Venice-based Snap Inc., the maker of Snapchat, enjoyed a very successful first day of public trading, ending Thursday at $24.48, a 44 percent increase over its opening price. Snap is now worth more than $28 billion dollars, an astonishing valuation for a company less than six years old and a pivotal moment for L.A.'s relatively nascent tech community known as Silicon Beach.
“There will be a wealth effect that will be manifested in a housing boom in Venice, Santa Monica and Culver City, and there will be a lot of very busy wealth managers trying to advise these millennials on the best way to invest their capital,” said Jamie Montgomery, managing director of Santa Monica-based March Capital Partners.
The co-founders of Snap, Evan Spiegel and Bobby Murphy, stand to pocket more than $3 billion each, and then there are the company’s other 1,859 employees. Most of them likely did not receive stock options but the lucky ones that did will be able to sell those shares in 150 days.
Once employees finish buying houses and cars, they are also likely to reinvest their Snap proceeds into other early-stage start-ups.
“They will take that money they made and invest some portion of it in start-ups, whether that’s investing in their next business or a colleague’s business,” said Adam Lilling, managing partner at Culver City-based Plus Capital.
After PayPal was acquired in 1999, a group of executives known as the “PayPal Mafia” went on to start other breakout companies. (The group included Tesla and SpaceX’s Elon Musk, YouTube’s Chad Hurley, and Y Combinator’s Peter Thiel.)
A future “Snap Mafia” would be all the more meaningful for Los Angeles, because of how small its tech sector is compared to Silicon Valley.
“I think it’s a big moment for the L.A. tech community,” said Lilling.
Snap mostly raised Silicon Valley capital
Though Snap's I.P.O. is a victory for Silicon Beach, the moment is bittersweet for Los Angeles venture capitalists. That's because nearly all the capital that Snap raised came from Silicon Valley funds, most notably Lightspeed Venture Partners's $485,000 seed investment in 2012 and Benchmark's Series-A $21 investment in 2013.
While those firms stand to make billions, Los Angeles VC's have largely been on the sidelines.
“I would have done the deal in a minute if we were in business back then,” said Montgomery, who's March Capital Partners debuted only last year.
Montgomery points out that Snapchat's founders went to Stanford, so most of their connections were in Silicon Valley.
Lilling said that when Snap was starting out, all of five and a half years ago, there was not nearly as much venture capital in Los Angeles as there is now. He said Snap's success will lead to other Silicon Valley VC's investing in L.A. tech companies.
"It would have been nice if a local VC had backed it," said Lilling. "But even as a person who has invested in so many companies in Los Angeles, I think the fact that Silicon Valley makes large bets on Los Angeles is great for Los Angeles.