My Thoughts on the Instagram Acquisition
I just wanted to put some thoughts out on the acquisition... and this clearly was an acquisition (as opposed to the typical acq-hires in the past ).
So as a point of interest this will be a great opportunity to actually see how well Facebook can integrate Instagram with their own services. Are we still going to be using the Instagram name in two years from now (contrast to FriendFeed now) which has has every single featured integrated into Facebook and is essentially totally redundant now.

A few other points of interest which totally amazes me is how this news has taken practically everyone by suprise. It appeared that no one knew negotiations were underway. Ten minutes after Zucks and Systroms announcement every news/tech publication was rushing to put out a single sentence on the acquisition. There clearly wasn't any news embargo and Alexia Tsotsis was utterly shocked since for the morning she was writing up a story on Instagrams funding (I'll get to that in a second).
So the fact that Zuck could be the one to make this announcement is just sheer amazement.

Now, onto another shocker from all of this. The $1B acquisition. Unlike most other industries, tech companies have a nack for inflating their valuations (in both acquisitions and funding rounds) without regard to any revenue (think YouTube, OMGPOP more recently etc). So it's not like this is some unprecedented acquisition, it's happened before and will continue to happen. OMGPOP for example was able to drive up such high acquisition value because of what it represented as an obstacle to Zynga.
Equally, you can bet that Kevin Systrom was able to drive up the price in negotations with Facebook because of the value which it represents to other social networks. Was there a bidding war? Most likely. ( 35 million~ potentially new users would be nice. )
Robert Scoble summed up a possible idea quite nicely.
Mark Zuckerberg knows that social graphs equal lockin. I certainly am locked into both Facebook and Instagram. Letting Instagram get into Google or Microsoft's hands would be dangerous for Facebook. I sure would love to interview Mark or Kevin Systrom about this. But I doubt they will go on record.
But in addition to a potential bidding war, Instagram had also *just* closed a $50 million Series B round (with Sequoia leading it with a reported $20M). This round put the valuation at $500 million for Instagram.
So, a day after closing the round, Instagram get acquired. If someone has previous precedent for this happening before please point me to it. It's crazy.
Kevin would presumably have been trying to drive up the valuation of Instagram for the raising funds and could have been using a looming acquisition as a way of doing so. Equally, in reversal (and more likely) he could of increased the valuation of the acquisition by dangling the financing rounds in front of Facebook. So then you would be left with the situation where Instagram would delay on closing the round by one day to avoid dilution and then sell to Facebook. But for both to happen? It does not make sense in such short duration. Clearly a smaller piece of a bigger pie equal more pie! But for this to happen within such a short period makes it impossibly hard to believe.

You have to take your hat off to Kevin though, either Facebook and Instagram commenced acquisition negotiations after closing the round, or Kevin was multi-tasking both financing and acquisitions at the same time.
In which case, this leads onto the next strange thing.
$1B is a clear x2 multiple of $500M from the financing round. It's just all too perfect.
It's as if there was some kind of gentlemans handshake whereby Sequoia knew that there would be a high probability that they might be getting a x2 return immediately and a stupidly large IRR (internal rate of return).
In which case, why did Instagram close the funding round. It's like they were playing a game of chicken with Facebook, and Facebook didn't think they would pull the trigger.
It's odd.
(And congrats to Instagram).
Instragram photo kindy provided by Max Woolf.





































