snapchat-1These days it’s crazy how much a firm invests to keep tabs on what’s hot. But these hefty price tags sometimes make people scratch heads. At tonight’s PandoMonthly, Benchmark Capital’s Bill Gurley offered some insight into VCs’ rationale, using the example of the firm’s very large leading Series A investment in Snapchat.

No longer a new thing, for some reason Snapchat continues to garner buzz and interest. While the company doesn’t seem anywhere close to profitable, its valuation continues to go through the roof, (currently at over $500 million).

In February, Benchmark led the company’s Series A with a $12.5 million investment. From the onset, the firm saw potential in the self-destructing photo platform. “We believe that Snapchat can become one of the most important mobile companies in the world,” Benchmark partner Mitch Lasky wrote.

Part of the reason why Benchmark saw Snapchat as the wave of the future was the realization that information posted on most social media sites is permanent and public. “Young people began to look at Facebook the way that old people look at LinkedIn… It’s virtually public. Anything that goes up, it’s permanent,” Gurley told Sarah Lacy. Snapchat, then, was a way for people to communicate that wasn’t permanent or easily accessible by the outside world. As he put it, SnapChat was “a new way to share experiences that didn’t have that anxiety with it.”

But is an app that is synonymous with “dick pics” worth $13 million in funding? Gurley would say yes. The trend now is not how big the price tag, but how to adjust the price tag for products that just keep “going and going.” Snapchat is one of those products. What VCs are looking for is what Gurley called the “positive black swan.” That is, a product VCs wouldn’t necessarily see as profitable but grows to unthinkable proportions. When VCs are evaluating these potential black swans, “any price tag is kind of any price tag.”

And this isn’t a new phenomenon. On the contrary, these large price tags have some legendary predecessors. Think of Amazon or Facebook, for instance. Gurley reminds us that Kleiner Perkins invested in Amazon with a $70 million valuation, which was shockingly high at the time. And now Amazon’s market cap is $138.1 billion. These kinds of investments highlight that VCs can only lose their initial investment. Conversely, if something catches on, that investment can multiply tenfold.

And with Snapchat’s valuation approaching $1 billion, all Gurley is seeing green.