The Telegram App is thriving, but advertisers are needed – and $ 700 Million soon

Telegram is one of the few important social media opponents to Facebook Inc., Inc.

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on track to a billion active users per month by the end of 2022, up from around 550 million today.

But first Pavel Durov, the Dubai-based Russian émigré who owns Telegram, needs to work out how to transform the momentum of his app into a self-sustaining business.

“A project the size of ours needs at least a few hundred million dollars a year to keep going,” Mr Durov wrote in his public channel on Telegram at the end of last year. “In doing so, we will remain independent and true to our values, redefining how a tech company should operate. ”

To pay the bills, Mr. Durov is handing out $ 1 billion to investors to $ 1.5 billion of company debt, with the promise that equity will be discounted if the company eventually goes public, the people told the plans. It has also announced plans to start selling ads in public Telegram channels as early as later this year, as well as offering other key services to businesses and consumers.

A Telegram spokesman declined to comment on the issue of bonds or the amount of debt the company owes. The spokesman said Telegram’s equipment and broadband costs are growing as it has consistently posted more than 40% year-on-year growth in users.

Telegram offers public channels, which is a bit of a cross between Twitter TWTR -0.53%

restaurants and chat rooms, as well as private encrypted communications.

Messaging apps are very popular, but their business models are uncertain. WhatsApp Facebook still doesn’t deliver meaningful revenue for the social media company, and they recently announced a push for businesses to use the app for messenger service. Signal is on a non-profit basis and relies heavily on donations. Discord Inc.’s inaugural conversation began. $ 130 million in revenue last year from selling high-quality memberships to customers, but not yet profitable.

Telegram has to convince advertisers that its audience is wide, which could be a challenge after reports that far-right groups and white supremacists came to the app after being banned from other platforms. Mr. Durov must satisfy Apple as well Inc.

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and the Alphabet Inc.’s

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Google – whose app stores control most Telegram distribution – says the app can coordinate the threat of violence and coordinate illegal activities such as weapons and drug sales.

A Telegram spokesman said the company’s advertising strategy is likely to focus initially on Asia, Eastern Europe and the Middle East. He said Telegram has a working relationship with Apple and Google for content modeling.

Mr. Durov launched a Telegram in late 2013 with his brother, Nikolai, just months before he was pushed out of VK, the Russian social media platform he founded. Mr. Durov positioned his new app – funded by the money from the sale of VK – less as a business than as a way for people to send messages while avoiding government surveillance and censorship.

For a time, Mr. Durov did not have a fixed headquarters and a few dozen employees, but instead of traveling the world, set up shop in one city after another, he told the Journal in in 2016. The company’s operating base is now in Dubai, however. he says he doesn’t keep servers there.

Mr. Durov maintains a year-long friendship from his VK days with actor and tech investor Jared Leto, with whom he shares an ascetic lifestyle that runs meat and alcohol.

Mr Leto said there was “that X Factor so rare in founders,” with “a little bit of mystery in there for good measure.” When asked if he had invested in a Telegram bond offer, or whether he would have invested in a recent initial public offering, Mr Leto replied: “What is the first rule of a fighting club?”

Mr Durov has been proud to use the app with dissidents in Iran, Russia and elsewhere, writing “Telegram has never come under pressure from officials who called for censorship. political. ”

These principles were confirmed after the Islamic State terrorist attacks in Europe in 2015 and 2016, when militants used Telegram as a propaganda tool to recruit and communicate with attackers. Mr. Durov responded initially by defending the use of encryption to protect private chairs on his service.

The company also started removing terror propaganda from public channels when it was identified. A Telegram spokesman said the company was now “using a robust evaluation system” for public channels, including automated content monitoring and manual review systems.

At the end of 2017, Telegram began seeking investments in a new cryptocurrency. The company eventually sold about 200 investors early access to the currency units – known as gram – in two rounds that fetched $ 1.7 billion. Some investors said they had bought in because the next best thing in terms of equity – Mr Durov was unwilling to sell.

The U.S. Securities and Exchange Commission sued Telegram in late 2018 before it could issue the frontier currency, arguing that the company was illegally selling securities, which Telegram went denied. During the trial, the SEC said Telegram had funded more than 90% of its operating costs using investors ’money.

Telegram eventually settled the case, agreeing to pay a $ 18.5 million fine in June 2020. Telegram gave back to investors, which at the time accounted for 72% of the total, the spokesman said.

Some of those who invested say they felt fired. But Mr Durov offered non-US investors the opportunity to convert their repayments into one-year loans which, with interest included, would pay 110% of their initial investment on April 30, 2021, according to a copy of a loan agreement seen. with the Journal. These loans are now valued at around $ 700 million, according to those who received information about Telegram’s plans.

A Telegram spokesman said the losses suffered by some investors were regrettable, but said investors had been warned of regulatory risks. To repay their creditors, Telegram sells five-year bonds that pay around 7% or 8% per year, the recipients of information about the company’s plans said, with a sweetness that the distribution would those who buy the bonds at a 10% discount prefer the registration price if Telegram goes public.

Some of the fundraising plans were previously reported with the information.

It remains to be seen whether Mr Durov will hand over his company. Several investors said they doubt the founder would want to relinquish any control. In a Telegram message, Mr Durov told the Journal that he preferred IPO to funding from venture capital firms. “Being public is an open and democratic way of raising capital, which is in line with our values,” he said.

Instead of selling ads themselves, Telegram said that it is likely to initially use an agency model with which it would strike contracts with outside companies in various sectors to handle commission sales.

Large, brand-aware companies may be wary of appearing on a platform that is proud to refuse to cooperate with governments, and where hate and conspiracy theories are easy. found, said Brian Wieser, head of business intelligence at media buying conglomerate GroupM.

Even marketers who focus on driving clicks and sales – rather than building a reputation – may struggle to refuse Telegram to collect and share data about consumers because performance marketing requires detailed analysis, Mr Wieser said.

“It’s not known enough to get a billion views over a month,” he said. “You have to have a process in place to act against those ideas.”

Mr Durov said last month that he believes the use of consumer data to target advertising is immoral. A Telegram spokesman said it will be possible for advertisers to target ads by selecting topics, or even with a dedicated channel for displaying ads.

“Telegram intends to demonstrate that detailed, context-based advertising is not only an ethical alternative to targeted advertising, but can be just as effective,” the spokesperson said.

– Jeff Horwitz contributed to this article.

Write to Sam Schechner at [email protected]