Lawsuit: Snapchat Showed Investors False User Statistics

This lawsuit looks like it is going to get dirty. On the one hand, this guy says he was hired away from Facebook but, after voicing concerns about Snapchat's misrepresentations about user statistics, he was fired just three weeks later. To make matters worse, he claims the company is lying about the reason for his termination. On the other hand, a Snapchat rep claims this is a story made up by a disgruntled employee.

"Mr. Pompliano was terminated because he refused to participate in a scheme to deceive the public and artificially inflate Snapchat's valuation in anticipation of its” initial public offering, the lawsuit states. Company spokeswoman Mary Ritti described the complaint as meritless. “It is totally made up by a disgruntled former employee,” she said in a statement.

Not an isolated incident. When the returns on these investments start dwindling and investors start digging into these tech companies puffed-up valuations and house-of-cards revenue streams you're going to see these accusations on a grand scale.

They all want unicorns (term for the next $1bil valuation). But just like real life unicorns, they're extremely rare and often turn out to be faked in their creation.

This doesn't surprise me.

That's the thing about statistics - there can be somewhat valid reasons for choosing a ton of different metrics to count users, etc. So long as it isn't a complete fabrication, it's up to the investors to ask for how those metrics are actually defined.

That being said, one of the issues with these startups is their data quality to begin with - perhaps they truly believe these numbers, but god knows if their systems are configured properly to even measure themselves.


I will say I don't believe it's a full bubble though. Valuations are inflated, but core value is there in a lot of these companies, unlike the first dot-com bubble. The issue was with all the easy money floating around, they could focus purely on growth with little discipline. After a pare-back and some market discipline, many of these companies (definitely not all) will make it in a smaller, more focused form.

What a Richard Hendricks move.

Social media network fudges numbers to appear bigger than they really are to siphon more money from tech-inept investors with deep pockets. More at eleven.

Seriously though that is how all of these companies have been since they've started because even with millions of users they still can't quite figure out how to make money from them because people are fickle and have too many ads in their lives to begin with and are in constant sensory overload. Myspace, Livejournal, Facebook, Instagram, Twitter... They have all done this and somehow people with massive bank accounts still bank roll them.