Why does Snapchat (and other stupidly viral apps) valued at billions of dollars? They have almost no revenue, so why do investors pour money into them? The secret is in one word:

USERS

For investors, a large user base is assumed to equate with eventual revenue. Either Snapchat will generate boatloads of cash through ads and data collection, or it will be sold to a major company like Google or Facebook.

Snapchat makes little revenue, yet investors think it’s worth billions.

In their eyes, the number of people using the app is more important than what the app does. Will the next viral hit be AirBnB for fish, Twitter for video games, or something else? Whatever it is, I think that at least one big player will consider acquiring it.

Only time will tell if the investment money will dry up after the next crash. Ventures that create real value and real money will probably survive, while the get-rich-quick apps will have a tougher time competing for investment money.

Am I discouraging you from starting a new venture? Absolutely not! If you have a great idea, go for it. Get out there, validate the market, and build a prototype. Just don’t expect to make a million dollars overnight, ok?

What do you think about viral apps like Snapchat? Are they worth as much as investors think?