As reported a couple of hours ago on AllThingsD, social collection site Pinterest is raising a $100M financing round at a $1.5B valuation with Japanese company Rakuten leading the round.
First of all, good for Pinterest. Even though that kind of investment milestone is so rare it’s almost like winning the lottery, it’s inspiring and amazing to see startups achieve this type of success.
I’m sure we’re about to see a flood of articles and posts about if this is another sign of a tech bubble, if Pinterest is really worth that valuation, how they haven’t established a revenue model, how they infringe on copyright, and other various attempts to knock them down. It should be noted that these days, that’s probably a big sign of success to receive that kind of criticism.
The biggest implication of this though is that an investment at a $1.5B valuation means that Pinterest is virtually taking themselves out of being an acquisition target. For investors to get any sort of positive return on that money, they’re looking at a multibillion dollar deal. The only companies that have the cash and business fit to be interested at that price are Google and Amazon, and until Pinterest is generating a ton of revenue it is tough to justify for those companies.
There are a few more things I find interesting about Pinterest along with this news.
Not an overnight success
Pinterest has been portrayed by many as being an overnight success. In reality, it’s been a four year journey, although it’s quite true that it accelerated exponentially in the last year.
Pinterest is not a mobile-first company
A great deal of the “hot startups” lately are mobile-first companies like Instagram, and a lot of the startup advice is that mobile is the future. While mobile is obviously important to Pinterest and their future, the company originally pivoted from being an iPhone app to being a desktop-driven experience where it took off. How many times has that happened successfully?
Huge valuation without much technical difficulty
Don’t get me wrong, obviously there are technical challenges involved in scaling to the size of Pinterest, but their initial product was not a challenging technical problem. Like Instagram, they took something that was already being done by many other services but designed it better and made it a great experience. That IS challenging, but not for hardcore technical reasons.
Another Valuable Company Built on the back of Facebook
Facebook’s platform and access to the social graph has been a huge boon for many businesses. However, thus far Zynga is really the only company anyone can point to that really grew to a billion dollar company thanks to the Facebook platform. Pinterest may be the second company that can fit into that class now. While it’s not an app that lives inside Facebook, and you can sign up with Twitter or email, it’s clear that Facebook was a major piece of Pinterest getting viral exponential growth.
Where’s the revenue?
As I pointed out above, we’ll probably see many upcoming articles about Pinterest’s lack of revenue so far. But to be fair, they have barely tried. The product obviously has a very natural fit with ecommerce, so it will be interesting to see how they can profit from being the source of discovery for so many purchases.
Overall, raising an investment round like this does not mean Pinterest is assured long-term success. They need to keep innovating and pushing forward, but this investment should give them plenty of runway to go for it on their own and become an important independent company.
You can follow me on Pinterest as well.