The app was officially launched in the Apple App Store within a couple of months

The app was officially launched in the Apple App Store within a couple of months

It was now looking like the app was being valued at $500 million

Instagram’s very first filter. He and Nicole started using the filter and posted the first Instagram photo – a little Mexican dog lying next to Nicole’s foot. They knew they had the beginnings of something great once the filters were in place, receiving further confidence once they had shown the app to Jack Dorsey, who was glowing in his praise. Funding Instagram launched on . On its first day, it garnered around 25,000 users. Within a few months, in , fuelled by their strong growth, Systrom and Krieger were looking at $7 million investment from Benchmark, a prominent venturecapital firm, valuing the app at $25 million. A number of other investors contributed to the round, most notably Jack Dorsey, angel investor Chris Sacca and Adam D’Angelo, who joined Facebook in its early days (he was good friends with Zuckerberg, who had been his roommate in high school) and went on to start a company called Quora. Systrom and Krieger continued to execute and focus – they were laserfocused on a single platform, the iPhone, and doing a single thing, sharing photos – really well. This tunnel vision translated into very impressive ‘stickiness’ for the app. Not only were they able to attract new downloads and new users at a phenomenal rate, but those people were sticking around. Too many new apps would see a ‘pop’ or surge in usage, and then users would get bored over time and stop coming back. Instagram bucked the trend. In early 2011, Roelof Botha, of Sequoia Capital payday Missouri, reached out to Kevin. ‘A lot of hot startups were losing users as quickly as they get them, like people who get on a bus and then get off in the back,’ said Botha. ‘But they retained their users.’17 Botha was ready to invest $50 million in Instagram to further turbocharge its growth. As seasoned investors know, there are typically only one or two companies that end up dominating these types of

An attractive target No social photo app – or site, for that matter – had had this kind of traction before and it was this incredible stickiness, and fresh1app was a breakthrough; it had understood the formula of photos, filters and social, and people couldn’t get enough of it

spaces. Once consumers have decided the winner, competitors have two options: either acquire them or build their own. Both Twitter and Facebook had been following Instagram’s growth with great interest – and concern. Such growth could pose a threat if left unchecked. The Twitter connection was very close, through Jack Dorsey, Twitter’s executive chairman. There was also a historic relationship between Zuckerberg and Systrom. Not only had they met a number of times at various events in the Valley and at Stanford, but, during his undergrad days, Zuckerberg had even tried to get Systrom to drop out of college and join Facebook. On top of this, Zuckerberg saw early potential in the photography app, having invited Systrom over to his home in Palo Alto a number of times after Instagram’s launch. The groundwork for an acquisition had been covered from the early days. Here comes the Easter Bunny It’s hard to appreciate how small the community is and how few key players there are in Silicon Valley. Relationships clearly play a large part. It was the investment interest from Roelof Botha at Sequoia that put a $500 million valuation on a company with 13 employees and no revenue, and caused interest to intensify. In . In the previous few months its user base had doubled to 30 million, and the Android version was about to be launched (when it was launched on 3 April it added another 5 million users overnight). Early that April, Systrom was having drinks with Jack Dorsey, and Twitter’s CFO Ali Rowghani. According to Twitter, the company made a formal offer to buy Instagram for an all-stock deal that valued the app at around $500 million (which was logical) – but there was no cash component. Dorsey and Rowghani claim that they handed Systrom an actual term sheet, something that is disputed by Systrom, who claims the conversation did take place but no formal documentation changed hands. Systrom called the then Twitter CEO Dick Costolo on was going to accept investment from Sequoia and remain an independent for the time being. That was precisely when things changed. Systrom communicated the same news to Facebook CEO Mark Zuckerberg – but this CEO wasn’t ready to take

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