Snapchat's focus on making money from an early stage will make it attractive for investors if the social media app goes public, one of its first investors told CNBC.
Jonathan Teo, founding partner at venture capital (VC) firm Binary Capital, invested in Snapchat in 2013 when it had just 120,000 users while he was at General Catalyst. The ephemeral messaging app now has a reported 150 million daily active users and is valued at around $20 billion, according to media reports.
Snapchat recently rebranded to Snap Inc, and is reportedly eyeing an initial public offering next year. While Teo did not confirm whether the company was going public, he said that if it did, he was "optimistic" investors looking to buy shares would find it an attractive company.
"Snapchat has obviously been experimenting a lot with monetization and they've got a lot of really innovative products and they continue to have innovative products in that regard," Teo told CNBC during an interview at the Web Summit technology conference in Lisbon on Monday.
"Because of the company's real focus on monetization, I think you are going to see some of those efforts really play out in terms of the business model that the company has, as compared to some of the companies that were focused on getting to growth and scale first," the investor added, referring to social media firms such as Facebook or Twitter.
Snap Inc has been trying to broaden its portfolio of advertising offerings. Earlier this year it introduced ads between "Stories" and opened up its so-called advertising application programming interface (API). This essentially makes it easier for third-party advertisers to create campaigns for the platform. As a result, Snapchat's ad revenue will grow to almost $1 billion in 2017, according to a new report by market research company eMarketer.
"I think investors should look at the fact that the company is experimenting with monetization early on, they are doing a great job at it…but more importantly the company is growing so incredibly fast within the 'Gen Z' demographic and that's the demographic that is eventually going to move into a high spend power," Teo said.
Generation Z refers to people born in the 1990s and early 2000s and comes after the "millennial" demographic.
Part of Snapchat's appeal is the ability to use "filters" which can be overlaid on people's faces when they take a selfie. This requires augmented reality (AR) technology which the social media app is strong at and could be key in its future growth.
"Snapchat is in a position where they actually are one of the largest players in the AR space. They are also a really big player in the ability to actually understand how users interact with each other from an emotional viewpoint, because they do get the data that a lot of other platforms don't gather," Teo told CNBC.