Snapchat just met with investors in New York and faced a tough set of questions

Snapchat executives in New York on Tuesday were peppered with questions about competition from Facebook, user growth for the disappearing-message app, and accessibility in less developed markets as they pitched investors on the company's shares.

Snap Inc., as Snapchat's parent company is known, is looking to raise as much as $3.2 billion in a much-anticipated initial public offering. The executives are traveling from London to San Francisco as they try and drum up interest in the sale.

Tuesday's meeting, on the 36th floor of the Mandarin Oriental hotel in New York City's Columbus Circle, drew a standing room only crowd that one investor described as "the entire hedge fund mafia."

Inside the hotel ballroom, guests bearing the bright yellow IPO pitchbooks distributed at the event were treated to a light, if uninspired lunch, and heady prognostications by Snap's management.

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Attendees ate sandwiches (described by one source as a "chicken caesar wrap") while Snap's 26-year-old CEO Evan Spiegel, chief strategy officer Imran Khan, and CFO Drew Vollero answered questions from the crowd, according to people who attended the event.

The meeting lasted less than an hour and consisted entirely of a question and answer session. The company had already released an introductory video online on Friday.

"There are 2.5 billion snaps created every day on our service," Spiegel said, according to one investor present. "We have an interesting perspective on the world based on what people are seeing, and that's where I'm spending most of my time today."

Snap is seeking a valuation of between $19.5 and $22 billion. It aims to begin trading on March 2.

The questions were tough, according to one investor present. Here are the main takeaways from a handful of money managers who attended the roadshow. They all asked not to be identified.

  • Investors were concerned about how Snap would generate revenue (or monetize) its user base, and investors debated the issue, according to one source. Snap sold its first ad at the end of 2014, and grew revenues from $58.7 million in 2015 to $404.5 million in 2016. The company's costs also came up.
  • Many of the questions focused on the deceleration in the Snapchat app's user growth in recent quarters.
  • In the fourth quarter, for example, Snap says it had 48% more users than a year earlier. That's the slowest growth rate for any of the 12 quarters for which it reported numbers.
  • Investors were concerned about the story feature built by Facebook-owned Instagram to compete with Snapchat's stories, which is a way for users to post images or videos for up to 24 hours. Investors wanted to be sure that Instagram stories won't affect Snap's growth.
  • Snap's leadership team said they're confident Facebook won't affect its business. They also attributed slow growth in the fourth quarter to problems accessing the app from Android phones. They said Snap will develop on Android at the same time as on Apple's iOS platform to help alleviate issues with the app on Android phones.
  • Spiegel emphasized Snapchat's high user engagement, pointing out that the 20-year-old cohort spends about 30 minutes a day on Snapchat, and that at the end of the day advertisers are concerned about that demographic.
  • Another questioner, however, raised concerns about the app's young user base and how to expand beyond that cohort.
  • One concern arose regarding problems with the Snapchat app only working on 4G networks, which could make it tougher for internet users in undeveloped countries to use the service. The company says it is focused on expanding more in developed markets, like Norway, for example.
  • One fund manager in attendance said he was disappointed not to hear any discussion of the company's corporate governance structure — specifically the issue of voting rights.
  • The public shares Snap will be offering at IPO have no voting power — an unusual structure that could test the commitment of investors. The fund manager said that although this was his main concern going into the meeting, it wasn't addressed.

One hedge fund investor told Business Insider that despite concerns raised, he is still looking to buy Snap shares. This investor said the valuation is a fair price.

"It's not that crazy when you think about the total ... market they're trying to go after," this person said, referring to the digital advertising market taking share from traditional broadcasters.

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