Saturday, December 16, 2017
Business

Instagram: From idea to $1 billion in just two years

SAN FRANCISCO — Silicon Valley is one of the few places where a 27-year-old Web entrepreneur can parlay a photo-sharing application with no known source of revenue into $1 billion — in two years.

Evidence of that came Monday, when Facebook announced plans to buy Instagram, a startup co-founded in 2010 by Kevin Systrom, a Stanford University graduate and former Google employee.

The Instagram app, owned by Burbn, fetched $1 billion in cash and stock after building an audience of more than 30 million people, mostly users of Apple's iPhone. That kind of growth was enabled by the spread of social networking and smartphones, and the plummeting costs required to build an Internet company. Instagram has just 13 employees, up from four a year ago, when the app was used by 4 million consumers.

"It's a massive accomplishment," said Shervin Pishevar, a managing director at Menlo Ventures in Menlo Park, Calif. "This is an indicator of what great teams and great products with amazing execution can accomplish in historic amounts of time."

While the deal may raise concerns about another technology bubble, the price tag is only about 1 percent of Facebook's projected valuation when the world's largest social networking site sells shares to the public. And chief executive officer Mark Zuckerberg, who founded the company in a Harvard dormitory, understands the model of establishing an audience before generating sales. That's how he built Facebook.

Before the Instagram deal, Zuckerberg had purchased only smaller companies, including e-book publisher Push Pop Press and mobile-messaging app Beluga. Nothing came close in size to Instagram, an app used by smartphone owners to upload photos, color them with vintage effects and other filters, then share them with friends.

Unlike Zuckerberg, who dropped out of Harvard after starting Facebook in 2004, Instagram CEO Systrom finished college. He graduated from Stanford in 2006 with a degree in management science and engineering and was part of the school's Mayfield Fellows Program, a nine-month course for future entrepreneurs.

Systrom also was in the Sigma Nu fraternity, where he was routinely showing off his design skills, said Tommy Leep, a fraternity brother.

"Kevin was a constant tinkerer, always working on interesting technology products," Leep said.

After Stanford, Systrom worked as an intern at podcasting startup Odeo, and then worked at Google on the Gmail and Google Reader products, as well as in the company's corporate-development unit. In early 2010, he teamed up with Mike Krieger, a fellow Stanford grad who would become his Instagram partner.

Right off the bat, they raised a $500,000 seed investment from Andreessen Horowitz and Baseline Ventures. They introduced the Instagram application seven months later in October and had almost 200,000 users within the first week, according to a New York Times report at the time.

Since then, the number of Instagram users has increased at an impressive rate. Last week, the app became available for phones running Google's Android operating system, expanding on its inroads with the iPhone.

After a week in the Android store, Instagram is the top- ranked free app not made by Google and No. 3 overall, behind Google voice search and maps. Facebook is eighth.

Investors, meanwhile, have been lining up to get in the door. That culminated last week in a $60 million financing round, led by Sequoia Capital, which valued the company at $500 million, according to people with knowledge of the funding.

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