Facebook ‘Flipped Out’ After Instagram Recently Raised $50 Million

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We’ve confirmed from two sources, one involved and one familiar with the matter, that Instagram closed a $50 million round at a $500 million valuation prior to its $1 billion acquisition.The round’s close was first reported by Alexia Tsotsis of TechCrunch. 

“Instagram raised money on a Thursday and sold on a Tuesday — 2X money in four days!” we were told.

Investors were Sequoia Capital, Thrive Capital and Greylock Capital.

Here’s what happened:

Kevin Systrom, Instagram’s CEO and co-founder, didn’t want to sell the company. So he raised $50 million with every intent of growing Instagram into a massive business.

When Facebook learned of the closed round, it “flipped out,” says a source (we’ve always said Facebook was threatened by Instagram).

The source says Facebook swooped in after the financing; the billion-dollar acquisition deal was made in the last 24 hours. Facebook wasn’t part of the talks when Instagram closed its $50 million round a week prior.

Multiple sources tell us that Sequoia had no idea that Instagram was going to sell, and was investing to help Instagram build a long-term business. But the firm isn’t exactly upset over doubling the value of its investment in a matter of days.

AllThingsD’s Liz Gannes reported that Sequoia was close to investing in Instagram last week.