Evan Spiegel secretly tried to hire away the team at Secret, but the price was too high. That’s according to three sources familiar with the deal who spoke to TechCrunch. The information expands and clarifies a report from the new book about Snapchat’s origin story coming out next week called “How to Turn Down a Billion Dollars” by former TechCrunch writer Billy Gallagher.
TechCrunch got an early look at the book that includes bombshells about how Snapchat got started. I’ll be interviewing Gallagher at a launch party and signing at Books Inc. in San Francisco on February 12th at 7pm.
In 2013 and 2014, Snapchat raised more than $650 million, giving it a solid war chest to acquire fellow startups. It would eventually buy AddLive for $30 million to power video calling, Scan.me for $50 million to create its QR Snap Codes and Vergence Labs for $15 million to develop its Spectacles camera glasses.
One big potential deal fell through, and that may have been to Snap Inc.’s benefit. In late 2014, Secret was flying high. Its anonymous sharing app had received tons of hype as people used it to gossip about friends, work and society without consequence. The startup had gone from zero to raising $35 million in less than a year. That included a July 2014 $25 million Series B from Index Ventures that valued the young company at $120 million, a source confirms.
But users can come and go fast in the world of social, and having taken $3 million off the table each in a controversial secondary sale, Secret’s founders already felt successful. So in the fall of 2014, a source says a mutual friend introduced Spiegel to Secret CEO David Byttow. Spiegel quietly met with Secret at its Bay Area offices, and later during the smaller company’s retreat to Las Vegas. With apps like Whisper and Yik Yak on the rise, anonymous networking looked like an important trend that Snapchat was interested in owning a piece of.
Meanwhile, a source says Secret CEO David Byttow had become “obsessed with Snapchat and Evan, and wanted to pivot the product to be more like Snapchat.” Some in the company began to doubt Byttow’s commitment to Secret’s current direction. “He raises money, buys a Ferrari, and starting trying to sell the company, the source said, noting Byttow was receptive to acquisition interest. Secret held preliminary M&A calls with Facebook and Google at the time.
Spiegel was interested in acqui-hiring Byttow, Secret co-founder Chrys Bader-Wechseler and the product engineering team to become a “special ops” team at Snapchat. The problem was that not all those team members wanted to move to Los Angeles where Snapchat was based, or abandon the Secret product.
Secret received a term sheet from Snapchat for between $50 million and $60 million, according to two sources. Snap Inc. declined to comment for this story.
With the offer merely half of Secret’s valuation, its investors wanted more. The offer “wasn’t going to cover everything because Secret had raised too much money,” a source says. Spiegel wouldn’t budge. “Evan didn’t want to pay more than $60 million for Secret, which had been valued at $120 million, so a deal was never reached,” Gallagher writes in his book. Recode previously reported Snap considered acquiring Secret’s whole company, but our sources confirm the deal talks were only for talent, not technology.
“This was the beginning of the end of Secret,” said one source. While the startup still had money in the bank, a massive redesign that blatantly copied competitor Yik Yak failed. Users slipped away. And by April 2015, Secret was shutting down and returning leftover cash to investors.
Snapchat did come away with one thing, though. During the discussions, Secret had shown Spiegel a design for their side app Ping where when users tapped on a circular icon, the circle would expand to engulf the screen as a transition to the next interface. In January 2015 when Snapchat launched Discover, tapping on the different circular publisher logos would invoke a suspiciously similar animated transition.
Come hear more about Snapchat’s early days when I interview “How to Turn Down a Billion Dollars” author Billy Gallagher at his book’s release party and signing at San Francisco’s Books Inc. on Monday, February 12th at 7pm.
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