Posts Tagged Kevin Systrom
In Facebook Deal, Board Was All But Out of Picture
On the morning of Sunday, April 8, Facebook Inc.’s youthful chief executive, Mark Zuckerberg, alerted his board of directors that he intended to buy Instagram, the hot photo-sharing service.
By the time Facebook CEO Mark Zuckerberg brought his board in on the plan to buy hot photo-sharing service Instagram for $1 billion, the deal was all but done. Drew Dowell has details on The News Hub. Photo: Kimihiro Hoshino/AFP/Getty Images
It was the first the board heard of what, later that day, would become Facebook’s largest acquisition ever, according to several people familiar with the matter. Mr. Zuckerberg and his counterpart at Instagram, Kevin Systrom, had already been talking over the deal for three days, these people said.
Negotiating mostly on his own, Mr. Zuckerberg had fielded Mr. Systrom’s opening number, $2 billion, and whittled it down over several meetings at Mr. Zuckerberg’s $7 million five-bedroom home in Palo Alto. Later that Sunday, the two 20-somethings would agree on a sale valued at $1 billion.
It was a remarkably speedy three-day path to a deal for Facebook—a young company taking pains to portray itself as blue-chip ahead of its initial public offering of stock in a few weeks that could value it at up to $100 billion. Companies generally prefer to bring in ranks of lawyers and bankers to scrutinize a deal before proceeding, a process that can eat up days or weeks.
INSTADEAL: Facebook CEO Mark Zuckerberg, pictured, largely negotiated the deal over a few days with Instagram’s Kevin Systrom.
Mr. Zuckerberg ditched all that. By the time Facebook’s board was brought in, the deal was all but done. The board, according to one person familiar with the matter, “Was told, not consulted.”
Mr. Zuckerberg owns 28% of Facebook’s stock, and controls 57% of its voting rights, giving him the freedom to act independently if he wants. Mr. Systrom, similarly, owns about 45% of his company. That control means investors must accept the fact that the CEOs can move quickly.
Advocates argue this can be an asset in an industry—online services and social networking—where competitive threats can emerge with lightning speed. In the Instagram deal, one of Mr. Zuckerberg’s concerns was Mr. Systrom might have reacted negatively had he approached him through lawyers, people familiar with the matter said. Facebook’s CEO got a hand from Amin Zoufonoun, Facebook’s director of corporate development, to hammer out details later in the talks, a person familiar with the matter said.
Instagram’s Kevin Systrom.
“You want the board to provide caution to the CEO,” said Ralph A. Walkling, executive director of the Center for Corporate Governance at Drexel University’s business school. “They are the last line of defense for minority shareholders.”
Facebook’s chief operating officer, Sheryl Sandberg, learned the Thursday before the deal from Mr. Zuckerberg that he intended to push to acquire Instagram, though she wasn’t directly involved in the negotiations, according to a person familiar with the matter. Ms. Sandberg, 42 years old, joined Facebook from Google Inc. in 2008 in part to provide more professional executive support to the company’s CEO. Mr. Zuckerberg’s handling of the Instagram acquisition is a reminder that Facebook is still in some respects a one-man show.
The three-day sprint to the deal started on April 5, when Mr. Zuckerberg picked up the phone and asked Mr. Systrom to meet. At the time, Mr. Systrom was just hours from signing a deal for a $50 million venture-capital investment that would put a $500 million value on his company, which had just 13 employees and no revenue. Mr. Zuckerberg had been interested in acquiring Instagram since the previous summer and had decided it was time to do a deal.
Wall Street’s traditional rules for valuing companies offer little help in putting a number on a company like Instagram. While the start-up, just 18 months old, had no revenue, its fast growth gave Mr. Systrom leverage. His company is strong where Facebook has been weak—on devices like the iPhone—and took aim squarely at Facebook users’ favorite activity, sharing photos.
Instagram makes a smartphone “app” that lets people take photos, dress them up with special effects, and easily share them with friends. In the first three months of this year, its user base nearly doubled, to about 30 million, the company says.
After Instagram released a version of its app for phones powered by Google Inc.’sGOOG -0.35% Android software on April 3, the user base shot up again, to around 35 million at the time of the Facebook deal.
Mr. Zuckerberg was particularly concerned when he saw millions of people signing up for the Android app, people familiar with the matter said. One concern: Facebook was falling behind in mobile as younger start-ups were innovating more quickly.
In the past, Facebook’s acquisitions were primarily about bringing in talented engineers. Once Mr. Zuckerberg identified the people he wanted, he typically let others in the company work out the details.
This time, however, he took the lead himself. “Mark spent the time that weekend,” said Steve Anderson, a founding partner of venture firm Baseline Ventures, Instagram’s first investor. “It was a real statement to Kevin of the importance of why Mark wanted to do it.”
The two CEOs began their talks Thursday night at Mr. Zuckerberg’s remodeled, century-old home, and met there again Friday and Saturday, wrapping up with a 12-hour session on Sunday, people familiar with the matter said. Each night, Mr. Systrom drove back to his house in San Francisco, one of the people said.
Instagram launched on Oct. 6, 2010. On its first day, it garnered around 25,000 users. By May 2011, it hit 3.75 million. That fast growth attracted suitors early on—including an outreach from Twitter Inc. in early 2011 and from Mr. Zuckerberg that summer, people familiar with the matter said. But Mr. Systrom rebuffed them, intent on building his own company.
Now, however, Mr. Systrom found himself in Mr. Zuckerberg’s house asking $2 billion for Instagram. Mr. Zuckerberg suggested looking at the value of Instagram as a percentage of the value of Facebook, people familiar with the matter said.
Mr. Zuckerberg, who planned to pay for Instagram mostly with stock, asked Mr. Systrom what he thought Facebook would be worth, the people said. If he believed Facebook would one day be worth as much as a company like Google at $200 billion or more, then the equivalent of 1% of Facebook would be sufficient to meet his price, Mr. Zuckerberg told Mr. Systrom, the people said.
It was as good an argument as any, considering that traditional ways of valuing a company—by its cash flow, or the sum of its parts—are ineffective when that company makes only one product and gives it away free.
Mr. Zuckerberg also offered Mr. Systrom assurances that Instagram could remain independent under Facebook. On Saturday and Sunday, Facebook’s Mr. Zoufonoun helped hammer out the details at Mr. Zuckerberg’s home. Mr. Zoufonoun declined to comment through a Facebook spokesman.
The arguments were working. Mr. Systrom was on the phone with his investors Sunday as he drove down to Palo Alto around noon for what would be a final day of negotiations, according to a person familiar with the matter. Early that day, Mr. Zuckerberg emailed his board to say a deal was close, people familiar with the matter said.
At around 6 p.m. that evening, Facebook board member Marc Andreessen showed up at Mr. Zuckerberg’s house for a regular meeting. What he didn’t know was that Mr. Systrom was in another room, getting his own board to sign off, people familiar with the matter said.
Mr. Andreessen, whose venture-capital firm was the second to invest in Instagram, cutting a $250,000 check before the service launched, was surprised when Mr. Systrom walked into the room about an hour into his meeting with Mr. Zuckerberg, the people said.
And a day later, Mr. Zuckerberg returned to Instagram, a service he hadn’t used since the previous June, posting a photo on Instagram of his white Hungarian Puli, named Beast, “sleeping off the edge of the bed.”
- Mark Zuckerberg kept Facebook board out of Instagram negotiations, claims WSJ (theverge.com)
- Zuckerberg did Instagram deal by himself, whittled Systrom down from $2 billion (digitaltrends.com)
- Instagram Wanted TWO Billion From Facebook Deal (sfist.com)
- Instagram CEO wanted $2 billion from Facebook (rumor) (zdnet.com)
- Instagram Wanted $2 Billion From Facebook, And Here’s Why (cultofmac.com)
- In Facebook deal for Instagram, board was all but out of picture (nextlevelofnews.com)
- Mark Zuckerberg Bypassed Facebook Board, Bankers & Lawyers During Instagram Deal (marketingland.com)
- Zuckerberg closed Instagram deal without Facebook board approval (arstechnica.com)
- The Facebook-Instagram deal went down in 48 hours – The Washington Post (mbcalyn.com)
- In Facebook Deal, Board Was All but Out of Picture (allthingsd.com)
Facebook’s $1B Instagram deal only took 48 hours
By Jennifer Van Grove | VentureBeat.com, Published: April 13
The billion-dollar deal that shock the web took, from start to finish, just 48 hours, according to inside sources.
Monday, Facebook announced that it was acquiring photo-sharing phenom Instagram for $1 billion in cash and stock. The deal, reports the New York Times, was championed by none other than power-player CEO Mark Zuckerberg, and pieced together in record time.
“Less than 24 hours after the ink dried on Instagram’s latest financing round — an investment that valued it at roughly $500 million — Mr. Zuckerberg placed a call to Kevin Systrom, Instagram’s chief executive,” the Times reports.
The story goes that Zuckerberg, Systrom, and their respective companies spent this past weekend ironing out the details before going live with the news Monday morning.
Facebook for its part won’t confirm the insiders’ accounts, but the details match up with an earlier report from Fortune. Sources told the publication that the Facebook-Instagram deal was started only after the beloved photo-sharing startup secured a (still rumored) $50 million round from Seqouia, Thrive, Greylock, and Benchmark.
“I think Facebook panicked,” a person told Fortune. “So it decided to take out the competition before it had a chance to grow even bigger.”
VentureBeat’s friends in the financial community agree. “Facebook’s short-term threat, which could eat into their IPO valuation, was Instagram,” Moor Insights and Strategy president and principal analyst Patrick Moorhead told us when the news broke. “They removed that problem.”
- The Instagram Deal: A Mark Zuckerberg Production (dealbook.nytimes.com)
- The Facebook-Instagram deal went down in 48 hours (venturebeat.com)
- Zuckerberg personally arranged Instagram deal (thetechblock.com)
- A Picture’s Worth A Billion Dollars (brandtstandard.com)
- Facebook buys Instagram for a $1B price (techenergize.wordpress.com)
- Instagram goes the Facebook way (socialmediaalley.wordpress.com)
- Why Instagram’s Kevin Systrom Couldn’t Refuse Facebook’s Mark Zuckerberg Twice (fastcompany.com)
- Understanding Facebook Instagram affair – The billion-dollar deal (ceoworld.biz)
- Facebook’s Zuckerberg wrapped Instagram deal in two days (electronista.com)
- Facebook Buys Instagram for $1 Billion (theprbuzz.wordpress.com)