Photo: Philip Casablanca, flickr
Over the weekend, 42Floors founder Jason Freedman wrote a post saying that the pendulum has swung back toward highly valued startups in Silicon Valley.He was referring to the latest Y Combinator demo day, where investors lined up to get a chance to invest in seed rounds at valuations of $8 million, $10 million, even more. He noted that three years ago, seed-stage investments never valued companies at more than $3 million.
His timing was perfect.
Facebook just paid $1 billion for Instagram, a startup that makes a really slick photo-sharing app for iPhone and, as of very recently, Android phones.
Instagram built one iPhone app. The app has 30 million users — so Facebook paid about $33 per user.
Instagram has fewer than 15 employees — so each of them is “worth” close to $100 million.
It has zero revenue and no obvious business model — but that doesn’t matter.
Facebook has an ad sales staff. Facebook was built on photo sharing. It desperately needs help with its mobile apps.
Instagram was probably the biggest threat to Facebook’s mobile ambitions. Paying something like 1% of its market cap to knock out its biggest threat makes perfect sense for Facebook.
It also sends a signal to every single employee at a big tech company who was thinking about striking out on their own and starting a company, but hesitating for some reason: THE TIME IS NOW.