When Facebook acquired Instagram for $1 billion, people were questioning whether the large social networking company got ripped off because Instagram was not making any money. However this deal turned out to be a bargain because Instagram CEO Kevin Systrom started off by asking for $2 billion. Facebook CEO Mark Zuckerberg conducted the negotiations at his $7 million home in Palo Alto. There were no bankers or lawyers there to help with the deal. Just two startup CEOs.
Zuckerberg called Systrom on Thursday April 5th after talking to Facebook COO Sheryl Sandberg telling her that he wanted to buy Instagram. He reached out to Systrom directly because he was afraid that going through lawyers would have turned Systrom off.
Systrom drove back and forth from his home in San Francisco to Palo Alto repeatedly over three days to hammer out the deal. Zuckerberg only told the board of directors at the company about it after the deal was made on Sunday April 8th.
Facebook board member Marc Andreessen was sitting in Zuckerberg’s living room waiting for one of his regular meetings with Zuckerberg, but he had no idea Systrom was there until he walked out of the room. Andreessen invested $250,000 as a seed round into Instagram.
Systrom knew how bad Zuckerberg wanted Instagram because he tried to buy it the previous summer. Zuckerberg’s direct call made it clear that he was concerned about Instagram’s rapid growth. They were growing even faster than Facebook on mobile devices. Instagram had 30 million iOS users and signed up 1 million Android users in one day.
Asking for $2 billion is a lot, but considering Facebook will eventually be worth $200 billion, Systrom had the power to make such a big request, 1% of the company’s net worth. Zuckerberg is the majority shareholder in Facebook and Systrom owned 45% of Instagram.