When Instagram was sold to Facebook for $1 billion, investors at Andreessen Horowitz walked away with $78 million: a 312% return on a $250,000 investment. When an article in the New York Times suggested that the venture capital firm should have gotten more, co-founder Ben Horowitz fired back with a blog post defending the firm’s decision to focus on an Instagram competitor called PicPlz.
It turns out that the venture firm had participated in seed rounds for both companies in 2010. At the time, Instagram founder Kevin Systrom was actually working on a microblogging service called Burbn that never took off. When the founder ran the numbers on the flailing product, he discovered that its photo-sharing element was doing comparatively well, and the rest was history.
Unfortunately, Dalton Caldwell’s company Mixed Media Labs had already beat Instagram to the photo finish line with PicPlz.
When both companies went for another round of funding, the investors had a tough decision to make. At the time, “Instagram’s numbers were much better at the time as it had already begun its rocket run,” wrote Horowitz, but “We liked both entrepreneurs very much, so there was no issue there—we would gladly back either.”
But they couldn’t pick both. “So our choices were: a) invest in Dalton b) invest in neither or c) invest in Kevin and violate our commitment to Dalton,” Horowitz explained. “As soon as we fully recognized those were the choices, we ruled out option c and elected option a.”
In a note to all reporters and the world at large, the investor stressed that sometimes ethics really are more important than the bottom line. And while there was no mention of taking a swan dive into a pool filled with $78 million in gold coins following Instagram’s sale, Horowitz did say he was happy with the outcome:
I’d like to make two things absolutely clear that some writers, in their zeal to find something wrong with our investment, have gotten completely wrong:
- Kevin absolutely did not steal Dalton’s idea. He pivoted to Instagram because that’s where his users were—period, end of story.
- We are excited and enthusiastic investors in Dalton’s company. Several reporters implied that we regret funding Dalton, because he did not sell his company to Facebook for $1 billion after two years. News to world: it generally takes longer than two years to create a billion dollars in value. What Kevin and team did was special and unique. We expect great things from Dalton and look forward to another massive return from his new idea.
So, write what you will about us, but please get that right.
Image by mayawizard101 via Shutterstock.