Owen Thomas, Business InsiderIt’s been a little over one year since Facebook acquired Instagram for $1 billion in cash and stock. For one of Instagram’s early investors, Jack Dorsey, the acquisition is still a painful memory.
AllThingsD’s Kara Swisher has written an in-depth article about the tug-of-war between Facebook and Twitter for Instagram in Vanity Fair.
In April 2012, many investors and tech companies were interested in Instagram. VCs gave Systrom and his co-founder, Mike Krieger, $50 million at a $500 million valuation. Around the same time, Jack Dorsey and Twitter’s then-CFO, Ali Rowghani, wanted to buy Instagram. The pair say they made a formal offer to buy it in a ~ $500 million all-stock deal.
Dorsey had worked alongside Systrom a few years earlier at Odeo. Odeo was co-founded by Dorsey and grew to become Twitter; Systrom was Odeo’s intern. Dorsey was also an early investor in Instagram and considered himself a mentor for Systrom.
But with the fresh $50 million from investors, Systrom and Krieger weren’t interested in selling – at least not to Twitter.
According to Swisher, Systrom called Twitter CEO Dick Costolo on April 4 2012 to tell him Instagram had raised $50 million and would remain a private company. He also called Mark Zuckerberg at Facebook, who had been an acquaintance of Systrom’s since his Stanford days.
To Zuckerberg, Systrom’s “no” just meant he had to try harder. Zuckerberg sent Systrom a text and invited him over to discuss options. It was Easter Weekend and over the course of those few days, Zuckerberg and Systrom cut a deal. Zuckerberg doubled Twitter’s offer and agreed to buy Instagram for more than $730 million in cash and stock.
While Systrom called many of his investors to get the deal approved and to give them news of the sale early, he never called Dorsey.
Dorsey says he learned of the acquisition during work from one of his employees. The friendship between Dorsey and Systrom hasn’t been repaired since.
“I found out about the deal when I got to work and one of my employees told me about it, after reading it online I got a notice later that day since I was an investor,” Dorsey tells Swisher. “So 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.”
Systrom didn’t mean to snub Dorsey. He tells Swisher he isn’t sure what changed his mind and made him decide to sell to Facebook, just days after turning down Twitter.
“I’m not sure what changed my mind, but he presented an entire plan of action, and it went from a $500 million valuation from Sequoia to a $1 billion [one from Facebook],” Systrom says, noting the “equation” was different.
“I think everyone thinks that the acquisition was made in a dark room with Trent Reznor music playing. And it turns out that some of the biggest decisions get made relatively quickly, without much fanfare.”