Sources: Snapchat has taken out a line of credit with Morgan Stanley and other banks
Kurt Wagner / Recode :
Context & Ripple Effects
Snapchat's arc over the past year has been a sprint toward the public markets: after raising at a reported $16B–$19B valuation in early 2015 and scaling its revenue target roughly sevenfold to $300M–$350M for 2016, the company began talking to investment bankers about an IPO filing just one day before this report.
A line of credit is the classic pre-IPO instrument — it buys balance-sheet flexibility without issuing new equity or resetting the private valuation, and it lets banks like Morgan Stanley build a lending relationship with a client whose underwriting mandate is still up for grabs.
First-order effects
- Snapchat gains committed borrowing capacity it can draw on for working capital through the IPO window, avoiding a dilutive late-stage funding round while its bankers are being selected.
- Morgan Stanley and the other lenders convert a credit relationship into privileged access to a marquee tech client at exactly the moment underwriting roles are being decided.
Second-order effects
- Rival banks now have a reason to extend their own credit offers to Snapchat and comparable late-stage startups, since lending has become a foot-in-the-door product for winning lead-underwriter mandates — a dynamic that culminated in Snap choosing Morgan Stanley and Goldman Sachs as lead IPO bankers a month later.
- Existing private-market investors face less pressure to defend the $16B+ valuation with another round, shifting the negotiation leverage toward the IPO pricing itself.
Third-order effects
- If the pattern holds, bank credit lines become standard infrastructure for companies bridging from venture funding to public listings, giving Wall Street banks a durable role in late-stage private-company finance that venture rounds previously monopolized.
The trend: Late-stage startups are increasingly using bank credit lines as pre-IPO bridge financing, letting Wall Street banks convert lending relationships into underwriting mandates.