponential technologies and build our future, whether that’s in areas of energy, transportation, food, water, robotics, augmented reality, artificial intelligence, global digital currency, etc.

Building the Global Silicon Valley will take us from a world where a small fraction of people are “playing checkers” — making incremental changes — to a world where all 7+ billion people are “playing 3D chess” — thinking outside of conventional wisdom and creating transformative changes via exponential tools and a global mentality.

That is a Massively Transformative Purpose that we are excited to devote ourselves to building.

Market Update

Week ending June 26, 2016

World Indices

U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales