Facebook just splashed on a pre-IPO purchase, and this time it’s a significant move as it cost a whole lot of cash, $1 Billion to be exact and the target is Instagram.
Not since Google’s acquisition of YouTube for a similar amount has there been a buzz like this, what’s interesting to note is that instagram is just a 15 month old company with 13 employees who embarked on this journey without a business model and no revenue.
So why did Facebook pay so much for a photo-sharing app? it’s because Instagram is not just a photo-sharing app. Sure it made photo sharing applications for smartphones that allow users to take photos and jazz them with retro filters. But it was becoming a very powerful mobile social network that let you share the photos with friends on Instagram or on other social networks.
Only last week, Instagram closed a $50 million funding round from venture capital firms. The company’s valuation: A whopping $500 million.
Incredibly, such a number would turn out to be paltry in the days ahead. Shortly after that deal, Facebook Chief Executive Mark Zuckerberg contacted Mr. Systrom, Instagram’s 28-year-old CEO, to buy the company.
Mr. Systrom came up with the idea for Instagram and is the company’s largest shareholder with about a 45% stake, said people familiar with the matter.
The two had spoken about a deal the previous summer, according to other people familiar with the matter.
The acquisition came together over the weekend. “It was all Mark,” said Steve Anderson, a founding partner of Baseline Ventures, one of the company’s early investors. “It was CEO to CEO.”
for more on this subject:
insta-Rich: $1 Billion for Instagram (Wall Street Journal)