By Evelyn M. Rusli
Yik Yak, the controversial anonymous-messaging app that has
spread rapidly across college campuses, is proof that it can take
as little as a year these days to go from zero to a valuation of
hundreds of millions of dollars.
Sequoia Capital has led a $62 million investment in Yik Yak in
the Atlanta-based startup's third funding round this year,
according to people familiar with the deal. Current investors are
expected to participate in the round.
The funding round values Yik Yak at between $300 million and
$400 million, according to people familiar with the matter.
The deal is a sign of investors' eagerness to plow money into
social and messaging apps, despite how crowded the market has
become. The $22 billion sale of WhatsApp to Facebook Inc. in
February and Snapchat's rising valuation--which recently hit $10
billion--has further stoked investor interest this year.
For Sequoia, which reaped one of the largest payouts in
venture-capital history this year with WhatsApp, the Yik Yak
investment marks another bet on a hot messaging app. The WhatsApp
deal likely earned Sequoia more than $3 billion from a $60 million
investment, a person familiar with the deal has said.
Jim Goetz, the partner who led Sequoia's WhatsApp investment
three years ago, is joining Yik Yak's board, said people familiar
with the matter.
Yik Yak, started by two recent graduates of Furman University in
South Carolina, isn't a household name. But the service has grown
rapidly across campuses since its debut last November. At the same
time it has drawn criticism from high schools, who say it is a
breeding ground for cyberbullying.
The service acts as an anonymous local bulletin board. People
located within the same area, such as a campus or a part of a city,
can post messages and replies of as many as 200 characters to one
another without names or aliases. The messages can range from the
mundane to the scandalous--and everything in between.
While the app has focused on college students, some high-school
students have used the service to bully and slander their peers,
and in some cases, prank their schools. In response, the startup
has tried to restrict the app's use through geo-fencing, building
virtual walls around the addresses of high schools.
Though the effort has worked in many locations, the company has
struggled to snuff out the problem. Last week, for instance, a high
school in Southern California was closed for two days after a Yik
Yak user posted a message threatening the school. The same week,
three teens were arrested in Pleasant Hill, Iowa, after similar
threats surfaced.
According to Yik Yak co-founder Tyler Droll, high-school
students haven't shown the maturity to use his app. He said that
until Yik Yak has better structures in place to handle potential
problems, he will try to keep the app out of high schools. Yik Yak
requires users to be 18 years or older, or 17 if permitted by a
parent or guardian.
The app is yet another take on anonymous and ephemeral
messaging, a trend that has erupted in the wake of Snapchat's
success.
While there are significant differences between Yik Yak and
Snapchat, a private chat service that allows users to send
self-destructing messages, both are a reaction to social networks
like Facebook, where a user's posts are tied to his real
identity.
By contrast, both Yik Yak and Snapchat are aimed at making it
easier for users to share content with less fear of judgment. Two
other apps, Secret and Whisper, have emerged this year as new takes
on anonymous messaging and raised tens of millions of dollars in
capital.
The story of Yik Yak's climb reads like a startup cliché.
Yik Yak was founded by Mr. Droll, 24 years old, and Brooks
Buffington, 23, who met as students at Furman. Like Facebook chief
Mark Zuckerberg and Snapchat Chief Excecutive Evan Spiegel, Messrs.
Droll and Buffington started the company as young
20-somethings.
Yik Yak is now on roughly 1,500 college campuses and
consistently ranks in the top 60 free apps in the Apple Inc. app
store.
After graduation, the co-founders decided to work on their app,
eschewing more traditional careers in finance and health. And, like
Facebook, the startup leveraged the close-knit nature of colleges
to rapidly attract users and spread by word-of-mouth. After
launching at Furman, Yik Yak spread to nearby Wofford College and
then region to region, soon moving further south, then all along
the East Coast, before hopping west.
Every time there was a break in classes, such as during a
holiday, the app would spread further as users met up with friends
from home, according to an interview with Messrs. Droll and
Buffington last month. Before the summer break this year, there
were about 200 college campuses on the app; when classes resumed in
the fall, the app jumped to roughly a thousand campuses, Mr. Droll
said.
Like Facebook and Snapchat before, Yik Yak has also wrestled
with its own founder drama. This month, it was sued by a former
classmate and fraternity brother of Messrs. Droll and Buffington
who says he is also a co-founder of the company. Yik Yak has said
it intends to fight the lawsuit vigorously.
As money continues to pour into Yik Yak, it remains to be seen
if the app can grow beyond its core demographic and stamp out its
use in bullying. The startup is trying to be relevant to
postcollege users, such as those in densely populated cities.
However, cities lack the same unifying elements of a college
campus, because they are comprised of more diverse groups of
people.
Yik Yak's previous backers include DCM, Azure Capital Partners,
Vaizra Investments, Atlanta Ventures, Renren Inc. and venture
capitalist Tim Draper. Before the latest financing round, the
startup raised two investments this year totaling $11.5 million. In
a sign of how fast investor interest has bloomed, the first
investment in April valued the company at roughly $10 million,
according to one person with knowledge of the matter.
Write to Evelyn M. Rusli at evelyn.rusli@wsj.com
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