Chinese Internet Giant Tencent Goes From Snapchat "Role Model" To Potential Investor

Snapchat is looking to raise up to $200 million at a valuation of $3 billion to $4 billion and one of the potential investors that founder Evan Spiegel has talked to the most is Chinese Internet giant Tencent Holdings, reports WSJ.

Spiegel has referred to Tencent in the past as a "role model," including at Disrupt SF when we asked him about Snapchat's monetization strategies. The startup's last funding round was in June, when it raised $80 million at an $800 million valuation.

If Snapchat does indeed take on Tencent as an investor, it gives the startup a powerful partner. Though Spiegel has brushed off rumors of an acquisition offer from Facebook (which made Poke, a Snapchat clone, at the end of last year), he's repeatedly made specific references to his admiration for Tencent, another social media company with a market cap that is not too far off. Last month, Hong Kong-listed Tencent's valuation passed $100 billion, which puts it close to Facebook's market cap. Tencent owns WeChat, which now has about 236 million active users, making it one of the world's largest messaging apps, and Spiegel has said he admires the company's ability to earn money from in-app purchases. (We've contacted Tencent and Snapchat for comment.)

The company has also recently ramped up its investment in overseas companies, pouring more than $2 billion in a portfolio that features several notable startups. For example, Tencent was the lead investor in Fab.com's $150 million Series D round, which was announced in June. Along with Japanese conglomerate Itochu, another Fab.com investor, Tencent will help accelerate the e-commerce company's expansion into Asia. Other U.S. startups Tencent has invested in include Y Combinator alumni Everyme, Ark, Sonalight, Loom and Watsi; Pair (now called Couple); and photo-sharing app Waddle.

On Snapchat's end, partnering with Tencent can help it gain a foothold in Asia, where it will compete against popular messaging apps like WeChat, Kakao Talk and Line (which is reportedly considering an IPO). Tencent could also help Snapchat figure out business models. The startup has been considering several monetization strategies lately, including Stories, its new 24-hour timeline play. Spiegel has said that he wants Snapchat to begin generating revenue before its next funding round (though it looks like the company may be shifting strategies and taking a new round to go big on monetizing instead).

How would Tencent benefit from investing in Snapchat?

Out of the top Internet companies in China, which also include Baidu and Alibaba, Tencent is currently the best poised to take advantage of the shift to mobile. At the China 2.0 conference at Stanford University, Tencent president Martin Lau (who attended grad school at the college, which is also the alma mater of Snapchat's founders) said that the company redirected more than half of its 20,000 employees to focus on mobile several years ago. It launched WeChat in 2011.

If Snapchat decides to tackle markets in Asia, it would compete with WeChat, so it makes sense for Tencent to consider taking a stake in the Venice, Calif.-based startup. Snapchat's base of users is smaller than other messaging apps, but they skew young (in their teens and early twenties, an age bracket attractive to advertisers) and are highly engaged. At Disrupt SF last month, founder Evan Spiegel said Snapchat users share 350 million photos every day, representing a quick and significant increase from 200 million in June.

Taking a stake in Snapchat would help Tencent keep up its admirable record of leveraging online communication trends. Its other messaging products include QQ instant messenger, which has 818 million monthly active users, and Tencent Weibo microblogging platform, with 220 million monthly active users. In addition to its own services, Tencent holds a 13.84 percent stake in Korea-based Kakao Talk, another messaging app that is popular throughout Asia.