On the heels of the company’s stock surge, SNAP Interactive, the company behind the largest Facebook dating application, Are You Interested, announced on Friday that it had raised $8.5 million through a private stock sale.
For those who are less aware of the financial intricacies of public companies, the reason behind this being a private stock sale is that purchase of common stock in the open market does not generate any proceeds for the company. News of the announcement drove the share price down. However, it appears to have set a new floor for the stock at around $2.00, more than eight times the price of the company’s stock as of a few weeks ago. While not explicitly stated, we’d assume that the company’s first official round of funding will be used for two purposes: hiring new employees and acquiring new users.
Until now, SNAP Interactive was privately funded by the family behind the company. Many insiders that I’ve spoken to in the past have questioned SNAP Interactive’s
strategy of acquiring a shell company (see clarification below) to enter the market, confused by the decision in a market saturated with entrepreneurs powered by venture capital funding. Clearly the company’s strategy has played out well, generating over $65 million in market capitalization practically overnight. This was a benefit limited only to public companies until the recent birth of the new secondary markets, something which has come under scrutiny by the SEC recently for obvious reasons.
There are also obvious downsides to having a public company: increased transparency and more scrutiny by the SEC. For the time being, SNAP Interactive’s strategy appears to be playing out pretty well. We’ll be excited to see how things pan out over the next 12 months as Facebook nears their eventual IPO.
I was incorrect that SNAP acquired a shell company. Instead, the company told us that they “did a self-registration via an SB-2 to go public ourselves.”