Snap Inc. has already upset potential investors.

The parent company of Snapchat, which filed for flotation on the stock market on Thursday, is offering public shares with no voting power and potential investors have "reacted with fury," The Financial Times reports.

With no voting rights, investors won't have any say in the running of the company, leaving total control to two of the company's founders — Evan Spiegel and Robert Murphy — even if one or both of them were fired by the board of directors.

It will be the first US IPO to issue shares with no votes at all.

In response, several of the largest US pension funds will send a public letter to Snap, The Financial Times says, and they have until Friday to sign the letter of objection.

The filing (which you can read in full here) says that Snap Inc. has three classes of common stock, Class A, Class B, and Class C, but the public shares it's offering will be Class A — the only class without voting rights.

Spiegel and Murphy own all three types of stock, and if either Spiegel or Murphy die, nine months later, the remaining cofounder would be able to "exercise voting control over our outstanding capital stock, " i.e. their control is going to last for a very long time.

Mark Zuckerberg similarly had special shares in Facebook which gave him major voting control, but in June 2016 the company changed its rules so that he will lose control if he ever left the company.

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NOW WATCH: Here's everything we know about the Samsung Galaxy S8 — Samsung’s most important phone

Last night's filing of Snapchat's IPO papers was the largest data dump we've ever received from the company. Suddenly, the world knows a huge amount about a company that, until 24 hours ago, was mostly shrouded in secrecy (and the occasional internal drama).

Most of the focus has been on Snap Inc.'s numbers: 158 million daily average users; $404.5 million (£324 million) in revenues, and $522 million (£418 million) in net losses.

But Snap's S-1 filing also tells us a lot about the company's internal culture, and specifically what founders Evan Spiegel and Bobby Murphy believe is important. It is the first official document describing the company's cultural priorities and, via its omissions, what it does not regard as important.

Here is a sampling:

Snapchat has a touchy-feely internal culture based on 'kindness'

"Our team is kind, smart, and creative," the IPO says. But it is a very specific type of "kindness":

"When we say 'kind,' we mean the type of kindness that compels you to let someone know that they have something stuck in their teeth even though it’s a little awkward. We care deeply about kindness because we want to create a space that helps to give our team the courage to create. We think our team feels comfortable creating new things because they are surrounded by the kindness of their peers and know they have our support."

"One of the ways we support our team is through our 'Snap-a-Wish' program, which we created to help take care of team members who are facing adverse or unusual circumstances. In the past we have used this program to provide things like last-minute plane tickets for family emergencies or immediate help (and a rental car) when a car was stolen."

Snapchat encourages group therapy sessions for its staff

"Listening to and understanding different points of view is our favorite way to find inspiration and improve the products that we create," the S-1 says:

"One of the ways we reinforce the importance of listening is by practicing it with each other. We have created a bi-weekly 'Council' program for our team that encourages team members to express themselves and listen to others. We believe that this type of sharing teaches and reminds our team to listen and learn from those around them." 

Snap has a charity arm with specific aims

"In February 2017, we established the Snap Foundation. After this offering, we and our co-founders have each pledged to donate up to 13,000,000 shares of our Class A common stock to the Snap Foundation over the course of the next 15 to 20 years. We anticipate that the proposed programs of the Snap Foundation will support arts, education, and youth."

That sounds great. Nothing wrong with that. It is good that Snap intends to give back to society more than taxes and wages. But "arts, education, and youth" are the kind of priorities you'd expect to see from two wealthy young people who grew up in the rich beach suburbs of Southern California. 

It's not a charity for, let's say, vaccinations in the third world, or women's reproductive rights, or literacy in Asia. So "arts, education, and youth" tell us something about how Spiegel and Murphy see the world, and what they think the world's problems are.

Snapchat has an unusual office setup, and this might be a problem

Snapchat doesn't have a normal HQ office in Venice Beach, California. It uses a series of dispersed private houses as offices instead, and CEO Spiegel is driven between them in a Range Rover with a private driver. The company seems to realise that this might become a problem in the future. Snap already has 1,859 employees. How many houses will it need? 

It is not merely logistical. Some employees may end up feeling isolated, Spiegel and Murphy may not be able to see what they are up to, and it could cost them talent, the IPO says:

"Our offices are dispersed in various cities, and we do not have a designated headquarters office, which may negatively affect employee morale and could seriously harm our business."

"This diffuse structure may prevent us from fostering positive employee morale and encouraging social interaction among our employees and different business units. Moreover, because our office buildings are dispersed throughout the area, we may be unable to adequately oversee employees and business functions. If we cannot compensate for these and other issues caused by this geographically dispersed office structure, we may lose employees, which could seriously harm our business."

No other major tech company is run like this. It is very, very difficult to scale up a company when your staff are separated into small groups over a large area. It's a barrier to communication.

The private house "thing" probably stems from Snapchat's founding. Spiegel and Murphy created the app in summer 2011 at Spiegel's father's house. The house was the scene of the betrayal of Snapchat's third founder, Reggie Brown, who came up with the original concept of self-deleting photos, and also created its original ghost logo.

The company doesn't like the media

"Unfavorable media coverage could seriously harm our business."

"We and our founders receive a high degree of media coverage globally. Unfavorable publicity regarding us, for example, our privacy practices, product changes, product quality, litigation, or regulatory activity, or regarding the actions of our partners or our users, could seriously harm our reputation."

Spiegel and Murphy are both notoriously media shy. Spiegel seems to regard the media as some sort of enemy; Murphy's media profile is almost non-existent. The company has a focus on secrecy that goes beyond even Silicon Valley's usual cult-like obsession with not talking outside the shop.

Spiegel and Murphy want to retain complete control of the company

No voting stock is being offered in the IPO. That's unusual:

"We are not aware of any other company that has completed an initial public offering of non-voting stock on a U.S. stock exchange," the IPO says.

That means the price of SNAP will be subject to the whims and errors of its two founders. The IPO admits this may be bad for investors who hold the non-voting shares being sold in this offering: 

"Our co-founders may make long-term strategic investment decisions and take risks that may not be successful and may seriously harm our business."

That sounds more dangerous than it probably is.

Mark Zuckerberg made similarly bold statements about not running Facebook in the interests of his investors in his IPO letter — and all of that went out the window pretty quickly once the stock started trading. It is very, very difficult for founders to continue to ignore their tanking stock once trading begins. Reality is likely to set in very quickly for Spiegel and Murphy.

But still, buyer beware!

The company seems to be aware that its product is complicated and difficult to use

Snapchat has the same problem Twitter has, but worse: Its hardcore users (young people) absolutely love it but the more casual users it will need to continue its growth seem to find the user interface baffling. The app opens with the camera on, and the various buttons and navigation tools do not give great clues as to where your contact lists, messages and Stories are. Even moderately experienced users can find themselves repeatedly swiping into the wrong screens.

This admission comes in the form of a series of diagrams describing how the app works. It takes Snap 10 of them to fully explicate its functions. This didn't happen in the Facebook IPO.

Snapchat is hinting that it will pivot into hardware

"Snap Inc is a camera company."

Those are the first words in the document and the rest of the S-1 repeatedly refers to the camera as if Snap was in the hardware business and not the business of making mobile apps that utilise other people's hardware. of course, Snap has already marketed Snap Spectacles, a sort of cooler, simpler version of Google Glass. The IPO refers to Spectacles as "our first hardware product"— which implies that there will be more down the line. 

This pivot, if it happens, will not be easy. Snap gets almost all its revenue from advertising inside its app — a business that is as old as the first in-app revenue that began running after the launch of the iPhone in 2007. Making hardware and making apps are two wildly different skill sets. Apple is the only company that does them both well. Spiegel has signalled before that he regards Steve Jobs as a sort of god — there is a photo of Jobs in his office. This is either hubris or vision. Time will tell.

Snapchat cares about daily users, not monthly users

The standard metric for measuring the success of an app is how many monthly average users it has, MAUs. But the Snap IPO doesn't discuss MAUs at all. It has 158 million daily average users (DAUs). This is potentially a very brave move — Snap is trying to shift the debate about how popular it is away from the monthly metric to the daily metric in order to prove how essential it is to the lives of its users. After all, how good can an app be if you only use it once a month?

The problem with that is that Snap's DAU growth is already slowing down. It is very hard to show long term accelerating DAU growth. if the growth curve gets any flatter, watch for Snap to start also reporting MAUs the way Facebook and Twitter do.

Notably, Twitter began moving the goalposts of its own metrics when its growth tailed off.

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NOW WATCH: The story of Lisa Brennan-Jobs, the daughter Steve Jobs claimed wasn't his

When Snap Inc. filed its IPO papers with the SEC last night, it ended one of the most tantalising mysteries in tech: What happened to the third founder of Snapchat, the Stanford student who allegedly invented the concept, designed the ghost logo, and helped recruit the company's current CTO? 

And, perhaps more crucially, how much did his cofounders Evan Spiegel and Bobby Murphy pay him to go away? 

Now we have the answer: Snap Inc. settled with Reggie Brown for $158 million.

The money was sent in a series of payments, the last of which was $107.5 million, paid in 2016, according to the IPO. 

The story of how Snap ended up paying Brown to disappear is like a heartbreaking high-school drama. It involves three friends who came up with an idea for a sexting app in the summer of 2011. They quickly realised that the app was going to be very, very successful. But the whole thing fell apart when one of the friends — Brown — overheard a conversation between the other two, and came to believe they were plotting to secretly oust him from the business.

Brown responded by withholding Snapchat's patent documents from Spiegel, and ultimately suing Spiegel and Murphy for his stake in the company.

Many of the photos, texts and emails from the early days of the founding of Snapchat were saved and disclosed in the litigation that led to the $158 million settlement. 

This is how it all went down. 

The summer of Snapchat

It was becoming unbearable inside the house on Toyopa Drive, just blocks from the beach near Santa Monica.

Frank "Reggie" Brown IV was staying there with his two college buddies, Evan Spiegel and Bobby Murphy. Rather than taking the summer off, the trio was working furiously on a new iPhone app. Everyone who saw it agreed it was going to be a huge hit.

Six years later, their company would file for an IPO and be valued at $25 billion.

But as the summer of 2011 wore on, the tension between Brown and his partner-roommates grew. He began eavesdropping on their conversations about him, according to a lawsuit filed in a Los Angeles court. He overheard that his friends had agreed to cut him out of the company. Even though the app was his idea, Brown came to believe that he was about to be betrayed.

They had stabbed him in the back, he says.

He would make them pay.

This is how Snapchat — and the most significant startup lawsuit since the Winklevosses sued Mark Zuckerberg over Facebook — was born. That one eavesdropped conversation inside the Toyopa Drive house would eventually cost Snapchat $158 million.

Snapchat began in California, in 2011, when Brown decided to stay with his college buddy Evan Spiegel, in Spiegel's father's house on Toyopa Drive, for the summer. They moved in together sometime after school ended, and were deep into the Snapchat project by July.

The pair became friends in the Kimball Hall dorm rooms at Stanford University, where Brown studied English and Spiegel studied product design.

The entire project — and the summer in the Toyopa Drive house — had started as nothing more than a conversation just a few weeks earlier, that spring: What if there was a way to send someone a photo which then disappeared almost immediately, thus keeping the sender in control of their own images?

Brown and Spiegel became obsessed with the idea.

According to Brown, the two original founders of Snapchat were Brown and Spiegel. Only later did they recruit a third Stanford student, Bobby Murphy, to help code and create the app, according to Brown. Murphy had studied math and computer science, also at Stanford. This distinction, and the disgreement over it, would turn out to be costly.

The three had a lot in common. They all went to Stanford. They had lots of friends in the Kappa Sigma fraternity there. They addressed each other as "dude,""dawgg" and "bro." Brown looked like he had walked out of an Abercrombie & Fitch catalog: thick blonde hair, and beefy good looks. Spiegel and Murphy were skinnier. While Spiegel had the wiry frame of an athlete, Murphy, with darker hair, was so slight he still looks like a young boy in photographs.

The app they built allowed people to send self-deleting photos, fixing the problem of having embarrassing pictures — sexts, mostly — come back to haunt you.

But as the summer wore on, tempers inside the house on Toyopa Drive grew. Brown discovered that in fact Spiegel and Murphy had become the closer pair.

The app launched in the iTunes App Store that July. It was an instant hit. On July 23, Spiegel texted Brown to say the app was taking off: "this thing is a rocket ship." 

The rocket ship, however, was about to fall apart.

The eavesdropper

Spiegel and Murphy quietly began discussed cutting Brown out of the company, Brown alleged. Brown's official title was chief marketing officer, but they wanted to replace him.

What they didn't know was that Brown was listening to the conversation, and taking notes, according to papers filed in a Los Angeles County lawsuit.

The details of exactly how Brown heard their talks aren't clear.

But as the pair talked, Brown listened, and scribbled his contribution to the company in a bullet-pointed list — and what he would do if he didn't get equity. According to a copy of the note, he came up with the "initial idea" for the app, the name, and the ghost logo design. Then, he wrote:

"California Law ... Lawsuit is Possible."

A confrontation was now inevitable: Brown had thought Spiegel and Murphy were his friends, his fraternity brothers at Stanford.

He was wrong.

The "scheme"

Brown kept quiet for several more days.

He had what would later be described as a "scheme" by his former partners, according to court papers filed by Snapchat's current management. He would have to wait before he confronted them about their alleged betrayal.

The basic claims in the lawsuit are that Brown believed he was one of three founders of Snapchat, and that Spiegel and Murphy unfairly cheated him out of ownership of the app even though the original idea was his.

Lawyers for Spiegel and Murphy declined to comment when this story was originally published; emails to the two founders were not returned. Messages to Brown and his lawyers were not returned.

Snapchat is now worth a staggering $25 billion. It is one of the fastest-growing Internet services in history. It has a big, fast-growing user base, and users mean money — $405 million in revenues in 2016.

Its founders will become rich beyond their wildest dreams.

Brown's suit became the biggest startup founder case since the Winkelvoss twins settled with Facebook founder Mark Zuckerberg, in a deal worth about $300 million, over their claims that Zuckerberg stole the idea for an online college "face book."

The birth of Snapchat

The idea for Snapchat was born in the spring of 2011, according to Brown's suit. The exact origins are hazy, but it appears to have emerged from a conversation that Brown and Spiegel had while at Stanford, in the Kimball Hall dorms.

The two were friends, court papers indicate. (All three founders were members of Stanford's Kappa Sigma chapter.)

"We should make an application that sends deleting picture messages," Brown alleges he told Spiegel.

Spiegel replied it was a "million dollar idea."

Spiegel and Murphy deny that Brown originated the idea for the app.

They shook hands, the suit states. "That night, the two began searching for a computer 'coder' to join in developing the application. They then started interviewing a number of potential coders, including fellow Stanford students," according to Brown's suit.

Murphy fit the bill. He was Spiegel's friend, and the two had previously worked together on a failed project called "FutureFreshmen."

Much later, "FutureFreshmen" would turn out to play a key role in the ouster of Brown from Snapchat, although none of the three knew that yet.

As the project got rolling, the three took on distinct roles. Murphy, the newcomer, became the CTO. Spiegel was the CEO. And Brown was the chief marketing officer.

Brown assumed they had each had a one-third interest in Snapchat.

His assumption was incorrect.

"Ghostface Chillah"

One of Brown's first projects was to come up with a logo for the company. He decided on a ghost, nicknamed "Ghostface Chillah." That is still Snapchat's logo today. "Brown created this logo by directing Spiegel on what to draw, while the latter implemented Brown's direction on Adobe InDesign," the lawsuit claims.

Brown claims he did a lot of the grunt work for Snapchat, including authoring the terms of service, writing its privacy policy, the FAQ, marketing, offering language for iTunes, and he devised the name of the company that initially owned Snapchat, "Toyopa Group," after the name of the street they were living on.

At the time, they had christened the app "Picaboo" or "Pictaboo," after the child's game in which you alternately hide and reveal your face. The "boo" part explains the ghost. It also neatly ties in with the idea of photos not "haunting" you later. Brown claims "Picaboo" was his idea, too.

Brown claims "Picaboo" was his idea, too.

The app went live in iTunes on July 8, 2011.

"Yo, gurl, here's an iPhone app I think you'd love"

All that month, Brown and Spiegel emailed friends and bloggers they knew, asking them to try the app.

One recipient was Nicole James, who blogs as ThatWhiteBitch.

In his pitch email, Spiegel notes — crucially — that he has created the app with two friends of his; "certified bros."

The subject line was, "Yo, gurl, here's an iPhone app I think you'd love ..."

James immediately guessed that the app's main purpose was to make sexting safe:

Early drafts of a press release, allegedly written by Brown, were even more juvenile. This one addressed women as "betches," a slang pronunciation of "bitches":

This amateurish beginning spawned a huge success.

Snapchat's IPO could be the third most valuable IPO of all time, behind Alibaba and Facebook.

A birthday party — with cake

The guys were psyched. They planned a celebration.

On July 17, the three celebrated the "birth" of the company with a cake and candles. Spiegel's girlfriend took a picture — ironically, it was not deleted — of the cake. It featured the ghost logo in yellow icing, as the three men stood behind it, arms on each other's shoulders. She emailed it to them with the message, "The launch of something great!"

The image will be difficult to refute:

• Brown was there.
• At the beginning.
• One of three.

The patent

Snapchat took off so quickly Spiegel began worrying that a rival company might copy their product. It was imperative that they get a patent application filed quickly, legally establishing that they were first with the idea.

Brown — who was studying to go to law school — was entrusted with the patent filing. On July 23, Spiegel texted Brown, "People know we don't have a patent so we gotta jump on that shit haha let me know if we can do anything to help ... this thing is a rocket ship."

Even Spiegel's father seemed excited about the app. Brown's mom had contacted him to ask how her son was doing. Spiegel senior sent a message back:

"It is delightful to have Reggie with us this summer as he, Evan and Bobby work on their startup … Reggie is drafting his first patent application, so he is on his way to being a lawyer!"

Those words would come back to haunt Spiegel junior: his own father seemed to believe the app was a joint project of the three.

By early August, however, Spiegel and Murphy appear to have had a change of heart.

Snapchat's future was not going to include Brown.

The name change

When the three men began working on Snapchat back in June, they formed a company. They named it Toyopa Group, after the street they were living on when they developed the app. Brown claims he came up with the name.

What Spiegel and Murphy knew, but Brown alleges he did not, is that back in June a new company had not actually been formed. Rather, Spiegel and Murphy had merely changed the name of their previous company, "FutureFreshman," to Toyopa Group.

Toyopa Group was the new, legal owner of Snapchat, the lawsuit papers state. But Brown was not among its equity holders. Toyopa was owned 60/40 by Spiegel and Murphy. Brown wasn't even named in the papers, according to a deposition transcript in the case.

Brown has testified that when the Toyopa Group papers were drawn up, he simply assumed he owned a third of the company. The three men were, after all, its only employees and they all lived together in the same house, working on the same project, which was — allegedly — Brown's original idea.

Murphy testified in a deposition that Brown was a mere functionary of the company, and never an owner:

"I don't know what he believed. All I know is that, again, he was invited to join us that summer, do some work."

Brown, of course, finally figured out the true structure of Toyopa Group when he overheard Spiegel and Murphy deciding that he had to go, in early August.

The confrontation

Brown listened in on their conversation, and took notes, according to legal papers filed by Snapchat's management.

Knowing he was about to be betrayed, Brown kept silent. Instead, on Aug. 11, 2011, Brown filed a patent application with the U.S. Patent and Trademark Office. It listed all three of them as equal co-creators of the app.

It was a huge milestone for the company, establishing Snapchat as the progenitor of self-deleting photo messages. Brown texted Spiegel:

"... you and Bobby need to celebrate this shiz tonight."

Spiegel replied:

"No chance were celebrating wo you bro."

Brown did not, however, give Spiegel or Murphy copies of the patent papers he had filed. He kept those for himself.

As Spiegel nagged Brown for copies of the filing, and as Brown stewed over his secret knowledge, the tension came to a head within the house on Toyopa Drive.

A few days later, on Aug. 16, the three men confronted each other on a conference call. Brown was in the upstairs part of the house. It is not clear from the lawsuit who was in the house and who was not, or why they didn't meet face to face. (They had been drinking, Brown said in a deposition.)

Spiegel wanted to know why Brown had not given him a copy of the patent filing. Brown wanted to know how big his slice of the company's equity was. Murphy mostly listened.

The conversation did not go well.

The gloves come off

Brown recalls it this way:

"I mean, Evan was acting irrationally, like I mentioned, earlier in the night. And I didn't know what he was going to do, you know... I mean, I didn't want to, you know, walk downstairs and try to say, you know, 'What the' -- 'What the hell are you guys talking about' and start some type of, you know -- escalate the situation. I was removing myself from the situation."

Brown alleges he was willing to take the short end of a 20/40/40 split. He did not get an agreement. The next morning, however, they made up, Brown said in a deposition:

"I was sitting outside. And, you know, they came outside, and we all had, you know, a discussion about what happened. You know, Evan apologized. He said that he was acting irrationally. ... I agreed. I said, 'Yes,' you know, 'I really think you were.' And things were fine, you know. We all apologized. It was cool."

Spiegel texted Brown a few days later:

"I want to make sure you feel like you are given credit for the idea of disappearing messages because it sounds like that means a lot to you."

That text is crucial to Brown's case: It shows Spiegel admitting that Brown should get credit for the idea of Snapchat. But there is wiggle room, too — all Spiegel is saying is that Brown should get a plaudit. He's not actually admitting that Brown was owed equity.

Murphy had a different take:

"... Evan and I had a prior conversation in which we expressed concern that he would ask for equity. And we knew that he had the original patent applications in his control. So in that phone call we wanted to hear what he thought he was entitled to given the work -- given the work he had done. He would, I say, exaggerate that. And Evan hung up and I think he -- I don't remember specifically what he was asking for, but it was a lot more than we would be willing to give him."

"And in that he claimed he had created the original idea and that he had designed the ghost. ... I think Reggie used the term, 'I directed your talents,' or something to that effect, and that's what upset Evan."

Spiegel hung up the phone when he heard that Brown thought he was directing his talent. Bobby stayed on the line. Ultimately, Murphy says Brown was told that as far as equity in Toyopa was concerned, "That's not gonna happen."

Spiegel and Murphy changed the passwords on Snapchat's server and user accounts. Brown was locked out.

What happened to the patent?

From that point, communications became more formal, the papers in the lawsuit indicate. There was no more "dude" or "dawgg." Brown and Spiegel communicated by email, in proper English. Spiegel wanted copies of the patent filing:

Brown declined to send the copies, insisting instead that Spiegel should only get the final, approved copy back from the government:

Brown was traveling. He didn't graduate from Stanford until 2012. He left the house after Aug. 17, leaving behind some of his property, the suit claims. 

The damage was done. The relationship between Brown and the other two founders of Snapchat was over.

Time went by.

"I am willing to negotiate on this."

On May 8, 2012, Brown wrote a long email to Spiegel, rehashing their fight on the night of Aug. 16, 2011. In the message, Brown claims that Evan and Murphy did not in fact own the intellectual property that is Snapchat:

"I am not sure if this were due to the fact that you felt that I was withholding information from you- as that was certainly not my intention. I have always respected your role in the process, primarily as a leader, a designer, and a friend. In that way, if I disrespected your contribution, I apologize. As I expressed to Bobby this past summer, I understood both then and currently that my role in the process was of a different nature, and thus was willing to accept a significantly less portion of equity than either of you. Unfortunately, the discussions lead to you changing the passwords to the accounts and servers, limiting any continued involvement on my part and cutting off communication."

"In the summer we had discussed a 40-40-20 equity breakdown; I am, however, willing to negotiate on this."

At some point in 2012, it is not clear exactly when from the court file, Spiegel and Murphy hired the Cooley law firm to represent them. Cooley sent Brown a letter, which said in substance that Brown's handling of the patent, followed by his demand for a share in Snapchat, was:

"A transparent attempt to shakedown Mr. Spiegel and Mr. Murphy for a share in a company to which you contributed nothing."

In fact, Spiegel and Murphy argued in response to the suit, Brown was kicked out of the company because they became suspicious when he repeatedly declined to hand over copies of the patent filing. "Spiegel and Murphy excluded Brown from further involvement due to his duplicity," their side of the case states.

Spiegel and Murphy also note that Brown didn't protest legally until after he learned that Snapchat had obtained $20 million in debt financing in May 2012.

The fundamental split between developers and management

Brown potentially stands to win damages in the hundreds of millions of dollars, so it is perhaps not surprising that the litigation has been of the "scorched earth" variety. Brown's lawyers unsuccessfully challenged Snapchat's lawyers on whether they have a conflict of interest that prevented them from representing the company.

On a factual basis, Brown has put up a good argument that he was intimately involved in the genesis of the app. He was involved in the "idea," the name of the company, its logo and its patent filing.

But his role at Snapchat militates against him, also.

Anyone can have ideas.

Brown was not involved in the building of the actual software product, the lawsuit alleges. None of the evidence indicates Brown was involved in the engineering, the coding, the development, of the app.

Nonetheless, his work was crucial — he was the only one of the three founders with enough knowledge to handle a USPTO patent application.

By contrast, Spiegel and Murphy apparently spent the summer of 2011 writing code and making sure the app worked.

It's a familiar tension in the tech world. There are those who build the products, and those who manage the work that's being built. Naturally, developers resent their non-technical managers and supervisors. But few companies survive without managers who make sure the trains run on time, and file patents before their competitors.

The case sets a standard in the tech and startup community. It shows, as stated by Brown's lawyers, that not being clear from the beginning about who owns a new company can cost end up costing you a lot of money:

"This is a case of partners betraying a fellow partner."

The alternative interpretation was Spiegel and Murphy's take, that Brown was an exaggerator, a hanger-on, who deserved nothing:

"Knowing he had no agreement to share in the equity of Toyopa, and having noted to himself 'lawsuit possible,' Brown sought to hijack ownership rights he knew he did not possess by secretly filing an application that (1) claimed the entirety of the disappearing messages application, not just the screen capture detection technology; (2) listed himself as an inventor.

The settlement took years to work out.

But the $158 million deal was larger than the amount Mark Zuckerberg initially agreed to pay the Winkelvoss twins — $65 million — for their role in the creation of Facebook at Harvard.

SEE ALSO: Here's who is going to get rich from the Snap IPO

Join the conversation about this story »

Snapchat says it has big plans for its buzzy "Spectacles" camera-glasses.

Snap Inc., the company behind the popular ephemeral messaging app, filed to go public on Thursday— and the documents have given us a wealth of information about the inner workings of the famously secretive company.

We now know that it generates $400 million (£320 million) in annual revenue and growth is slowing, for example; or that the company paid its third cofounder $158 million (£126 million) to disappear; or that it has a deal with Google to pay Google at least $400 million (£320 million) a year for the next five years.

The company plans to raise $3 billion (£2.4 billion) through the IPO, at a valuation of as much as $25 billion (£20 billion) — and the associated filings indicate that Snap plans to "significantly" broaden sales of its wearable tech Spectacles. They're (pricey) sunglasses that have a built-in camera that captures circular video and sends it straight to the Snapchat app.

Spectacles' unusual approach has paid off

Spectacles were first launched in September 2016 with an unconventional and exclusive distribution strategy. Rather than giving out devices to reviewers and doing a mass consumer rollout — the normal approach for new tech products — it has sold them exclusively through pop-up vending machines.

It has been a clear success. The devices have generated significant hype, briefly selling second-hand for absurdly high prices on sites like Ebay as people rushed to get their hands on them, and they have avoided the nerdy, awful reputation that befell Google Glass — Google's ill-fated attempt to build a head-mounted computer in 2013.

They're still not available to buy normally — but that could soon change. "In 2017, we expect to continue to make substantial investments in inventory, marketing, distribution, and product innovation as we assess product demand,"Snap wrote in its S-1 form. "Additionally, we plan to significantly broaden the distribution of Spectacles, which will increase our costs and overall financial risk."

In other words: It's doubling down on Spectacles, will make them easier to buy, and is thinking about how it can improve on them.

But the smart-glasses aren't a money-spinner for Snap just yet. Despite selling for $130 (£104) —if you can get your hands on them — it says that it reckons the costs of making and selling them will outweigh the cash brought in from the sales, and this won't change any time soon. "We expect to experience production and operating costs related to Spectacles that will exceed the related revenue in the near future."

The glasses play into an ambitious vision for the future of the company

Spectacles were announced at the same time as Snap rebranded itself from its original name, Snapchat, and started calling itself a "camera company."

Snapchat is clearly interested in augmented reality — the overlaying of virtual objects in the real world — and has been publicly experimenting with the tech with its playful "lenses" that modify the user's appearance. But more powerful augmented reality — like the kind used in Microsoft's HoloLens headset, and dreamed up in science fiction — requires dedicated headmounted hardware.

Spectacles might be simple right now, but they're an important first step towards this.

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Snapchat is going public with a $25 billion (£20 billion) valuation. Clearly, the photo-sharing app has come a long, long way.

When Evan Spiegel, CEO of Snap (the parent company of Snapchat), first launched the disappearing photo app back in 2011, he and his cofounders pitched it to journalists as a great tool for "certified bros" and targeted frat-friendly publications.

In some cases, Spiegel went as far as to say how attractive the Duke girl who modeled for his app was.

In 2014, BroBible editor Brandon Wenerd scrolled through his archives and found this gem of a pitch from Spiegel. (It's similar to a pitch that was used as evidence against Spiegel in a lawsuit about the founding of Snapchat.)

Here's the email Wenerd says he received:

Evan Spiegel called Picaboo — as Snapchat was originally called — "ridiculous," described himself as a "certified bro" whose fraternity was "kicked off last quarter," and boasted that the model they used for the photos is "very good-looking."

Wenerd said BroBible's reaction was, "Dah f---?"

But clearly, the CEO's plan worked. The company now has annual revenues of $400 million (£320 million), it's branching out into hardware, is experimenting with augmented reality tech, and its planned float on the New York Stock Exchange is one of the most eagerly awaited tech IPO's of 2017.

Not too bad for a "ridiculous iPhone app."

If you're curious, here's the version of the email that was used in the Snapchat cofounder lawsuit. Notice in the version above, Spiegel writes "I built" Picaboo. In other emails, the language says "we built," to reference his co-founders Reggie Brown and Bobby Murphy.

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Life is good for Evan Spiegel.

His company, Snap Inc., is preparing for one of the most hotly anticipated initial public offerings of 2017 at a potential valuation of $25 billion.

And with an estimated net worth of $5 billion, Spiegel, 26, is one of the youngest billionaires in the world.

He lives a charmed life and he knows it.

"I am a young, white, educated male," the Snapchat creator once said at a Stanford business conference. "I got really, really lucky. And life isn't fair."

We've pulled the highlights of Spiegel's spectacular life and career from profiles by LA Weekly, Forbes, Business Insider, court documents, and more.

 Here's who is going to get rich from the Snap IPO

Spiegel grew up in the Pacific Palisades, a ritzy Los Angeles enclave just east of Malibu. He is the older son of two Ivy League-educated lawyers. His parents divorced when he was in high school.

When Spiegel turned 16 and got his driver's license, he was given a Cadillac Escalade, which he parked in the gated Southern California Edison parking lot next to his school. Spiegel's father represented Edison during the energy crisis.

Source: LA Weekly

Spiegel spent his early years at an ultra-exclusive school called Crossroads in Santa Monica, which costs tens of thousands per academic year. Other notable alumni include Tinder cofounder Sean Rad, Kate Hudson, Jonah Hill, Jack Black, and Gwyneth Paltrow.

When Snapchat parent company Snap Inc. goes public next month, its sale will prove a windfall for a handful of executives who helped grow the company from a tiny startup to a $25 billion juggernaut in five years.

That includes one unlikely addition: chief strategy officer Imran Khan.

Khan, only at Snap for about two years, has been granted $145 million worth of shares, the company said in a filing on February 2. Those shares will likely be worth a lot more at the IPO price. And he was paid a $5 million bonus last year.

Not bad for a guy who, not long ago, was working for "some bucket research shop." That's how one Wall Streeter described Khan's early career. (He did indeed work at a small company, called Fulcrum Global Partners, until about 2004; it shut its doors in 2006.)

Khan, 39, joined Snap in early 2015, in part to help chart the company's path to an initial public offering, though his official role has been to build up revenue, expand the business, and run ad sales.

He was hired from Credit Suisse, where he was head of global internet investment banking and was perhaps best known for his leading role on the initial public offering of the Chinese e-commerce giant Alibaba Group in 2014, the largest share sale ever.

When news of his move to Snap broke it made headlines, but Khan is not the only Wall Streeter to wind up playing the "grown-up" in a technology startup. Anthony Noto, once the head of technology banking at Goldman Sachs, was already Twitter's finance chief. Ruth Porat would make the move from Morgan Stanley to Alphabet, Google's parent.

For Khan, this wasn't the first major pivot in his then 15-year career.

'A very strategic thinker'

Business Insider spoke with six executives who worked directly with Khan at various points in his career. They all asked not to be identified for this story. Through a spokesman, Khan declined to comment for this story.

Khan's career has taken him from an investment-banking job at ING Barings, the Dutch financial-services firm, to conducting sell-side research at JPMorgan and eventually running the technology banking franchise at Credit Suisse.

His former colleagues describe him as ambitious and strategic in his career choices. Though most spoke in friendly terms, it's clear that his rise and transition from research analyst to internet banker and now tech-industry millionaire rubbed some the wrong way. One person, for example, felt that Khan failed to credit others for helping him make the switch from research to banking, saying Khan "clawed his way up." But that kind of talk was dismissed by other colleagues as plain old jealousy among bankers who once would've been peers but perhaps have found themselves courting Khan for a role on Snap's IPO, likely to be the biggest tech flotation since Alibaba's sale in September 2014.


Born and raised in Bangladesh, Khan came to the US as a student, to Colorado, where he graduated from the University of Denver's Daniels College of Business in 2000.

After a stint at a tiny Denver-based satellite-broadband startup called WildBlue, he wound up at ING Barings in New York in 2000, according to his profile on BrokerCheck. After the banking business was sold to ABN Amro in 2001, he wound up at Fulcrum (the "bucket research shop"). There, he began to conduct "sell-side" research on technology companies such as Yahoo, Amazon, and eBay.

Khan moved to JPMorgan in 2004 where he eventually became head of global internet and US entertainment equity research. He's been described as steeped in the tech industry, close to executives, and is married to an executive at an Amazon-owned e-commerce company.

At JPMorgan, Khan became one of the top-ranked internet analysts on the Street, landing the coveted top or second spot in Institutional Investor's annual rankings of researchers. He was also one of the youngest managing directors at JPMorgan, having attained the title at 29. 

Khan's meteoric rise and the accolades were carefully cultivated, one person said.

"He's a very strategic thinker," the person said. "He's the type of guy who ranked at JPMorgan as a research analyst not because he's the smartest guy or the best stock picker ... but he's a very affable, likable guy. He knew how to work the system."

This person said that Khan would build up relationships with company CEOs so that he could get the first question on quarterly-earnings calls. "He's always thinking about that stuff."

'A testament to his scrappiness'

That strategic thinking soon had Khan building relationships with China's budding technology companies, which were flocking to the US IPO market in the mid-2000s. The payoff on those came with his first big switch. 

He felt like a banker in a research analyst's clothing.

In 2011, after six years with JPMorgan, Khan moved to Credit Suisse to take over the company's internet-banking franchise. It was Alibaba cofounder Joe Tsai who referred Khan to Credit Suisse and encouraged him to transition from an analyst to a banker, three people said. 

Still, it was a risk for Credit Suisse to pull a research analyst over to run a critical investment-banking division. Khan was placed under the wing of Bill Brady, then chairman of the bank's global technology investment-banking group, two people said. Brady now does that job at Jefferies.

"A bevvy of people who made that transition were total failures," one person said. "Imran was more commercial; he felt like a banker in a research analyst's clothing."

With Khan on board, and Chinese companies coming back to the US markets, Credit Suisse's tech-banking team started to land key deals. As the firm's head internet banker, Khan worked on the IPOs of Groupon, GoDaddy, Box, and the Chinese companies Weibo and Toudu. Most notable, of course, was Alibaba's $25 billion flotation.

"Imran is very good in front of people," one person said. "He's charming, he's very smart, he can connect with people right away."

Another person credited his success with a "work ethic and energy level" that was "off the charts" and an entrepreneurial spirit that stood out.

Credit Suisse's leadership role on the Alibaba deal makes up a big part of Khan's professional legacy. When he moved to Snap, The Wall Street Journal called him a "star tech banker." But three people told Business Insider that they felt he received more credit for that role than he was due, emphasizing that it was a team effort.

Credit Suisse's relationship with Alibaba predates Khan's arrival, they point out, and laid mostly with Vikram Malhotra, the then head of investment banking for Asia Pacific, and Boon Sims, who was global head of mergers and acquisitions.

But even those who credit Malhotra for winning Credit Suisse, the business said there is no bad blood between the two men. The two bankers worked hand in hand on the deal, speaking every day, and they are still close, one person said.

Imran stood out because he is the type of person who likes the spotlight, while Malhotra does not, another said.

Khan's ability to put himself in position to run the deal was "a testament to his scrappiness and finding opportunities and seizing opportunities," another person said.

Targeted moves

Still, Khan's perceived opportunism has "probably rubbed some people the wrong way," one former colleague said.

"I think he's a good guy — a great guy," this person added. "I think he made a lot of moves that were very targeted and focused."

Once Imran has decided he wants to get somewhere, he is very good at figuring out what he needs to do to get there, this person said.

"If he can position himself and get recognized as the man behind Alibaba, which he did by getting into the paper and onto TV — at that point he knew that was the best time to make a move and do something."

"With Imran, there is no gap between the concept of want and do," another person said. "He will do what it takes to achieve what he's after and if that rubs people the wrong way, it's only because they're frustrated that they didn't do it themselves. I think 'ruffle feathers' is really a code word for either envy or frustration."

One person who has known Khan since "back when he was a dorky equity analyst" says he has remained a down-to-earth and thoughtful person over the years.

"He's still kind of got that nerdy thing to him," the person said. "He's not a glitzy guy."

With Imran, there is no gap between the concept of want and do.

So a few years ago when Snapchat — then a three-year-old company with a 24-year-old CEO who had already turned down a $3 billion offer from Facebook — came knocking, Khan went for it.

While his closeness with Wall Street and experience with Alibaba was widely interpreted as an indication that the company would one day look to go public, his role has been to direct the company's business strategy.

He helped grow Snap's revenue from $58.7 million at the end of 2015 to $404.5 million at the end of 2016. The company launched Snapchat Partners, an advertising API, over the summer to expand the advertising business.

"He never assumes that something is just going to happen for him," one person said. "He doesn't sort of sit back and say, 'Maybe the phone will ring.' I think he showed that at Snapchat and the way he pursued the business relationships and built up the marketing side of the business."

Khan has also been working with the chief financial officer, Drew Vollero, to quarterback the bankers on the deal.

No kowtowing

Bankers who know Khan said he has stayed in touch since moving to Snapchat, but not as much as he used to.

"He's become more private since working at Snapchat," one person said, noting CEO Evan Spiegel's penchant for secrecy.

Snap's lead underwriters are Morgan Stanley — which arranged a credit facility for the company in September — and Goldman Sachs.

Despite Khan's having worked for Credit Suisse, Snap did not choose that firm for a lead role. Instead, it went with two firms that had given Khan a hard time during the Alibaba IPO. (Credit Suisse is still on the deal, however, along with JPMorgan, Deutsche Bank, Allen & Company, and Barclays.)

"What's interesting is there's no love lost with Morgan and Goldman [and Khan]," one person familiar with the matter said. Bankers from Morgan Stanley and Goldman Sachs would blame Khan for everything that went wrong on Alibaba, the person said, dismissing him as a research analyst who didn't know anything about banking.

"I'm shocked he didn't penalize them more," the person said.

Regardless of the former colleagues who loved or envied him, Khan holds all the cards now. 

"If Goldman and Morgan Stanley are on a deal where the company is not so hot, they can dictate what happens. In this case, the client can dictate everything," another person said. "Snap is not going to kowtow to any of these people."

SEE ALSO: Snap files for its IPO, revealing surging sales growth and huge losses

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Snapchat’s parent company Snap is finally ready to go public. Though there are many interesting details to glean from the move, the big question on investors’ minds is: Are we looking at the next Facebook, or the next Twitter?

Well, judging solely by the numbers, it’s closer to the latter. As this chart from Statista shows, while Facebook was already something of a giant before its IPO, Twitter’s revenue and user base was more modest, and it wasn’t profitable. (It still isn’t.) Snapchat does seem to have to edge over Twitter in daily users— Twitter only counts those on a monthly basis — but it’s blowing through even more cash, and its revenue is lower at that.

Now, these aren’t 1:1 comparisons. Facebook’s IPO came eight years after its founding; Snap only waited five years. These social networks also have completely different audiences and focuses. The real question is if Snap can keep growing from here. As a self-proclaimed "camera company," there are plenty of ways it can expand. 

SEE ALSO: Here’s what iPhone sales have been each year since the first model came out

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What exactly is Snapchat, and why is it potentially worth $25 billion?

You may have never used the app that's barreling towards a blockbuster IPO, but you've probably heard of it.

Even if you are one of Snapchat's 158 million daily users, you'll be interested in how its CEO Evan Spiegel explains the app.

Spiegel rarely does media interviews, but he laid out why he invented Snapchat and what makes it popular in a four-minute video posted on Snapchat's official YouTube channel in 2015.

The blurry video of Spiegel in his classic white v-neck is still the best concise explanation of how Snapchat works to date. Spiegel begins by giving a brief overview of how smartphones have changed the way we share photos, and how Snapchat fits into that trend. He also breaks down the app's somewhat confusing layout.

Here are the key takeaways:

• Photos have always been used to save important memories and life moments, but thanks to the advent of smartphone cameras, now they are used for talking. “Snapchat really has to do with the way photographs have changed," according to Spiegel.
• Photos used to be based on how we used desktop computers, so it was about “accumulation.” You'd take a bunch of photos on a camera, plug the camera into the computer, and upload them somewhere into an album. Mobile phones enable us to have “instant expression," says Spiegel. “This is important as it relates to identity... Instant expression says my identity is who I am right now. It says I’m the result of everything I’ve ever done, but I’m not really the accumulation of all that stuff."
• Snapchat is divided into three main screens. The app starts with the camera, because to begin a conversation you have to share a snap. It's a call to action in the same way a word processor starts with a flashing cursor. When you swipe left from the camera, you see a list of all your conversations, and when you swipe to the right, you see "stories," or “basically a collection of snaps.”
• The fact that snaps are organized into chronological order is what makes Snapchat different from other social networks, says Spiegel. Your Facebook, for example, has your most recent activity first and you have to scroll back to see the beginning. Since Snapchat always starts at the beginning of a moment, it gives stories a familiar feeling.
• What's Snapchat about in one sentence? In the words of Spiegel, "It’s all about talking with pictures and expressing yourself in the moment."

Spiegel is a billionaire on paper, and his company is aiming for a $25 billion valuation when it goes public, according to people familiar with the matter.

There's obviously a lot more to Snapchat than what Spiegel addresses in the video, like how it lets brands advertise through sponsored filters and video 'snap' ads. Snapchat is also a player in the media content business with Discover, a way for publications like the Daily Mail and National Geographic to share text and video stories.

Snapchat has also rebranded into Snap Inc. and renamed itself as a "camera company" in the last year. It's started selling camera-equipped glasses called Spectacles, and says it has more camera-related products on the way.

If you're interested in watching the full video of Spiegel talking to the camera about why his app is so special, you can see it below:

SEE ALSO: Here's how Snapchat thinks strategically about 'reinventing the camera'

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NOW WATCH: The fabulous and charmed life of 26-year-old self-made billionaire, Snap CEO Evan Spiegel

Snapchat's beginning sounds a lot like Facebook's from "The Social Network."

In Snapchat's case, it wasn't two ousted cofounders (the Winklevoss twins) against Mark Zuckerberg. But still, it featured the backdrop of an elite university — Stanford versus Harvard — and ended up in litigation, with Snapchat cofounders Evan Spiegel and Bobby Murphy against Reggie Brown.

At stake was the founding story of a social network to make photos disappear. Snapchat's founders ended up paying $157.5 million.

Snapchat survived its rocky starts to now be on the verge of a $3 billion IPO. Here's how Snapchat went from a million-dollar idea about disappearing photos to the giant social media company called Snap today:

SEE ALSO: 33 photos of Facebook's rise from a Harvard dorm room to world domination

Like many other startups, ground zero for Snapchat's story is Stanford University, where a young Evan Spiegel from Los Angeles befriended Reginald (Reggie) Brown. The pair decided to join Kappa Sigma fraternity — where they would meet Snapchat cofounder Bobby Murphy — although it would be a few years before they turned the idea of disappearing photos into a business.

Snapchat wasn't Spiegel's first startup. Murphy had recruited Spiegel, a Kappa Sig brother one year younger than him, to help with an idea he had about a social network. In 2010, they then launched FutureFreshman, a site meant to make applying to college easier. It never really took off, but Spiegel had caught the entrepreneurial bug.

It wasn't until Spiegel's junior year that the idea for Snapchat was born. "I wish these photos I am sending this girl would disappear," Brown told Spiegel in April 2011. His friend immediately got excited about the concept of disappearing photos and told Brown that this was a million-dollar idea. Five years later, that idea would now be worth billions.

Twitter's abuse problem might be about to get costly, after a group of MPs proposed fines of up to £2 million for social networks that can't curb online harassment.

The proposal is part of the "Malicious Communications (Social Media) Bill", a private member's bill introduced by Labour MP Anna Turley.

The bill proposes a register of social media companies operating in the UK. These would be determined by the culture secretary, currently Karen Bradley, and regulated by Ofcom, the UK's communications watchdog.

According to the bill, regulated social media firms would need "reasonable means to prevent threatening content from being received" by British users.

In short, Twitter and other social media platforms would automatically need to filter for abuse, unless users had requested unfiltered content and are over the age of 18.

Any company failing to comply could be fined up to £2 million or 5% of their global turnover.

If passed into law, the rules would also affect Facebook, Snapchat and Instagram. It isn't clear whether private messaging apps like WhatsApp would also need regulation.

It's possible the proposed bill will never become law. Private member's bills rarely become law and are usually a way for MPs to highlight certain issues. The current bill is notably sponsored by several female MPs who have spoken out about online abuse, such as Jess Philips and Ruth Smeeth, both of whom have received death threats on social media.

Here's the private member's bill in full:

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Snapchat thinks it has better ads than television, and way better ads than other digital video competitors, according to the Snap S-1 filing.

In the filing, Snap tells the story of how it set out to create an "engaging, creative, and fun" ad format for its mobile app.

First, Snap looked at its digital-video competitors and concluded that the existing video ad options were horrible. Here's how the company described it:

"Two of the most popular forms of digital video advertising at the time were pre-roll horizontal video advertisements and in-feed horizontal video advertisements. Pre-roll advertisements played before the content that a user wanted to watch, leaving users feeling like they had been blocked by an advertisement and frustrated that they had to wait to see what they had selected to watch. In-feed advertisements were less obstructive, but they weren't full screen and users often scrolled right past them — just like a banner advertisement on a website."

So the two dominant forms were lacking, according to Snap. But the company found some light in TV ads, which its community of users enjoyed the most "because it was part of the experience, especially when the advertisements were funny, creative, and entertaining"— which sounds suspiciously similar to the ad product Snap wanted to create.

TV, but for young people

TV is where Snap saw an opening.

The demographic that loves Snapchat is also the demographic that is watching less TV, according to Snap — so if the company could recreate TV ads on mobile, it could score big.

"We wanted to figure out how to capture the entertainment and creativity of television advertisements," Snap wrote.

However, Snap made a few changes from TV ads. First, the ads were "vertical video," meant to be viewed when holding your phone vertically. Second, they were skippable to give users the choice of whether to watch them. (To be fair, YouTube pioneered skippable online video ads years ago with its TrueView ad format.)

Like TV, Snapchat showed ads only when users chose to watch a series of videos with sound — a Story. Ads appeared amid the videos, except in Snapchat you could skip them.

Snap declared its ad product, with this formula, "as good as television."

Up and up

But Snap wanted to make its ads better than TV by "using some of the unique features of smartphones and Snapchat."

In the S-1, Snap went over the two main ways it thinks its ads improved on the TV experience:

• Swiping up."For example, a user who views a Snap ad about a new product can swipe up on the Snap ad to buy the product instantly from the advertiser's website without leaving the Snapchat application."
• Targeting. Snap takes context into account to serve up the ad most relevant to the user.

And there you have it: Snap's thesis for why Snapchat video ads are not only better than those in other mobile competitors, but also better than those on TV.

TV ad budgets

There's a good reason Snap, in its S-1, compared its ads with TV ads.

TV ad budgets have been slow to follow video consumption on your smartphone, and there's still a huge pool of money floating around — over $70 billion in ad spending on TV in the US alone, according to eMarketer.

Snap thinks those TV ad dollars are ripe for the taking.

"Worldwide advertising spend is expected to grow from $652 billion in 2016 to $767 billion in 2020," Snap wrote. "The fastest-growing segment is mobile advertising, which is expected to grow nearly 3x from $66 billion in 2016 to $196 billion in 2020. We believe that one of the major factors driving this growth is the shift of people's attention from their televisions to their mobile phones."

If ad budgets move away from TV and toward mobile phones, it makes sense those new dollars would gravitate toward something that feels more like old-school TV. Snap's pitch is that its ads are like TV, only improved.

Advertisers aren't jumping on the Snap bandwagon just yet — the company's revenue in 2016 was $400 million, although Snap is still in the early stages of ramping up its video ad business.

And Snap certainly isn't the only tech company going for these budgets. Facebook's latest quarterly earnings call focused on how its video product was about to get better, specifically more "premium" and more episodic. Sound familiar?

What remains to be seen is whether TV advertisers will buy it — either from Snap, Facebook, YouTube, or anyone trying to convince them that this is the generation of mobile products that finally make sense for them.

SEE ALSO: Here are the strengths and weaknesses of Facebook's plan to grab TV's ad money

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CEO Evan Spiegel may be the public face of Snap Inc., but it's taken more than his hard work to turn what started as a disappearing photo app into a potentially $25 billion social network and camera company.

Since he started Snapchat with cofounder Bobby Murphy in 2011, Spiegel has surrounded himself with a team of seasoned deputies who oversee everything from relationships with advertisers and media partners to the company's planned IPO.

Here are the most important people who help Spiegel run Snap:

SEE ALSO: The fabulous life of Snap CEO Evan Spiegel, one of the world's youngest billionaires

DON'T MISS: Here's who is going to get rich from the Snap IPO

Bobby Murphy cofounded Snapchat and is now CTO.

Unlike Evan Spiegel, Bobby Murphy has maintained a decidedly low profile since the beginning of the company.

As cofounder and Chief Technology Officer, Murphy leads Snap’s engineering and research teams. Sources say he's also involved with a top-secret team called Snap Labs that works on projects like the recently announced Spectacles glasses.

Murphy and Spiegel each wield 44% of Snap's voting stock, giving them complete control over the company's future. While Murphy's base salary in 2016 was only $250,000, he stands to become a billionaire overnight when Snap goes public.

Murphy and Spiegel's friendship goes back to when they were both in the same fraternity at Stanford.

Spiegel, a product design student, needed someone to write the source code for the app that would become Snapchat. He recruited Murphy, a mathematics and computational science major, after the two had finished working on a failed startup called Future Freshman.

The quiet, 28-year-old engineer remains the author of much of the app's code to this day.

Imran Khan is a former banker who now leads Snap's business strategy.

Imran Khan jumped from the banking world to the tech world in January 2015 when he joined Snap as its Chief Strategy Officer. His connections quickly helped Snap land a $200 million investment from Alibaba — he was the lead banker for the Chinese retail company's IPO — and an additional $1.8 billion in funding in May 2016.

One of Spiegel's direct reports, Khan's main job at Snap is to lead its business strategy and help chart its path to a potentially $25 billion IPO. He's one of the few executives besides Spiegel to represent the company publicly at events, and he's working on telling the story of Snapchat to make it more appealing to bankers and advertisers.

While he's only been at Snap for about two years, Khan has been granted $145 million worth of shares. Those shares will likely be worth a lot more at Snap's IPO price. And he was paid a $5 million bonus last year.

Read our full profile of Khan for more on how he worked his way up to quarterbacking two of the largest tech IPOs in history.

Michael Lynton left his job as Sony Entertainment's CEO to lead Snap's board.

Former Sony Entertainment CEO Michael Lynton stepped down from his position in January to focus on his new role as Snap's Chairman of the Board.

Lynton has been a trusted adviser to Evan Spiegel, and he's been on the company's board since 2013. An industry veteran with close ties to Hollywood, Lynton shares Spiegel's interest in the TV and music industries.

• Snapchat is at the mercy of competitors like Facebook and Google that can simply copy its products.
• Advertisers say Snapchat's unique selling point is that it is cool, new, and has created its own advertising "currency."
• But ad-buyers also need Snapchat to do more to prove its ads actually drive sales if they are going to commit meaningful budgets to the platform.

Snapchat parent company Snap Inc. lifted the lid on its advertising business when it made its IPO public earlier this month. 

We found out that the company generated $404.4 million in revenue in 2016 (up 6x year-on-year), that it has 158 million daily active users, but also that its daily active user growth was flat in the quarter to September 30, 2016.

That was the same quarter in which Instagram launched its Snapchat-clone Instagram Stories — allowing users to share videos and photos that disappear after 24 hours. Instagram says the feature is used by 150 million users each day, which is a very similar number to Snapchat's total daily active user base. 

In the "risk factors" section of Snap Inc.'s S-1 filing, the company concedes that it competes with companies like Apple, Facebook, Instagram, WhatsApp, Google, and Twitter — all of which have "significantly greater financial and human resources and, in some cases, larger user bases."

The S-1 continues:

"Snapchat is free and easy to join, the barrier to entry for new entrants is low, and the switching costs to another platform are also low. Moreover, the majority of our users are 18-34 years old. This demographic may be less brand loyal and more likely to follow trends than other demographics. These factors may lead users to switch to another product, which would negatively affect our user retention, growth, and engagement ... Falling user retention, growth, or engagement could make Snapchat less attractive to advertisers and partners, which may seriously harm our business."

So if rivals have bigger user bases and the financial and human resources to build copies of the products that make Snapchat stand out, what is it that Snapchat offers advertisers that they can't get from any other platform?

We asked a range of media buyers to find out. People in the advertising industry seem impressed that there is a new player on the block that is challenging the market to produce new formats and meaningful metrics — but the young advertising business still has a long way to go if it is to start commanding the kind of ad spend that Facebook and Google can.

Snapchat is cool and taps into young people's latest 'obsessions'

As Snapchat itself notes, the majority of its users are the young advertising segment most advertisers look to target. Users under 25, it says, visit Snapchat more than 20 times and spend more than 30 minutes on the app each day. It may have fewer users than its rivals, but, for now at least, they are highly-engaged, and data suggests Snapchat is still the cool new thing among young people compared to apps like Facebook that their parents use. 

Jason Stein, CEO of social media agency Laundry Service, said: "Snap is the sexy new platform and to succeed on Snapchat as a brand is to be cutting edge, relatable, and relevant to young people. You're seen not only as making the effort to speak to this youth audience on their terms — but a brand that is actually 'young' and cool enough to do so."

Noah Mallin, head of social North America at WPP media agency MEC, said Snapchat offers an impressive and growing suite of ad products that taps into three of the "biggest obsessions consumers have right now": messaging, augmented reality, and visual storytelling.

As Snap details in its S-1, the same team that designs Snapchat's consumer products also designs its advertising products, which means it creates ad products "that feel familiar to our community," like full-screen videos, Sponsored Lenses, and Sponsored Geofilters.

That's a compelling story for advertisers, according to Mallin. But Facebook offers messaging products through Messenger and WhatsApp, and augmented reality and visual storytelling through Instagram. What makes Snapchat so different?

Mallin responded: "It's across different platforms with Facebook rather than all Facebook in one place — for now — and the augmented reality elements aren't yet part of the core experience there. Another big difference is that what binds people to Snapchat initially is the camera-first messaging experience. Messenger is trying to pivot there but that really isn't the core of any of Facebooks products hook users with — at least not yet."

Its ad formats are unlike anything else

Snapchat doesn't copy and paste its ad formats from elsewhere on the web. Where else can you buy a Sponsored Geofilter that lets users add branded location-based stickers to their photos, or a Sponsored Lens that lets people turn their faces into a Taco Bell taco?

Catie Dear, head of entertainment at UK media agency at The7Stars, said Snapchat's focus on "sound-on" video ads has been appealing to its entertainment clients. Lots of entertainment brands use Snapchat to land new movie trailers or tracks from artists — the first ever Snapchat advertiser was 20th Century Fox, promoting its "Ouija" horror movie.

Dear said: "Working with entertainment brands, it's important for someone to hear sound, which isn't that common an offering in the [digital ad] market at the moment ... Snapchat is also about telling a different brand story. The behavior on the app is very different as you want to focus more on shorter content, whereas on Instagram, people tend to watch longer videos."

Dominique Delport, global managing director of the Havas Media Group, has also been impressed that Snapchat has created its own ad currency, forcing advertisers to be creative.

He said: "Even media publishers that are part of the Discover [content section within the Snapchat app] had to completely rethink the way they present their content because Snappers skipped it in three seconds. They have been instrumental in imposing the vertical video format — again, smart and insightful. [There is a feeling] that Facebook and Instagram are chasing them big time — and there was an impact in the last quarter — but I'm very optimistic on their ability to create, surprise, and delight their audience — and the Adland community."

Snapchat needs to constantly prove its advertising actually works

But being the cool new thing with never-before-used ad formats comes with challenges: The company needs to constantly create cool new things and Snapchat needs to consistently prove its ads actually work if it is to move from the small experimental section of advertisers' budgets and into the big leagues.

Snap has been making huge improvements in this area and it now offers 15 different third-party measurement solutions in the US, including partnerships with companies like Nielsen, Moat, Oracle, and Millward Brown. The S-1 also details its internal "Snap-to-Store" measurement product that uses the location-based features of the Snapchat app to determine whether people who saw an ad on the app went on to visit a retail store. 

But, with its relatively young advertising business (it only began selling ads at the end of 2014), Snapchat is playing catch-up to its digital media rivals. And even the two most dominant players — Facebook and Google — get accused of "marking their own homework" when it comes to advertising measurement. Advertisers take a lot of convincing to shift their budgets from the traditional channels they have been using for decades to build their brands.

The Wall Street Journal reported in January that Snap is seeking huge commitments from media buyers of between $100 million and $200 million. For a company like WPP, that type of agreement could see it more than double its Snapchat ad spend of $90 million in 2016. But other advertising holding companies would be significantly upping — likely tripling — their Snapchat spend if they were to agree to such commitments. (Here's a primer on how advertising commitments tend to work.)

But a source at one media-buying network, who declined to be named, said Snapchat still doesn't have the advertising metrics in place to drive the level of commitment it is asking for.

In the S-1, Snapchat says its vertical video ads are "as good as television"— and in some ways better — because users can choose to skip ads, swipe up to interact with them, and advertisers can use more granular targeting than TV. But with AdAge reporting in November that the average Snapchat video ad lasts less than three seconds and Snapchat counting a video "view" as soon as the video opens, it remains to be seen whether its ads are more effective than those on TV. Snapchat has moved quickly to provide measurement options, but it needs to be seen as the platform that can drive meaningful business results — which requires numerous case studies, b2b marketing, and yet more measurement capabilities — if it is going to take a slice of the big ad budgets.

Despite their gripes, most people in the advertising industry want to see Snapchat succeed. A successful Snapchat serves as competition to the digital duopoly that is Google and Facebook. 

The7Stars' Dear said: "Overall, it's positive to have multiple platforms forcing each other to improve. Whether it's [measurement] reporting, being more transparent, including Moat reporting — I feel if they weren't all challenging for the same budget, there wouldn't have been such a push towards things like transparency."

To keep winning those budgets, Snapchat needs to stay on the front foot so that even if competitors do mimic its products — or if a new upstart launches — it has enough new features to keep users and advertisers coming back. Arguably, it's a challenge that every ad-funded consumer business faces. But with Snap Inc. becoming a public company this year, whether it can meet that challenge will soon be laid bare for all to see. 

SEE ALSO: Snapchat is reportedly seeking $200 million commitments from ad agencies — here's what that means for its IPO

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Investors likely wanting a piece of Snap Inc.'s impending IPO sent shares of another company called Snap Interactive up as much as 164%, as first noted by Bloomberg.

Snap Inc. is the parent company of Snapchat and is seeking to raise $3 billion when it goes public at a possible $25 billion valuation in March. Snap Interactive is a lesser known video chat and online dating service provider.

When Snap does eventually float its shares in the coming weeks, it will be under the ticker "SNAP" on the New York Stock Exchange. Snap Interactive trades as "STVI."

This isn't the first time that eager investors have rushed to invest in what they thought was a hot IPO. Before Twitter's IPO, a company called Tweeter Home Entertainment (with the ticker "TWTRQ") surged as much as 1,500%.

Here's a handy chart from Yahoo Finance that shows STVI's meteoric rise after Snap Inc. filed its IPO paperwork with the SEC:

SEE ALSO: Snap files for its IPO, revealing surging sales growth and huge losses

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Snapchat's parent company, Snap, has set up shop in Switzerland and hired a specialist in software protection, according to Bloomberg.

Laurent Balmelli is the cofounder of Strong.Codes, a two-year-old startup that sells software that protects companies from having their code tampered with or reverse-engineered.

According to the report, Balmelli recently registered a Snap email address in Switzerland.

It's possible Snap has acquired Strong.Codes, though the company won't comment. Snap set up a Swiss office at the end of December, registered to the same address as Strong.Codes in the city of Yverdon-les-Bains. It isn't clear whether Balmelli's cofounders Johan Wehrli, Julien Rinaldini, and Pascal Junod have gone to Snap.

Bloomberg's report suggest Snap has hired Balmelli as a defensive move against Facebook, which has replicated many of Snapchat's features on its own platforms and on Instagram. That copycatting was cited as a risk in Snap's IPO filing last week.

But software engineers have poured cold water on the idea, pointing out that Facebook will have cloned Snapchat's features by observing then building them themselves, rather than through reverse-engineering.

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Snap Inc, owner of the popular Snapchat app, said it expected to spend $1 billion over the next five years to use Amazon's cloud services, in addition to the $2 billion cloud contract it already has with Google.

Snap may eventually invest in building its own infrastructure, it said on Thursday, in an amendment to a filing related to its planned stock market debut in March.

The company, which filed its IPO registration statement a week earlier, is looking to raise $3 billion.

Snap could be valued at between $20 billion and $25 billion, giving the company the biggest valuation in a U.S. technology IPO since Facebook.

Venice, California-based Snap has said it relies on Google Cloud to host the vast majority of its computing, storage, and bandwidth.

Snap also added details in the filing about user habits outside North America and Europe. Slower and expensive cellular networks outside these two regions have limited the use of its app, which requires high bandwidth, the company said.

This means users from these countries tend to be more interested in consuming content than creating it, making them easier targets for Snap's competitors, the company said.

Snapchat, which started in 2012 as a free mobile app that allows users to send photos that vanish within seconds, competes with Twitter, Instagram, and Facebook for users.

"Fewer Snaps and Chats sent means fewer notifications inviting friends back into the application and therefore lower and more sporadic daily use," Snap said in the filing.

Snapchat has more than 100 million active users, about 60 percent of whom are aged 13 to 24, making it an attractive way for advertisers to reach millennials.

SEE ALSO: Another company called Snap spiked 164% because investors thought it was Snapchat

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Snap CEO Evan Spiegel has yet to publicly address Facebook's relentless copying of his app.

The 26-year-old Snap cofounder is famously shy about giving interviews, so there's a chance we may never hear what he really thinks.

But thankfully his fiancée, supermodel Miranda Kerr, gives plenty of interviews.

In a recent chat with Richard Godwin of The Sunday Times, Kerr said she's "appalled" at Facebook's copying of Snapchat.

"Can they not be innovative?" she said. "Do they have to steal all of my partner's ideas?"

It's unclear how much Kerr's sentiments reflects Spiegel's, but her comments provide a look at how someone very close to Spiegel feels about Facebook's behavior.

Here's an excerpt from Kerr's interview with The Sunday Times:

"'I cannot STAND Facebook,' she volunteers. She is not on Facebook itself, but she does have ten million followers on Instagram, which is owned by Mark Zuckerberg's company. Instagram recently introduced a range of Snapchat-esque features, which has drawn out her protective streak.

"'Can they not be innovative? Do they have to steal all of my partner's ideas? I'm so appalled by that. ... When you directly copy someone, that's not innovation.' And then a sudden look of panic crosses her face. 'Do I get to approve this interview? Crystal!' She admonishes her publicist who long ago drifted out of the conversation. 'Oh I don't even care. It's a disgrace. How do they sleep at night?'"

Facebook famously tried to buy Snapchat for billions of dollars in 2013, but Spiegel rebuffed the offer. Facebook copied Snapchat's Story format in Instagram last summer, and Facebook has since made the same feature available in Messenger. The company is also testing Facebook Stories in its main app.

Snap listed Facebook as one of the main risk factors to its business in its recent IPO paperwork with the Securities and Exchange Commission. Snapchat, which has 158 million daily users, saw a significant decrease in user growth after Instagram Stories was released last year.

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• Snapchat has commissioned its first original series from A+E Networks
• Second Chance will land in April and reunite exes
• Original content will boost Snapchat's ad proposition before IPO

Snapchat's parent company, Snap, is making an original, unscripted series for its platform called "Second Chance", in partnership with US media company A+E Networks.

The series will be made by A+E Networks' in-house agency, 45th & Dean, and will follow exes who have got together to discuss the end of their relationship.

The show will launch in April and will sit among existing Snapchat Shows, including The Bachelor and The Voice.

Here's how Snap and 45th & Dean describe the concept:

45th & Dean’s first Show, Second Chance, brings emotional exes face to face to explore the breaking point in their relationship for the first time. In this sincere setting, couples seeking closure will also discover heartfelt opportunities for reconciliation. The series will feature eight weekly episodes, available for Snapchatters in the US, UK, Canada and Australia.

Snap is billing this as its first original Snapchat Show, a new tier of content introduced late last year. Snapchat Shows look more like TV episodes and stand separate from Discover, produced by third-party partners, and Stories, produced by users. Snapchat Shows also don't disappear after 24 hours, unlike other Snapchat content.

That said, Snapchat has had a shot at producing truly original content before. Comedy Central hosts an original 10-second feature called "Swag-a-saurus" on Discover, and the company produced an original series called "Literally Can't Even" in 2015.

Snapchat also has original content partnerships with ABC, NBC, E!, ESPN and, soon, the BBC, but all of these are based on existing programmes. For example, Jimmy Fallon has an offshoot of "Tonight with Jimmy Fallon" on Snapchat, simply called "Fallon". And the BBC will bring exclusive cuts from "Planet Earth II" to Snapchat from February 17.

Snapchat's vice president of content, Nick Bell, described the show as "raw and relatable".


"A+E’s investment in mobile storytelling is exactly what Snapchat Shows are all about: The ability to create premium and wholly original content for a mobile-first audience from some of the best storytellers in the world," he said.

Snap appears to be shoring its business up after filing for its IPO last week.

Advertising and media sources told Business Insider part of what keeps them spending money on the platform is the fact it's the hot new thing. Snap is also seeking huge commitments ranging between $100 million and $200 million (£80 million to £160 million) from media buyers. That means keeping the platform fresh, and actually offering advertisers compelling, engaging content to advertise against. In its S1 filing, Snapchat claimed its ads were better than TV advertising.

Snap says it will be adding new content partners "soon," and is working on more new shows with NBC, Turner, and ABC.

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While President Trump has helped make Twitter a regular part of the national conversation, the business behind the microblogging service is not looking up. That feeling was only reinforced by the meager revenues the company reported on Thursday.

Things look especially slow when you compare the platform to rival social media apps. As this chart from Statista shows, after gaining hundreds of millions of users in its first few years, Twitter has only added 31 million monthly active users over the past two years. Facebook’s suite of behemoths have easily surpassed that over the same time frame, while Snapchat has outpaced it as well (though it has slowed recently, too).

Now, Twitter serves a much narrower niche than Facebook, so the fact that it can’t keep up makes sense. But even with that in mind, the company appears to be in a prolonged rut.

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