The Telegram app is booming, but it needs advertisers and soon $ 700 million

Telegram is one of the few major social media challenges on Facebook Inc.,

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in a trajectory towards one billion active users each month at the end of 2022, of the current approximately 550 million.

But first Pavel Durov, the Dubai-based Russian emigrant and owner of Telegram, needs to figure out how to turn the momentum of his application into a self-sustaining business.

“A project our size needs at least a few hundred million dollars a year to move forward,” Durov wrote on his public channel on Telegram late last year. “As we do so, we will remain independent and stay true to our values, redefining the operation of a technology company.”

To pay the bills, Mr. Durov issues investors between 1 and 1.5 billion of the company’s debt, with the promise of a discount on equity if the company is finally made public, people reported on the plans. It has also announced plans to start selling ads on public Telegram channels as early as this year, in addition to offering other premium services for businesses and users.

A Telegram spokesman declined to comment on the issuance of bonds or the amount of debt the company owes. The spokesman said Telegram’s equipment costs and bandwidth are growing because it has seen year-on-year user growth of more than 40%.

Telegram offers audience-oriented channels, which are a kind of crossover between Twitter TWTR -0.53%

feeds and chat rooms, as well as encrypted communications that are private.

Messaging applications are growing in popularity, but their business models remain uncertain. Facebook’s WhatsApp still doesn’t provide significant revenue for the social media company and it recently announced a push for companies to use the app to serve the customer. Signal is owned by a non-profit foundation and is based primarily on donations. The beginning of the chat Discord Inc. it generated revenue of $ 130 million last year by selling premium subscriptions to users, but it’s still not profitable.

Telegram will have to convince advertisers that its audience is wide, which could be a challenge after it was reported that far-right groups and white supremacists came to the app after being banned from other platforms. Durov will also have to satisfy Apple Inc.

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and Alphabet Inc

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Google, whose app stores control most of Telegram’s distribution, allows the app to curb threats of violence and coordinate illicit activities such as the sale of weapons and drugs.

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

Durov launched Telegram in late 2013 with his brother, Nikolai, a few months before he was expelled from VK, the Russian social networking platform he founded. Durov launched his new app, funded with proceeds from the sale of VK, less as a company than as a way to send messages to people, avoiding government surveillance and censorship.

For a time, Mr. Durov and a few dozen officials did not have any fixed headquarters, but traveled around the world, setting up shops in one city after another, he told the Journal in 2016. The company now has the its operating base in Dubai, but says it does not maintain servers there.

Mr. Durov has maintained a long friendship since his VK days with actor and tech investor Jared Leto, with whom he shares an ascetic lifestyle that shuns meat and alcohol.

Mr. Leto described Mr. Durov as “that X factor that’s so rare in the founders,” with “a little mystery in there, for good measure.” Asked if he had invested in Telegram’s bond offering, or if he would invest in an initial public offering, Mr. Leto replied, “What’s the first rule of the wrestling club?”

Durov has been proud of the use of the app by dissidents in Iran, Russia and elsewhere, and wrote that “Telegram has never yielded to pressure from officials who wanted us to do political censorship.”

These principles were tested after the Islamic State terrorist attacks in Europe in 2015 and 2016, during which militants used Telegram as a propaganda tool to recruit and communicate with potential attackers. Durov initially responded by advocating the use of encryption to protect private chats from his service.

The company also began withdrawing terrorist propaganda from public channels when it was branded. A Telegram spokesman said the company now “employs a robust moderation system” for public channels, including automated content control and manual review systems.

In late 2017, Telegram began soliciting investments in a new cryptocurrency. The company eventually sold about 200 investors early access to currency units (known as grams) in two rounds that reported $ 1.7 billion. Some investors said they had bought because it was the next best thing to the equity, which Durov was unwilling to sell.

The U.S. Securities and Exchange Commission sued Telegram in late 2018 before it could issue the currency, arguing the company was selling securities illegally, which Telegram denied. During the lawsuit, the SEC said Telegram had financed more than 90 percent of its operating costs with investor cash.

Telegram finally settled the case, agreeing to pay a $ 18.5 million fine in June 2020. Telegram returned all remaining funds to investors, who at the time accounted for 72 percent of the total, the spokesman said.

Some of those who had invested say they felt burned. But Durov offered non-US investors the chance to convert their repayments into one-year loans that, with interest, would pay off 110% of their initial investment on April 30, 2021, according to a copy of a loan agreement seen by the Journal. These loans are now valued at approximately $ 700 million, according to people informed about Telegram’s plans.

A Telegram spokesman said the losses of some investors were unfortunate, but added that investors were warned of regulatory risks. To repay its creditors, Telegram sells five-year bonds that pay approximately 7% or 8% a year, people reported on the company’s plans, with a sweetener that those who buy the bonds would have a preferential allocation 10% discount on the publication price if Telegram goes public.

Some details of the fundraising plans were previously reported by The Information.

It remains to be seen whether Durov will make his company public. Several investors said they doubt the founder wants to relinquish any control. In a Telegram message, Durov told the Newspaper that he preferred a IPO rather than financing venture capital firms. “Making public is an open and democratic way of raising capital, which is more in line with our values,” he said.

Instead of selling ads on their own, Telegram said it is likely to initially use an agency model through which it would establish agreements with outside companies in different regions to manage commission sales.

Large brand-sensitive companies may be wary of appearing on a platform that prides itself on refusing to cooperate with governments and where it is easy to find hate speech and conspiracy theories, said Brian Wieser, chief of business intelligence of media buying. conglomerate GroupM.

Even marketers aimed at generating clicks and sales, rather than building a reputation, could have difficulty with Telegram’s refusal to collect and share data about its users, because performance marketing requires detailed analysis, he said. dir Wieser.

“It’s not enough to know that a billion impressions can be obtained over a month,” he said. “You need to have a process to run against these impressions.”

Durov said last month that he considers the use of user data to target advertising to be immoral. A Telegram spokesman said advertisers will be able to target ads by selecting topics, or even by a specific channel where to display ads.

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

—Jeff Horwitz contributed to this article.

Write to Sam Schechner at [email protected]