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Zuckerberg Made Instagram Deal Alone
benfrog writes "According to the Wall Street Journal, Facebook's Board of Directors was all but out of the picture when Mark Zuckerberg struck the $1 billion deal to purchase Instagram, the yet-profitless photo-sharing service. From the article: 'It was a remarkably speedy three-day path to a deal for Facebook—a young company taking pains to portray itself as blue-chip ahead of its initial public offering of stock in a few weeks that could value it at up to $100 billion. Companies generally prefer to bring in ranks of lawyers and bankers to scrutinize a deal before proceeding, a process that can eat up days or weeks. Mr. Zuckerberg ditched all that. By the time Facebook's board was brought in, the deal was all but done. The board, according to one person familiar with the matter, 'Was told, not consulted.'"
bubbles begin: when non-financiers with access to lots of money decide to make financial decisions.
Pretty much how we all got Timeline.
JADBP
Why did it take 3 days for the other guys to say yes to $1bn?
Mr. Z seems to be a bit immature. Maybe this was an amazingly clever purchase, but it strikes me as a childish exercise in spending. Assuming he retains control of FB after the IPO I don't expect that the company will fare well or spend cash well. IMHO..
CEO, bitch.
-2B
I have 10 grand to spare! can i get in on the stock before opening day?
I had the feeling that there is something personal about this deal from day one. This only reinforces my suspicion.
May Peace Prevail On Earth
Any more proff the Zukerber is just a douche clueless hipster that happened to "create" facebook?
>> Instagram, the yet-profitless photo-sharing service
Make that revenue-less!
Their whole pitch on making money is presented here in its entirety:
". There will be opportunities for consumers to buy extra add-ons like special filters, etc. "
So, folks, that's it - special filters, etc. Magical words.
Shareholders were told, not consulted, that a year's worth of earnings had been invested in a company with 30M+ users, nearly all Facebook users, and zero revenue...
I suspect that Zuck needs to work on investor relations somewhat...
It's all setup for The Social Network Part 2 :P
It's easy to understand why he pushed it through on such short notice. Zuckerberg is all against going public because he will lose much of the control. He is going to use it while he still has it, plus now he need not worry about the approval of his stockholders. Had the company been public and the stockholders not been happy with the purchase, you would see the stock of Facebook drop like a rock.
What, they thought being the board of directors made them different from the peons?
Um srsly, no one sees the writing on the wall? This was a front for something else, they probably had dirt on zuckerburg.
100K ?
Some asshole if probably working on a free version right now.
Need Mercedes parts ?
While I'm still unsure how they got their investors to accept a $500M valuation (Series B, was it?), going into a meeting thinking "Yeah, $2B for a popular photo sharing app platform sounds about right" must take some cojones. I probably couldn't sell Instagram for $200M, I wouldn't even know where to start.
"So, we have this platform and our users are totally committed to the experience and not just using it because it's hip...and we all know that social media startups tend to stay popular and don't crash after a year or two...and crap, we can totally monetize that thing, like print photos on mugs and stuff...that's like an instant $80M/year right there, minus the cost of the mugs, of course. So, whaddaya say, two billion?"
Where do get me some of this! Can they deliver it to my house via Webvan?
Give a man a fish and you have fed him for today. Teach a man to fish, and he'll say "WHERE'S MY FISH, YOU IDIOT?"
it was 98 days worth of revenue, based on 2011 income.
not even 4 months worth....
http://en.wikipedia.org/wiki/Facebook
every day http://en.wikipedia.org/wiki/Special:Random
Once Facebook goes public, Zuckerberg is going to be in for a RUDE awakening. He won't be able to treat it like his little piggybank, he will have to consult the board (his bosses after it goes public) for anything he does and the board can fire him.
The vast majority of tech companies that have gone public in the last 15 years have ended up firing the founding CEO after a period of mismanagement shortly after the companies go Public. The exceptions to this rule are rare and I doubt Zuckerberg is going to be one of them. This is the type of stuff they do and after the company is public and the founders ownership is GREATLY diluted they end up getting fired by the board of directors. Usually it's from not seeking maximum shareholder value, but in other cases it's for outright in ability to grow the company.
Personally, I don't think Zuckerberg is going to survive more than 5 years as CEO of the public Facebook. But the VC's and investment banks will have gotten their pound of flesh and moved on.
Sorry for my poor English. I thought that, in the US anyway, earnings = profits != revenue.
But I might be wrong, obviously, being a non-US native...
Might also be wrong about their making $1bn profits last year, too... But I more or less recall reading that figure at some point.
Where the hell did they get a $100bn valuable? I call BS.
how is instagram worth $1 billion instead of $100 million? Because Facebook has that much to burn? Or because they wouldn't take $100 million if offered?
Any guest worker system is indistinguishable from indentured servitude.
imagine the old sequence of updates, except randomly alternated between the left and right hand of two columns, and a faint line with dots down the middle so your eyes hopefully know which way to jump
What will this do to Facebook's future IPO when potential investors see a "maverick" CEO who does what he wants without consulting the board? I can't imagine a lot of fund managers will like the idea of putting billions of dollars at stake with someone like Zuckerberg spending huge sums of money without getting input from people who already own a large percentage of the company.
How does Zuckerberg own only 28% of the stock but have 57% of the voting rights? Are there really that many non-voting shareholders?
Not necessarily. Zuckerberg has the majority voting rights for the company. He is in control.
Yes, well, except for the fact that holds 57% of the voting shares, so nobody can stop him from voting dissenters off the board. So there isn't that. There is, however, financial self-interest.
With that said, this deal has been blown way out of proportion: 1% of Facebook in cash and shares to take what Zuckerberg, the board, and much of the industry saw as a potential major competitor out of the picture, which is sensible if, say, Zuckerberg gave Instagram even odds at taking 2% of Facebook's business, no?
Furthermore, the profit potential of Instagram itself is only of tangential importance to Facebook; it'd make similar sense for Zuckerberg to offer $1 billion in "shut up money" to RMS if he had reason to believe the FSF was (somehow) a huge risk to a big chunk of Facebook's earnings, and not on account of Stallman's lucrative speaking fees!
Hrm, what? It's pretty tough to fire someone who has majority voting power in the entire company.
Wait - s/tough/impossible/g - which means he'll (continue to) be the board's boss.
Seriously, though, it's highly unlikely that Zuckerberg will sell enough of his shares to ever lose majority control, so it really *is* his little piggybank to do with pretty much whatever the fuck he wants to.
LegendMUD
Unless you have figures that prove otherwise, as a private company with 57% ownership, after the floating of public shares his portion will be well below 50%, I'd wager closer to the 25% range (a typical public offering will set aside anywhere from 25-50% of the company for public sale). After all, that's what happens when you go public, you hand over a significant percentage of ownership to the public for wads of cash. Zuckbergs ownership share will decrease dramatically as part of going public.
Say you knew someone has nothing of value and they know you want to give them unearned market credibility by lots of money, they both conspire to invent something useless as in the past and then sell it to the other pretending had nothing to do with it's development, and now someone is socialy-engineered into the equation of money-monopoly status to continue seed-leaching the economy in parallel with other wealthy hacks.
Zuckerberg and FaceBook are not useful and nobody gave him money, so why and what would give any amount of money? The entire economy is a psyOP in this regard and that explains the Lottery Attitude of the people in discerning whether success (money) is determined by hard work or random achievements of genius but then that also explains how Internal Revenue Service has punnished all wealthy people by only allowing only the super-wealthy to have any kind of class-destroying wealth. What's next, a graduated Sales Tax? :-!
You had me until this: "Since Facebook (like Google) is an advertising company, this makes a lot of sense"
You're right on about Facebook's $1Billion buying user data, but you're way wrong about it "making a lot of sense"
It is ridiculously foolish and a waste. Facebook.com is a information trading company that uses social networking to gather user data. They are currently doing the IPO in order for the investors and founders to take profits. The company is a legal blackmail scam essentially...one step up from those online based adventure games. You are projecting your own elementary understanding of advertising onto facebook.com's "business model"
The core problem is the business world and ignorance...but you don't help by drinking the Kool-Aide that facbook.com is a viable company....its a scammer that is fooling alot of people...that is NOT praiseworthy
Thank you Dave Raggett
Jeez can you be my publicist???
Gates stole other people's ideas. He used personal connections to undercut the legitimate ...he hasn't earned an iota of respect for any sort of 'business' or 'design' accomplishments. Just because he made money doesn't mean his business ideas were good in any way.
I would love to read your description of Syrian P.M. Assad's wife...or of Jerry Sandusky...
Thank you Dave Raggett
How do you exchange the money? How do you keep from getting ripped-off, or sued for the return of the $1B? Do you need to find a white-shoe law firm? If so, how much do they cost?
It's more to do with his attitude, the history behind his success, and the fundamentals behind the technology he "invented". Also, moves like this one that are just the type of thing you'd expect from someone who was basically lucky in his success.
The same isn't/wasn't generally said about Google's founders who aren't all that much older -- 10 years older now, but were roughly the same age when Google IPO'd.
Small to medium denomination, non-sequentially number bills would be my preference.
Is it just my observation, or are there way too many stupid people in the world?
No, I resent the fact that his apparent willingness to fuck over other people gets rewarded and I think that the Instagram purchase was a poor decision. I acknowledge entirely that he's made a lot of excellent decisions, and a lot of lucrative decisions that I wouldn't have made due to the aforementioned fucking over of other people.
But that's fine, it's easy to claim integrity when you don't have the millions in the bank to suggest otherwise.
Here is what he had to say about it. .
The Scary Startup - Are you overwhelmed with the complexity of Lean Startup Methodology? Is finding a real business model just too hard? Stop trying, build a free platform with mass appeal, brand it as threatening to the big players and sell for imaginary valuations! Coming Q3 2012, $29.99 Hardcover, $39.99 Kindle Edition with missing pages and no graphics.
If you haven't understood why republicans believe the government is inherently frivolous in its spending, then here's a textbook example of why they think that. Zuckerberg didn't earn his billions. Period. He earned something, but not that much money. That is investor's money. He just dumped someone else's money down the toilet. Actually, more precisely he just paid off someone else (the CEO of instagram) with someone else's money.
I'm guessing instagram's biggest users are under 18 girls. I don't doubt that's a prime audience since they are probably loose with their parent's money. Nevertheless, I'm skeptical the company with ~15 employees is worth 67 million dollars an employee. Mind you, the Los Angeles Dodgers were sold for $2 billion dollars.
The recently enacted JOBS Act:
1) "Once again, the Puppets on Capitol Hill are about to slam the Muppets on Main Street. The country still hasn’t recovered from the Wall Street-induced financial cataclysm of 2008, yet Congress is preparing to enact the Orwellian ”JOBS Act”—a bill that should in fact be called the “Return Fraud to Wall Street in One Easy Step Act.” The bill will undo some of the most important reforms placed on Wall Street in a generation."
Slate link
2) "In fact, one could say this law is not just a sweeping piece of deregulation that will have an increase in securities fraud as an accidental, ancillary consequence. No, this law actually appears to have been specifically written to encourage fraud in the stock markets."
Rolling Stone (Taibbi) link
3) “Simply, the JOBS Act will make funding more accessible for startups by allowing non-accredited investors to participate in the funding rounds, and this alone, I believe will be the main factor driving the increase in new companies being founded. And with new companies comes the need to hire staff. Without a doubt, this will help the current unemployment rate,” said Tanya Prive, founder of Rock The Post, a social networking platform for entrepreneurs to fund and swap resources."
Forbes link
4) "It is self-defeating for us to say this because as criminologists and anti-fraud specialists we would have job security for life if this bill was adopted. It is literally composed of the wish list in regard to fraud-friendly provisions that those intent on cheating have been dreaming about and salivating to achieve for decades. This bill will kill millions of jobs because financial frauds are weapons of mass financial destruction. It will start an international fraud-friendly deregulation race to the bottom and will become the basis for further criminogenic U.S. Congressional actions."
Huffington Post Link
5) "Amy Borrus, a spokeswoman for the Council of Institutional Investors, an investor watchdog group, said small companies — the focus of the new bill’s relaxed regulations — are particularly prone to fraud and accounting scandals. Senators did add some investor protections, but not enough, she said."
New York Times link
So... we might be looking at a jump (bubble?) in the stock market. I don't quite know what to make of it yet, but the initial reviews seem to be pointing to such a thing. Investigate and plan accordingly (and try not to lose your shirts).
Once Facebook goes public, Zuckerberg is going to be in for a RUDE awakening. He won't be able to treat it like his little piggybank, he will have to consult the board (his bosses after it goes public) for anything he does and the board can fire him.
Depends on how the deal is structured. Google has two classes of stock; Paige and Brin's stock has 10x the voting rights of common shares. (At one time, the NYSE refused to list companies with more than one class of voting stock, but they caved on that years ago.) Facebook might try a similar offering.
The only question is whether Goldman Sachs will go along.
That depends on whether 100% of the company had been issued as shares privately prior to the IPO, or if there had been a pool reserved for later use - if the IPO comes out of an unused pool it doesn't have an effect on the shares already held.
I came here to say the same thing, but instead moded you +1 funny
I always suspected that lawyers and managers are often unneccessary. Zuckerburg has shown great leadership in taking this decision without going through the usual (often, but not always useless) trouble. He is taking a risk, and I hope (and think) that it will turn out to be a good decision.
But that wouldn't have been cool.
If you mod me down the terrorists will have won
Yeah, and shortly after that you will see facebook starting to suck even worse than it does now. Even the slowest users will start noticing they are being ripped off. There will be so many in-page adds it's going to be hard to find your friends status updates. After that the only users that haven't switched to something else will be the ones who are badly addicted to some zynga game.
The cost, speed and secrecy in which this deal occurred could indicate panic. Panic that would not bode well for the future prospects of Facebook.
If Mr. Z perceived Instagram to be a threat justifying the valuation and shadowy dealing, it shows how easily FB can be supplanted by its own recognition.
I think Zuckerberg better be careful. He seems to have forgotten that this is no longer his cute, little "one man shop" anymore. He can't just run around blowing the company's cash as he sees fit. He's got a board to answer to and will soon have shareholders to answer to. Because I just can't see shareholders getting too wild about dumping a billion dollars of company cash on a tiny little company like Instagram.
That kind of private negotiation between two businessmen is more frequent than you could think. Peoples usually get more done when they don't have an army of lawyers in the room wasting everybody time but racking up their own bill! It easier and faster to make a deal then tell your lawyers to iron out the details after the fact. Put two person in a room and they likely come to any agreement way faster than 12 that the bane of the jury system now imagine if you have 24 instead of 12 or even 36.
They allowed the different tranches of lower rated bonds BBB, BB, etc. to be repackaged and sold as AAA rated bonds. The thought process was in the history of the US there had never been a rise in foreclosures across the US only in different "pockets". As a result, while some interest would not be repaid overall the bond would still make money. Little did they think or realize that when they did this everyone and there brother would sign up for these crappy loans across the US or maybe they did and did not care. You can read a book called The Big Short which talks about the people who recognized what was going on long before the crash and made millions if not billions shorting the bonds. HokieForever
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if Mark Zuckerberg ... ... or Chuck Norris!
Zuckerberg made an executive decision alone. Sounds like Steve Jobs.
Companies are setup to manage risk, but sometimes progress is made on a gamble. And gambles can pay out big.
The negotiations went something like this:
Zuckerberg: How about a million dollars for instagram?
Instagram: You know what's cool? A BILLION dollars.
Zuckerberg: KAAAAAAAAAAAAAHN
I don't understand this acquisition at all. Instagram isn't anything special. Seems to me FB could have easily implemented a competitor to it for 1/100th the cost.
Not if they do a small float. For a company that doesn't really need the cash, there's no reason to give away a lot of shares. Facebook is far from a typical IPO. The only reason they're IPO-ing is to give employees (and founders) liquidity, and because they probably have to, according to SEC rules. Currently, it appears they plan roughly a 5% float, which isn't enough to dilute Zuckerberg out of the majority ownership. (They would need to sell off over 12% to get him under 50%.)
I am wrong, apologies.
for some reason I was internally equating it with revenue-- I don't know why....
every day http://en.wikipedia.org/wiki/Special:Random