BEST OF THE WEB: Inside the secret $1 billion Facebook-Instagram deal

The acquisition of Instagram for $1 billion in 2012 was one of the more shocking moments in recent technology news. Given the company had only been around for 18 months, it was a valuation unheard of for such a business.

The fact the business was founded by two men in their 20s – and with no revenue model to speak of – makes the deal all the more interesting.

A new piece over at Vanity Fair delves into the inside story behind the deal. At the time of the deal, Instagram had only 13 employees, and 30 million users. Already, with no revenue stream, Instagram had 30 million iPhone users.

The piece delves into the relationship between founders Kevin Systrom and Mike Krieger, who met at Stanford University and then started up in business together after graduating.

The two worked together on a start-up, Burbn, which had attracted $250,000 from Andreessen Horowitz. But as a check-in service, it failed to gain traction against a massive amount of competitors.

They eventually came up with the idea to allow a social network for pictures, which had been tried before, but not popularised. With photography being such a big part of the social media experience, it made complete sense.

After struggling to keep up with massive growth, that’s when things got interesting. Facebook founder and chief executive Mark Zuckerberg called up Systrom and started wooing the pair over an acquisition.

“They got a lot of traffic from Facebook,” Zuckerberg says. “And it occurred to me we could be one company.” Presumably, it also occurred to him that the then little Instagram could pose a very real threat to Facebook.

It was not an idle worry: Instagram was hip, elegant, fun, and “mobile-first,” and moving to mobile was a burgeoning problem for the largely desktop-bound Facebook.

The piece highlights a key part of the deal which Systrom found attractive: Instagram could operate independently within Facebook. Usually, Facebook will hire a company for the talent and disband the technology. Not this time.

“Most of the other things we bought were talent acquisitions, but in this case we wanted to keep what it was and build that out,” says Zuckerberg.

And while Zuckerberg was hosting a Game of Thrones party, Systrom made the call to his investors. The deal was on.

Systrom spent much of the time outside in the yard, on the phone to the lawyers. “I didn’t watch the show,” he says. Rather, he spoke to his investors to inform them of the decision and get a sign-off.

Of course, this ignores an entire sub-plot – that Twitter was looking to put in a bid at the same time. In fact, Twitter co-founder Jack Dorsey says news of the deal was hard to hear.

“I was heartbroken, since I did not hear from Kevin at all. We exchanged e-mails once or twice, and I have seen him at parties. But we have not really talked at all since then, and that’s sad.”

It seems this happy story has a dark side. If you’re interested in the two companies – or in any sort of juicy acquisition story – then this is definitely a must-read.

The Y Combinator experience

Y Combinator has spawned more tech success stories than most other incubators can name. Reddit, Dropbox and Airbnb are just a few of its successful ventures.

So what makes this incubator experience so different?

A new piece over at The New York Times delves into what exactly makes Y Combinator so great. After all, as the piece points out, 72% of the first 249 start-ups that spawned through Y Combinator ended up raising money after their first demonstration day.

This day, called D-Day, is where hundreds of investors and journalists descend on the Y Combinator camp to hear start-up entrepreneurs give their company pitches. From there, investors can meet up with whomever they find the most impressive.

In the weeks and months following Demo Day, those few who fail to attract enough interest must decide whether to begin a new company, find employment at Google or Facebook or persist and grow “organically” — an unsightly word in the valley of silicon.

An interesting tidbit from the article – Y Combinator founder Paul Graham has noticed the longer he takes to determine whether he should invest, the less likely that company will receive any money.

But after ranking every Y.C. company by its valuation, Graham discovered a more significant correlation. “You have to go far down the list to find a C.E.O. with a strong foreign accent,” Graham told me.

“Alarmingly far down — like 100th place.” I asked him to clarify. “You can sound like you’re from Russia,” he said, in the voice of an evil Soviet henchman. “It’s just fine, as long as everyone can understand you.”

Google Glass etiquette

The first batch of Google Glass devices are out in the wild with developers and early testers. Of course, this has raised a lot of questions – how do you act when someone you’re speaking with could be filming you with a device on your face?

Thankfully, The Wall Street Journal has come to the rescue with some Google Glass etiquette. Among its several rules: Don’t be creepy.

“All it’s going to take is for one Glass wearer to record or photograph someone or something that shouldn’t have been filmed to ruin Glass for everyone.”

“Let’s not incite lawmakers or angry mobs. Stick to photographing kittens, consenting friends and those totally amazing pancakes from your favorite brunch spot, Okay?”



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