The Snap IPO Effect on the LA Tech Ecosystem
By Ben Tannenbaum, Partnership Director
We’re all waiting with baited breath for Snapchat's parent company, Snap, to file its initial public offering S-1. This highly anticipated IPO is going to have a massive impact on the company’s homebase of Los Angeles, and we’re not just talking about the real estate market. Many of Snap’s employees will become overnight millionaires, potentially stimulating LA tech.
Following a big tech IPO, it’s common for a subset of employees to invest part of their newfound wealth in the local startup community and leave to start their own companies. We saw this happen with Facebook and even MySpace. While the LA-based early social network fell short of many industry pundits’ expectations, it spawned a generation of local entrepreneurs with ample knowledge and a wide network from their time at MySpace.
However, according to The Information, “Snap’s stock awards vest more slowly than at most tech companies and employees will have to wait years to recognize a big portion of their compensation.” Per their S-1, only 25% of the stock awards granted to Snap employees had vested by Dec. 31 of last year. Facebook went public with approximately 66% of stock awards vested. Twitter and Square both went public with over 30% of awards vested. It could be quite a while before many Snap employees reap monetary benefits from the company’s success.
Conventional wisdom tells us to expect the Snap IPO to be a boon to the LA startup scene; while we agree, our questions concern scale and timing. Yes, employees will have the capital to form new companies based on their own ideas. Yes, some of these newly minted millennial millionaires will contribute much-needed capital to the LA ecosystem via angel investments. But will this happen over the course of months or, more likely, years?
In the lifecycle of a startup, time is the enemy. And while this IPO helps Los Angeles enhance its reputation as a great place to start a company, will the tertiary benefits be enough to help create a self-sustaining ecosystem of founders and investors? It’s all speculation at this point, but either way don’t sleep on LA.