For the intents and purposes of this blog post, I’m not going into preferences or anything that will make the numbers harder to grasp. Keep it simple.
While the recent purchase of WhatsApp by FaceBook for $16B is a coup in itself, think of the poor investor, Sequoia Capital.
Instagram took in $57.5M of investment before their purchase, by FaceBook, for $1B. If we assume that in the garnering of $57M, they sacrificed, say, 80% of their equity to the investors, for that $57M investment, the investors get back £800M. That’s an awesome 14x return.
But WhatsApp? For that single $8M investment from Sequoia, they probably gained 30% of the company. 30% of $16B is $5B so they’ve turned this into a 625x return. If anyone doubted the power of user acquisition, they have probably been silenced now.
EDIT: According to Bloomberg, Sequoia had “more than 15%” which means they stand to make $3.5B. A paltry 430x return.
When you add that King, the developer of Candy Crush just reported an increase from $8M to $568M in profits from 2012 to 2013, there’s gold in them there digital media hills.