[tonywebster]

So is Snapchat just big enough and hot enough that investors will ignore due diligence red flags? In any other startup, I feel like a year of litigation over an founder's equity stake would send investors running. If you haven't seen the Snapchat deposition video leak on Business Insider, it's well worth a look.

[andrewfong]

> So is Snapchat just big enough and hot enough that investors will ignore due diligence red flags?

Maybe! Or more accurately, the investors will just price this into their expected return. Let's assume the third founder wins and gets some number of shares equal to the number of shares owned by one of the other two founders. Let's also assume, for the sake of illustration, the investors collectively hold 100 shares and each of the founders holds 100 shares. In the worst case scenario (for the investors), those newly issued shares dilute all of the current stockholders equally -- e.g. the investors would go from holding 100/300 shares to 100/400 shares.

Well that sucks. But if you bought into Snapchat with the expectation of a 4x return, all that means is that you're now getting something closer to a 3x return. Not as much as you hoped -- but it still might make sense from an investment standpoint to hop on.

If anything, the actual litigation probably made things easier for the investors. It's much easier to price the risk from actual ongoing litigation than potential may-or-may-not happen litigation. Moreover, the litigation probably gave the investors more leverage against the founders -- e.g. it's possible the investors required the founders to bear the brunt of any extra dilution resulting from the lawsuit.

[accountoftheday]

One perspective is that a friend got screwed out of shares. Another view is the real drivers behind the company were smart to not give a dispensable person a third of the company, and are seeking a discount on mistakenly made legal commitments by drawing out the litigation. As an investor I would take the second view. The deposition video also shows Spiegel is clearly CEO material.

[cylinder]

$50 million is 5% of the net worth of someone worth exactly $1 billion. That's equivalent to someone worth $150,000 investing $7,500. Not quite a quarter down the slot machine but an amount one can still gamble with and not destroy their life.

[001sky]

No offense, but this is a terrible argument. Corporations worth $10's of billions do not exempt themselves from doing due dilligence on $50MM deals. Not by a mile. It is negligent to not have a process that structures investment reviews, of which due dilligence is a key part. The (corporate) materiality threshold is not alone enough of an exuse. It is gross negligence to studiously looking the other way...as your modus operandi. (It doesn't scale).

[fantastical]

Here's the link: http://www.businessinsider.com/snapchat-lawsuit-video-deposi...

[sskates]

Kind of like Facebook?