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Deal of the Year: Facebook Buys Instagram

The scrappy San Francisco-based photo-sharing app company just raised a $50 million round, but now it's been acquired for $1 billion.
Kevin Systrom

Kevin Systrom

Mark Zuckerberg

Mark Zuckerberg

File this under staggering: Facebook announced today that it will acquire photo-sharing app Instagram for $1 billion. 

"For years, we've focused on building the best experience for sharing photos with your friends and family," Facebook CEO and founder Mark Zuckerberg wrote on his own Facebook page. "Now, we'll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests."

This news comes at an unusual time, as Instagram just raised $50 million in a Series B venture round, led by Sequoia Capital—putting the company at a $500 million valuation, according to a source familiar with the deal. 

Instagram CEO and co-founder Kevin Systrom wrote today on the company's blog: “With the support and cross-pollination of ideas and talent at a place like Facebook, we hope to create an even more exciting future for Instagram and Facebook alike.” 

While there isn’t much detail about how Instagram—which has 27 million users, and only about a dozen employees, will be integrated into Facebook—Systrom didn’t mince words about one thing.

"It's important to be clear that Instagram is not going away," wrote Systrom. "We'll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photos experience."

The deal means a whopping payday for Systrom: The CEO, who reportedly owns 40 percent of the company, will net a cool $400 million. Co-founder Mike Krieger owns about 10 percent, so his payday is around $100 million. 

About 14 months ago, Instagram closed a $7 million Series A round and was valued at a mere $20 million. In the last few months, the company has seen a flurry of activity. First, with its huge venture round and valuation, and then with a stellar debut of an Android version of the app (which was downloaded 1 million times in its first 12 hours on the market.)

The cash-and-stock deal will reportedly close later this quarter, and it's by far Facebook's largest acquisition to date. Some would say the deal marks Zuckerberg's readiness to squash any competition.

Here's a few noteworthy details you may have not known:

  • Instagram has never made a single penny of revenue. "We believe that the core of our product will always be free," the company explains on its website. "There will be opportunities for consumers to buy extra add-ons like special filters, etc. However, we plan to experiment with different models as we grow and learn what special value we can provide to the community to make their collective experience more engaging, exciting and useful."
  • The deal made plenty of people rich. The company first raised a seed round from Andreessen-Horowitz and Baseline Ventures in 2010. Months later, Instagram completed its $7 million Series A from Benchmark Capital and a few angel investors, including Adam D'Angelo, Jack Dorsey, and Chris Sacca.
  • Instagram's founder turned down a job offer from Zuckerberg in 2004. Kevin Systrom, a 2006 Stanford graduate, met Zuckerberg in the early days of Facebook. Apparently, the Facebook founder offered Systrom a position at his fledgling start-up, but Systrom declined.  "Unfortunately, I decided I wanted to stay in school, and that's one of those decisions that I look back at—I would've loved to have been part of Facebook's growth over the years, but it was the first time I met those guys," Systrom told Fast Company in 2011. "It was certainly the harbinger for what was to come in my future."
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Last updated: Apr 9, 2012

NICOLE CARTER | Staff Writer | San Francisco Bureau Chief

Nicole Carter is Inc.'s San Francisco bureau chief. She was previously an editor at New York Daily News, and her work has also appeared in Consumer Reports magazine.




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