How Snapchat's First Investor Found Snapchat Before Anyone Else
In March 2012, Liew's Facebook profile picture was of himself and the President. He didn't know it at the time, but that picture would help him land a crucial early stage investment.
Liew is a partner at Lightspeed Venture Partners, a firm with $2 billion under management. There are nine partners who lead startup deals in the United States. Only Liew and one other partner, Justin Caldbeck, hunt for startups in the crowded consumer technology space. And in March 2012, Liew had his eye on an app called Snapchat.
When Liew first found Snapchat, the disappearing photo app had fewer than 100,000 installs. Liew's partner had seen it on his teenage daughter's phone. She told her father there were only three apps high school kids were using: Angry Birds, Instagram, and Snapchat. Liew was familiar with the first two. But he had never heard of Snapchat.
The comment was enough to pique Liew's curiosity. He made it his mission to find out who was behind the mysterious app.
Liew did a Google search and came up dry. No articles had been written about Snapchat. There was no contact information on the startup's website except for a generic email address. Liew messaged it and heard nothing back. Liew looked up the company on LinkedIn and sent a message. Again, there was no response.
Determined, Liew did a WhoIs lookup on the domain name, Snapchat.com. It had been registered by Toyopa Group, the former parent company of Snapchat. Spiegel had named it after the street his father lived on, Toyopa Drive.
Liew did a Google search for Toyopa Group and found Evan Spiegel's name. He was a student at Stanford, where Liew had also gone to school. Liew was able to message him on Facebook through the Stanford alumni network.
When Liew sent the Facebook message, Spiegel finally replied. He wasn't looking to raise a round of financing; Liew was fine with that. Liew invited Spiegel to meet him at his office on the most famous street in the entrepreneurial world, Sand Hill Road in Menlo Park. A few feet to the left sits Greylock Partners, Sequoia Capital and Institutional Venture Partners. To the right sits Khosla Ventures.
Spiegel felt there should be a place where intimate feelings could be shared privately via fleeting messages. After all, true friendships are formed when people share both positive and negative experiences. And negative experiences can't be housed on a public, identifying platform like Facebook.
Spiegel's app hadn't been downloaded many times, but engagement metrics were strong. "People were using it like crazy and staying for a really long time," Liew recalls.
Eventually, Spiegel let Lightspeed invest in his company. It was the only investor in a $485,000 seed round, which Spiegel raised in May 2012. He was still three classes shy of graduating. Snapchat has since raised more than $120 million and it turned down a multi-billion-dollar acquisition offer from Facebook.
Liew later asked Spiegel why he returned the Facebook request and none of his other messages.
"It was because you had President Obama in your profile picture," Spiegel said.
"There's serendipity involved in all this stuff," Liew said, recalling that conversation.
But Liew's investments are based on much more skill than luck. His name is frequently mentioned in the Los Angeles startup scene, where a number of his early investments are panning out.
Whisper is another social app Liew found before other investors. Based in Santa Monica, Whisper lets users anonymously share secrets in a safe, supportive environment, like an open-source diary. Liew saw Whisper trending in the App Store and it fit his firm's investment thesis.
Liew emailed its founder, 26-year-old Michael Heyward, on a Monday. He said he'd be in town for a board meeting that Tuesday. By Wednesday, Liew convinced Heyward to meet with his partner. On Friday, Liew sent Heyward - who hadn't been interested in raising a round of financing - a term sheet. On Saturday, Liew flew back to Santa Monica and finalize the investment in Whisper. Lightspeed led its $3 million Series A round of financing.
Whisper now has millions of registered users. It has 80-times more content than there are Wikipedia pages. It has raised $25 million.
Liew also found ShoeDazzle, a once-buzzy startup run by Kim Kardashian and Brian Lee, early. Like Spiegel, Lee wasn't interested in meeting him. Lee told Liew that ShoeDazzle was profitable, so it didn't need venture capital.
"Eventually, I flew [uninvited] to LA and said, 'Hey, I'm here,'" Liew says.
Lee agreed to meet Liew for coffee. After months of leaning in, Lee let Lightspeed invest in ShoeDazzle.
In addition to being persistent, Caldbeck and Liew are observant. If his partner hadn't been an engaged father, Liew might have missed Snapchat. With ShoeDazzle, Liew noticed a friend collecting pink boxes of shoes. He asked her what all the boxes were about; she told him they were Kim Kardashian's shoe-of-the-month club.
Liew and Caldbeck try to think differently about their investments. So while other VCs are looking right, they turn their heads a little to the left.
"When everyone is saying, 'We don't invest in this,' that's sometimes a good time to invest," says Liew. "You have to find a reason the conventional wisdom no longer applies."
Liew used the recent craze around e-commerce startups and the rise of Facebook's platform as an example.
"E-commerce startups shouldn't work," Liew says. "They don't have brand-names and they don't have scale, so their cost to acquire customers should be much higher and their lifetime value much lower than incumbents. The only time it makes sense to invest in e-commerce startups is when there's a new customer acquisition channel that's scalable. Startups are nimble enough to take advantage of the opportunity and grow to scale before the incumbents even notice. The first time that happened since Google paid search was when Facebook opened up its right rail to e-commerce companies and advertisers."
Startups like Gilt Groupe, LivingSocial, ShoeDazzle, Groupon, and Ruelala were able to scale their customer bases quickly and cheaply on the coattails of Facebook before larger brands caught on. Now that the Facebook channel is saturated with brands like Nordstrom and JC Penney, e-commerce startups can't rely on it for growth.
"Before Zulily, there hadn't been a $1 billion exit in e-commerce in 10-12 years," says Liew. "[Investors] who were saying, 'We don't invest in e-commerce startups' didn't realize something (Facebook's emergence as a cheap customer acquisition channel) had changed."
Snapchat and Whisper seem like obvious investments now. But when Lightspeed invested, most people assumed social startups had peaked. Facebook won the space, especially after it purchased Instagram. Instead of writing off social startups altogether, Liew's team tried to find entrepreneurs who were innovating in places where Facebook couldn't follow.
Facebook, Liew determined, is the journal of record for our real lives. By its nature, it needs to tie users to their real identities. It also aspires to host everything its users publish forever. That creates an opportunity for startups to host temporary content or to thrive on anonymity. "If you flip Facebook's need for real IDs to anonymous accounts, then you get an app like Whisper," Liew says. "If you flip Facebook's need for permanence to impermanence, you get Snapchat."Liew is constantly on the hunt for under-the-radar trends like that. One of his favorite resources is PageData. PageData shows which pages are trending on Facebook. While some trend because they're newsworthy (like Paul Walker's page following his sudden death), others hint at investment opportunities.
Last year, Liew noticed pages with memes, or text-and-picture content, were trending. When he saw Whisper and Snapchat, he realized those housed the same type of content. Sites like LOLCats and PerezHilton had been creating that type of content for years; Snapchat and Whisper were bringing the experience to mobile devices.
Now Liew is noticing publications like Viral Nova and Upworthy, which are driving rapid growth through social sharing. PolicyMic, a media startup that has quickly grown to 8 million monthly readers, is one of Liew's investments.
Liew is also interested in Bitcoin startups, as well as startups that are applying big data to financial services.
While Liew has invested in all kinds of consumer startups and entrepreneurs, there's something they have in common.
"We believed in the vision of each team, as well as the teams themselves," Liew says of his investments. "We were able to reach out to startups like Snapchat and Whisper and get to them quickly. Also, they were outside of the typical investment cycle."