How to Turn Down a Billion Dollars: The Snapchat Story

by Billy Gallagher

Farley turned and took a selfie using Snapchat as Evan and Bobby smiled and looked out at the crowd. Evan’s fiancée, supermodel Miranda Kerr, stood on the floor of the stock exchange, as did early Snapchat employees Dena Gallucci and Nick Bell and Snap chief strategy officer Imran Khan. Bobby and Evan pressed a button together and a bell rang out loudly, signaling the opening of the day’s trading. The assembled throng of Snap employees, friends, and reporters cheered. Farley encouraged the crowd to cheer louder. Evan, in a white shirt and gold tie, and Bobby, with a blue shirt and darker blue tie, smiled at the crowd, then turned and shared a moment. Bobby patted Evan on the back in celebration as Farley turned and shook hands with them each in turn. This was actually happening. $SNAP was priced at $17 a share, but it opened at a much loftier $24. Snapchat CFO Drew Vollero watched the stock jump and exclaimed, “That’s crazy!” After Snap began trading, Evan, Bobby, Kerr, and Khan headed over to the fourth-floor equities trading desk at Goldman Sachs on 200 West Street. When Snap’s stock jumped up to $24 right out of the gate, the Goldman trading floor broke out in jubilant cheers. The stock closed at $24.48, up 44 percent, with a closing market cap of $34 billion, on par with Marriott and Target. By the end of the day, Evan and Bobby were worth more than $6 and $5 billion, respectively. Never before had so much economic value been created by a consumer product, used by mill...

Evan was born on June 4, 1990, to a pair of highly successful lawyers. His mother, Melissa Thomas, graduated from Harvard Law School and practiced tax law as a partner at a prominent Los Angeles firm before resigning to become a stay-at-home mother when Evan was young. His father, John Spiegel, graduated from Stanford and Yale Law School and became a partner at Munger, Tolles & Olson, an elite firm started by Berkshire Hathaway’s Charlie Munger. His clients included Warner Bros. and Sergey Brin. Evan and his two younger sisters, Lauren and Caroline, grew up in Pacific Palisades, an upper-class neighborhood bordering Santa Monica in western Los Angeles. John had the kids volunteer and help build homes in poor areas of Mexico. When Evan was in high school, Melissa and John divorced after nearly twenty years of marriage. Evan chose to live with his father in a four-million-dollar house in Pacific Palisades, just blocks from his childhood home where his mother still lives. John let young Evan decorate the new home with the help of Greg Grande, the set designer from Friends. Evan decked out his room with a custom white leather king-size bed, Venetian plaster, floating bookshelves, two designer desk chairs, custom closets, and, of course, a brand new computer.

From kindergarten through senior year of high school, Evan attended Crossroads, an elite, coed private school in Santa Monica known for its progressive attitudes. Tuition at Crossroads runs north of $22,000 a year, and seemingly rises annually. Students address teachers by their first names, and classrooms are named after important historical figures, like Albert Einstein and George Mead, rather than numbered. The school devotes as significant a chunk of time to math and history as to Human Development, a curriculum meant to teach students maturity, tolerance, and confidence. Crossroads emphasizes creativity, personal communication, well-being, mental health, and the liberal arts. The school focuses on the arts much more than athletics; some of the school’s varsity games have fewer than a dozen spectators.2 In 2005, when Evan was a high school freshman, Vanity Fair ran an exhaustive feature about the school titled “School for Cool.”3 The school, named for Robert Frost’s poem “The Road Not Taken,” unsurprisingly attracts a large contingent of Hollywood types, counting among its alumni Emily and Zooey Deschanel, Gwyneth Paltrow, Jack Black, Kate Hudson, Jonah Hill, Michael Bay, Maya Rudolph, and Spencer Pratt. And that’s just the alumni—the parents of students fill out another page or two of who’s who A-listers. Actor Denzel Washington once served as the assistant eighth grade basketball coach, screenwriter Robert Towne spoke in a film class, and cellist Yo-Yo Ma talked shop...

Evan was attracted to technology early on, building his first computer in sixth grade and experimenting with Photoshop in the Crossroads computer lab. He would later describe the computer teacher, Dan, as his best friend. Evan dove into journalism as well, writing for the school newspaper, Crossfire. One journalism class required students to sell a certain amount of advertising for Crossfire as part of their grade. Evan walked around the neighborhood asking local businesses to buy ads; once he had exceeded his sales goals, he helped coach his peers on how to pitch businesses and ask adults for money. By high school, the group of 20 students Evan had started with in kindergarten had grown to around 120. Charming, charismatic, and smart, Evan threw parties at his dad’s house that were “notorious” in his words. Evan’s outsized personality could rub people the wrong way at times, but his energy, organizing skills, and enthusiasm made him an exceptional party thrower. He possessed a bravado that could be frustrating and off-putting but was great for convincing everyone that the night’s party was going to be the greatest of all time. Obsessed with the energy drink Red Bull and the lif...

In the fall of 2008, Evan burst onto the campus scene at Stanford. Known as “The Farm” because Leland and Jane Stanford founded the school on their old Palo Alto farm, Stanford has an idyllic 8,000-acre campus in northern California, just south of San Francisco. He lived on the top floor of Donner, a three-story all-freshman dorm. Evan quickly became friends with the guy who lived right across the hall from him, Reggie Brown. Evan could not possibly have imagined it at the time, but meeting Reggie would become one of the most important things he did at Stanford. Reggie was born on January 17, 1990, in Isle of Palms, an affluent coastal town just outside of Charleston, South Carolina. Reggie had a masterful way of making people feel welcome and comfortable around him, like he was genuinely interested in getting to know you. He could come across as a goofball at first, as he smoked and drank and made lowbrow jokes, but he was deeply intelligent and creative. Reggie knew from the day he got to Stanford that he wanted to be an English major and focus on writing. Reggie was a beef...

If you made a country out of all the companies founded by Stanford alumni, it would have a GDP of roughly $2.7 trillion, putting it in the neighborhood of the tenth largest economy in the world. Companies started by Stanford alumni include Google, Yahoo, Cisco Systems, Sun Microsystems, eBay, Netflix, Electronic Arts, Intuit, Fairchild Semiconductor, LinkedIn, and E*Trade. Many were started by undergraduates and graduate students while still on campus. Like the cast of Saturday Night Live, the greats who have gone on to massive career success are remembered, but everyone still keeps a watchful eye on the newcomers to see who might be the next big thing. With a $17 billion endowment, Stanford has the resources to provide students an incredible education inside the classroom, with accomplished scholars ranging from Nobel Prize winners to former secretaries of state teaching undergraduates. The Silicon Valley ecosystem ensures that students have ample opportunity outside the classroom as well. Mark Zuckerberg gives a guest lecture in the introductory computer science class. Twitter and Square founder Jack Dorsey spoke on campus to convince students to join his companies. The guest speaker lineups at the myriad entrepreneurship and technology-related classes each quarter rival those of multithousand-dollar business conferences. Even geographically, Stanford is smack in the middle of Silicon Valley. Facebook sits just north of the school. Apple is a little farther south. Google...

The fraternity’s leadership did a membership review, interviewing every member and weeding out any brothers who were deemed unfit to be a part of the house. Evan and Reggie were picked as two bad apples and kicked out of the fraternity. Reggie’s expulsion came as no surprise to anyone who’d been paying attention. He was known principally for getting wasted, breaking things, and leaving a mess in the kitchen. His room, which reeked of weed and tobacco, was filled with cups and plates from the house’s kitchen that he hadn’t bothered to return. He never showed up for house meetings or lent a hand on house cleans or party setups. Although he was very book smart and super friendly to everyone, he was a downright nuisance to live with. Evan’s case was not so clear-cut—ask ten people why he got kicked out and you’ll get ten different answers. Some say he was a willing scapegoat, volunteering to be kicked out because he knew he wouldn’t have the house for his senior year anyway. Others say he was scapegoated because he had angered younger guys by pushing for parties while the house was on probation. Others say Evan deserved to be kicked out because he didn’t want to fight hard enough get the house back, and he had been taking too cavalier an attitude toward the trouble the fraternity faced. No matter the reason, Evan was out. Guys in the fraternity blamed him for their house being taken away. Friends who he thought would have his back didn’t. Bad news came in threes for Evan. He h...

Finally, it was Evan’s turn. Showtime. He approached the front of the room like the entrance to a party, strutting confidently to show the crowd what he, Reggie, and Bobby had been working on tirelessly for the past six weeks. Confident and comfortable, Evan enthusiastically explained to the other thirty students, two professors, and half a dozen venture capitalists that not every photograph is meant to last forever. He passionately argued that people would have fun messaging via pictures. The response? Less than enthusiastic. Why would anyone use this app? “This is the dumbest thing ever,” seemed to be the sentiment underlying everyone’s tones. One of the venture capitalists suggested that Evan make the photos permanent and work with Best Buy for photos of inventory. The course’s teaching assistant, horrified, pulled Evan aside and asked him if he’d built a sexting app. The scene was reminiscent of another Stanford student’s class presentation half a century earlier. In 1962, a student in Stanford’s Graduate School of Business named Phil Knight presented a final paper to his class titled “Can Japanese Sports Shoes Do to German Sports Shoes What Japanese Cameras Did to German Cameras?” Knight’s classmates were so bored by the thesis that they didn’t even ask him a single question. That paper was the driving idea behind a company Knight founded called Nike. The VCs sitting in Evan’s classroom that day likely passed up at least a billion-dollar investment return. But it’s ve...

They would need a logo for the app, something that instantly enticed users to download and use Picaboo. Reggie and Evan sat together and created the logo over the course of a few hours, going back and forth on ways to symbolize the disappearing nature of the app. They settled on a friendly ghost who was smiling and sticking out its tongue. Evan drew the ghost in Adobe InDesign while Reggie tossed in ideas. Reggie named the ghost Ghostface Chillah, after the Wu-Tang Clan rapper Ghostface Killah. Evan studied the hundred most popular apps in the app store and noticed that none had yellow logos. To make Picaboo stand out, he put the Ghostface Chillah logo on a bright yellow background. Reggie slapped the logo on Facebook and Twitter pages he made for the app. While Evan worked hard on the design and vision for the product and Bobby coded, Reggie contributed less. Plenty of successful Silicon Valley founders do not write code; but they play other roles, relentless hustling in the early days of their companies, dominating nontechnical jobs like marketing and user growth. Reggie simply wasn’t doing that. Having recently turned twenty-one, he wanted to enjoy the Los Angeles nightlife, and he stayed out into the wee hours of the morning. While Evan and Bobby lived the plot of Silicon Valley, Reggie was more Entourage. Evan had always remembered and valued what Clarence Carter had told him when he worked at Red Bull, “When everyone is tired and the night is over, who stays and help...

When Jeremy Liew and Lightspeed had invested just a few weeks prior, Liew had included terms giving Lightspeed the right of first refusal to invest in Snapchat’s next round of funding, as well as rights to take 50 percent of the next round. Essentially, Lightspeed controlled Snapchat’s next round of funding and made Snapchat unattractive to other investors, who would want to take a larger stake in the Series A round. Evan was furious. He felt betrayed and taken advantage of. Liew had told him these terms were standard. Evan would warn other students about this betrayal for years to come, as he did in a keynote address at a Stanford Women in Business conference in 2013: One of my biggest mistakes as an entrepreneur involved a term sheet. This particular term sheet was our first. And when we talked to the venture capitalists, and we talked to our lawyers, they took refuge in the notion of Standard. When I asked a question because I didn’t understand something, I was reassured that the term was standard, and therefore agreeable. I forgot that the idea of STANDARD is a construct. It simply does not exist. So rather than attempt to further understand the document, I accepted it. It wasn’t until a bit later, when the company had grown and we needed more capital—that I realized I had made a very expensive mistake. He also warned in a 2015 talk at the University of Southern California, “If you hear the words ‘standard terms,’ then figure out actually what the terms are, because th...

As everyone streamed into the house, the music blared and the liquor flowed. All of the furniture in the house had been taken out and replaced with bars or dance floors. The outside deck was covered in people, bars, and heat lamps. People who hadn’t been lucky enough to be invited snuck into the party through a hole in the fence. Inside, partygoers talked with old classmates, danced, and scoured the crowd for a midnight kiss. Upstairs, Evan had created a sectioned-off VIP area, with more bars and friends. It was a house party on steroids, with one hundred, maybe two hundred people crammed into Snapchat’s new headquarters to sip champagne and ring in the New Year. John Spiegel stopped by the party, saying hi and congratulating Evan, Bobby, David, Daniel, and Evan’s girlfriend at the time. He chatted with some of Evan’s friends he had met over the years, sharing a sense of bewilderment over how quickly his son’s crazy scheme had taken off. John had worked his way up a very traditional ladder, climbing from the law review to a Supreme Court clerkship to becoming an extremely successful litigator. Evan had eschewed a bachelor’s degree from Stanford to focus on his seemingly quixotic business. Everything seemed to be going perfectly.

Reggie hired James Lee, an up-and-coming partner at Lee Tran & Liang, as his lawyer in the case. Lee had begun his career as an LAPD detective; when he started studying at Stanford Law School, the Palo Alto campus was so quiet it gave him insomnia. Evan and Bobby still retained Cooley LLP, who responded to Reggie’s letter in May 2012, as their lawyers for Snapchat. The ensuing discovery and depositions cost Snapchat significant time and money, but perhaps most importantly it weighed heavily on Evan at a pivotal point for the company. On April 5, Evan, Bobby, and their attorneys from Cooley, along with Reggie and his attorneys from Lee Tran & Liang, filed into a conference room in Cooley’s offices in downtown Santa Monica. Outside, tourists strolled up and down Santa Monica Boulevard, stopping in the trendy neighborhood’s upscale shops, restaurants, and bars; they might walk down the palm-tree-lined street to the beach or the famous pier. Inside the conference room the temperature was more frigid. Cooley’s Mike Rhodes began deposing Reggie, attempting to establish that Reggie had accomplished little since graduation: “What is your current employment, if any?” “Well, currently I’m working in the South Carolina attorney general’s office.” “And how long have you worked there?” “I guess about a month at this point.” “And what is your position?” “It’s basically an intern/clerk position.” “Is that a nonpaying position?” “Yes, it is.” “And again, what was your approximate start da...

James Lee asked Bobby if he had ever referred to Reggie Brown as an employer at Picaboo. Bobby said he hadn’t. Lee showed him an automated email from Facebook, reading “Bobby Murphy tagged you in Picaboo under Employers.” Bobby’s eyes darted, his head tilted down, and he twitched his mouth nervously. Glancing up at Lee, he sheepishly replied “Uh … Well it looks like here that I did something to that effect,” Murphy said. “I don’t have a specific recollection of this happening … although I would say that it would have been unclear to me what … tagging someone as an ‘employer’ under Facebook would mean.” The following Monday, it was Evan’s turn in front of the deposition camera. Like Bobby, Evan got tripped up a few times. After getting Evan on the record that Reggie had not been building an application with Evan and Bobby, Lee showed Evan an email he sent to Nicole James, the blogger who wrote about Snapchat, in which he wrote, “I just built an app with two friends of mine (certified bros.)” Evan reluctantly admitted that the two people he was referring to were Bobby and Reggie. The deposition continued: “Did you come up with the idea for deleting picture messages?” “No.” “Did Bobby come up with the idea?” “No, he did not.” “Who came up with the idea?” “Reggie did.” “Do you think Reggie deserves anything for the contributions he made on the project?” Evan paused for seven seconds. The room was dead silent. “Reggie may deserve something for some of his contributions.” “Do yo...

Evan looked tired and miserable, his shoulders slumped in the chair, his eyes sullen and searching for the ground. “I regret inviting him to my house. I regret spending that time with him at my house. I regret giving him so many chances. He exploited my attempts at generosity … the generosity was giving Reggie an opportunity to work on something like this … for experience that he didn’t have.” “Do you regret Reggie sharing his idea with you?” There was no pause this time. “No.” These depositions did significant damage to Snapchat, both in the case and in the court of public opinion. Someone leaked videos of the depositions to Business Insider, making Evan and Bobby look bad for cutting Reggie out of the company and initially lying in response to deposition questions about Reggie’s level of involvement. After these disastrous depositions, Evan and Bobby replaced Cooley with David Quinn and the team at Quinn Emanuel Urquhart & Sullivan, the same firm where Lee and his partners got their start. It was also the firm that represented the Winklevoss twins in their infamous suit against Mark Zuckerberg and Facebook. David Quinn was tenacious in and out of the courtroom, running Ironman triathlons in his free time. Evan and Bobby were convinced Quinn Emanuel could use their experience from the most infamous startup lawsuit of all time to help them defeat Reggie. Quinn Emmanuel was much more aggressive than Cooley had been. They filed a sea of requests for documents, depositions, a...

Lee Tran & Liang tried to have Quinn Emmanuel thrown off the case, as Reggie had tried to get another Quinn Emmanuel lawyer to take his side of the case before he went to Lee Tran & Liang. Ultimately, the judge ruled against Reggie and said the waiver Reggie had signed and the ethical wall Quinn Emmanuel erected were sufficient for them to continue representing Evan, Bobby, and Snapchat. Lee Tran & Liang also tried to sue all of Snapchat’s investors, claiming their shares were diluting Reggie’s one-third stake. They even lined up a tell-all interview for Reggie with GQ magazine, but he backed out at the last minute. At one point, Lee’s partner Luan Tran took a copy of Forbes magazine with Evan on the cover, scrawled red devil horns over his head, and pinned it to the wall in his office. The combative trial would wage for months, and each side had plenty more cards to play. Reggie claimed he owned one-third of Snapchat’s intellectual property since he filed the original patent (which, again, was never approved). He also claimed that they had entered into an oral partnership agreement when he and Evan initially agreed to split everything 50/50 (before they brought Bobby in). Evan ...

One of the most difficult parts of the case was that Snapchat’s valuation continued to soar throughout the lawsuit, climbing from $70 million when Reggie filed to $800 million in a matter of months. Soon, the company was worth billions. If Reggie was owed something, what was a fair amount? If a picture is worth a thousand words, and Evan’s disappearing pictures company was worth millions and then billions, how much was Reggie’s idea worth? The lawsuit had a significant effect on Evan; he was already secretive and a bit paranoid by nature, but the lawsuit, combined with Snapchat’s growing public profile, made him retreat further into the bunker—he preferred to take walking meetings so that others wouldn’t overhear him, and he noted that iMessage and emails are permanent records. The stress was clear...

At a young age, Evan would listen in on his father’s long legal calls, which he credits for giving him early business exposure that helped develop his critical thinking and business accumen. He can often become obsessed with ideas, hungrily learning everything he can about them at a rapid pace. Evan is constantly curious and is learning and getting better at being a CEO very quickly. But his two superpowers are (1) his ability to get inside his users’ heads and think like a teenage girl and (2) his knack for attracting brilliant, powerful mentors. Evan loves picking other people’s brains over a walk or a meal. Over the years he has attracted an A-list roster of mentors, including SoftBank’s Nikesh Arora, Twitter’s Jack Dorsey and Google’s Eric Schmidt. He doesn’t just limit these brain dumps to tech luminaries, though, as he often walks and chats with fashion designers, politicians, documentary filmmakers, and other intriguing peers. Often, these impressive people will come speak to Team Snapchat at their Venice headquarters.

The lawsuit was also a major distraction to Evan, Bobby, and Snapchat, during a time when they needed to focus more than ever. Finally, they reached a settlement. Reggie would receive $157.5 million and sign a gag order to never speak about Snapchat, the founding, or the lawsuit. Snapchat would acknowledge Reggie’s contributions to the company. Like Facebook’s multiple lawsuits with the Winklevoss twins and Eduardo Saverin, it’s difficult to neatly arrange the characters into winner and loser columns. Reggie Brown likely could not have built Snapchat into the multibillion-dollar company it is today. But he did not simply toss an idea out there for anyone to take—he recruited Evan, the best person he knew for the task, to join him and start the company. So what is fair for each side to receive? Snapchat’s valuation soared so high and so quickly during the lawsuit that it was hard for each side to wrap their heads around it, let alone arbitrate what each side deserved. This question isn’t going away. The Social Network, featuring courtroom scene after courtroom scene of friends hurling accusations at each other through expensive lawyers, spurred scores of young college students to pursue startups. Evan’s massive success with Snapchat has only increased the startup fervor on Stanford’s campus. And Reggie’s lawyers’ firm, Lee Tran & Liang, has become the hot law firm for ousted startup cofounders to sue young tech companies.