The Entrance Fee For Today’s Startup Unicorn Club: $4 Billion

(An alternative title: Instagram Was Incredibly Stupid To Sell Themselves To Facebook At $1 Billion)

I have no doubt that the folks at Instagram are geniuses – after working with startups for quite a while now, I’ve come to realize that it takes way more than luck to arrive at a position where Instagram was (and still is). It takes determination, focus and tenacity to maintain and run a business the way it needs to be run after the moonshot rise to the top (being talked about by VCs constantly, being the #1 app in the “Photography” section of the app store, getting free – very prominent – advertising from Apple especially the times where they were featured in Apple’s keynotes).

In case you don’t know how a developer feels like when they see themselves getting featured in Apple’s keynotes, here’s a pretty good indicator, courtesy of Craig Hunter, whose app Theodolite was featured in Apple’s October keynote: “At that point, my mouth was agape and I was out-drooling my daughter (no small feat) even without toys in my mouth. I borrowed her spit cloth and collected myself…”  It’s a huge deal, not just for indie developers, but also companies.

It’s the difference between a couple thousands a month in revenue to a couple hundred thousands. Or millions. Rare? Yes. Impossible? Not really. And here’s the thing: Instagram wasn’t only featured once. They were featured a few times, over several keynotes.

By then, they could’ve just said, “Okay, we’re done. We’re successful. Let’s sell to Twitter.” But instead, they held out. Until the billion dollar offer from Facebook came, which they then gladly accepted.

But I’d bet that selling Instagram to Facebook for $1 billion is their biggest regret today. And maybe forever.

If they hadn’t sold themselves on impulse (more on this later), in a world where Snapchat is valued at as much as $4 billion dollars, they could have been valued (and sold themselves) at $5 billion (conservative estimates). Yes, the founders of Instagram could have received up to five times of what they did back when they sold themselves to Facebook late last year.

Now why would Instagram sell themselves to Facebook almost immediately after Facebook made the offer? My guess is that because Facebook made an incomprehensible offer. To Facebook’s credit, the number $1 billion probably wasn’t accidental. After all, the number $990 million doesn’t have the same effect as $1 billion. If you’re reading this comfortably on a table or a couch with your tablet or laptop, you most likely have dealt with a million (or more) dollars at some point in your life. Jobs, housing, stocks, etc. But $1 billion?

That’s unheard of.

Most of us can’t even picture what $1 billion looks like when we split them up into piles of $100 bills.

The founders of Instagram, who I’m guessing have never dealt with $1 billion just like the most of us, probably latched on to the offer right away – after all, this is as high as they can go right? I mean, one billion dollars!


The startup scene for the major players is very different today than it was six months ago. Today, $1 billion is old. It doesn’t symbolize much. $4 billion is the new benchmark. Six months ago, getting acquired by Facebook/Google was the epitome of every startup founder’s dream. Today, the ability to resist such an offer from a gigantic company is the new benchmark. It’s the new “cool”.

And guess what? Instagram could’ve joined the “cool” startup $4 billion unicorn club if it had not been so smitten by the $1 billion offer. They could have stood, shoulder to shoulder with companies like (right at the top of my head):

  • Spotify (raised $250M in the latest round of fundings – $4 billion valuation today)
  • Pinterest (worth $3.8M after latest round of fundings in October)
  • Snapchat (reportedly scuffed at a $4 billion offer from Google, and a $3 billion offer from Zuckerberg & Co.)
  • Uber ($4 billion valuation after raising more than $360 million, in a financing round led by Google Ventures)

But instead, they decided to sell out. Since their acquisition, their user engagement (shares, uploads, likes and other interactions) has been steadily increasing. If you take a look at the statistics Instagram provides, there is nowhere where you’ll see a dip in engagement. The only thing you’ll see is, if anything, an increase. Which goes back to my hypothesis that if Instagram had held out, they could’ve been worth – who knows – maybe even $10 billion. In fact, there’s really no reason why they shouldn’t be worth $10 billion, especially since they’ve recently begun showing that they could generate revenue through ads independently.

While Instagram was incredibly stupid, someone else, on the other side of the pond, was incredibly smart.

He knew Instagram was worth way more than $1 billion.

But he also knew that the founders of Instagram would latch onto the unheard of $1 billion. And in doing so, he inherited Instagram’s de facto revenue driver: its mobile strategy.

That person is, of course, Mark Zuckerberg.