Was the sale of Instagram to Facebook for $1 Billion really the best choice for Kevin Systrom?

Just how much would Kevin Systrom and Mike Krieger be worth if they had not sold or waited longer to sell to Facebook?

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Last week the co-founders of Instagram, Kevin Systrom and Mike Krieger shocked the tech world by announcing their resignation from Facebook. The two started Instagram six years ago, which started as a side project for their app Burbn. Their departure from the company was over disagreements with Mark Zuckerberg, who was taking more control of the rapidly growing social network and butting heads with it’s two co-founders along the way.

After leaving Facebook, Systrom had amassed a net worth of $1.4 billion and Kreiger was worth $350 million.

That is a huge success, right? Selling for 10 figures is a massive achievement, but just how much money would they have been worth had they not sold?

Some say that Instagram’s sale to Facebook was one of the poorest moves in the history of tech. I’ll leave that for you to decide.

While going to Stanford University for a degree in engineering and management science, Kevin Systrom met Mark Zuckerberg a number of times at frat parties, since the Facebook founder lived in the neighborhood. While attending classes at Stanford, Kevin spent time in Italy where he studied photography. It was while studying abroad that he first encountered a Holga camera, which produced medium format vintage looking photographs.

It was while attending Stanford that Systrom built a photo-sharing website called Photo Box, which allowed his frat brothers to share photos with each other easily. In 2005, Zuckerberg was familiar with Photo Box and asked Systrom to leave Stanford to come work at Facebook, but he declined.

After graduating from Stanford, Systrom landed a job at Google in the marketing department, but after two years he grew bored. His fascination with apps which combined location data with photography, such as Foursquare, led him to start a company called Burbn, which allowed users to chin in at a specific location with a photograph.

While working from a coffee shop, Systrom met Mike Krieger who agreed to join the company and handle the tech side of the business. Together, they came to the realizations that Foursquare was going to dominate the location check-in market, and that the most popular feature of their app was the vintage photo filter. And that’s how Instagram was born.

The rebranded Instagram was launched in October 2010, and after just one month had over 1 million active users. A year and a half after launching, Zuckerberg invited Systrom to a meeting. By the end of their meeting, Systrom agreed to sell his young company to Facebook for $1 billion in mostly stock and cash. At that time, Instagram had only 13 employees with Systrom owning 40% of the company and Krieger owning 10%. The remaining 50% was owned by various VC’s.

instagrams-founders
Instagram’s founders Kevin Systrom and Mike Krieger, holding vintage cameras.

Because Systrom and Krieger accepted stock and did not sell a significant portion of their shares, their paper net worths skyrocketed over the next several years as Facebook dominated the market. By early 2018, Systrom’s networth had topped $1.6 billion and Kriegers at over $400 million (compared with the $1.4 billion and 350 million today).

Tech industry experts agree that if Instagram had stayed independent longer, Systrom and Krieger would have landed much larger paydays. Why sell when they were just over a year old and experiencing seemingly exponential growth? Shouldn’t they have held onto their ownership of Instagram a bit longer to see what the interest from other public markets was in their company?

A year after Facebook bought Instagram for $1 billion, they acquired WhatsApp for $20 billion. Analysts are in agreement that Instagram would be worth a minimum of $100 billion today, possibly even as much as $150 billion. Had Systrom maintained his 40% ownership stake in Instagram at a $100 billion valuation, he’d have a net worth of $40 billion today, with Krieger having $10 billion. The argument can even be made that Instagram would be worth even more than $150 billion, since Facebook is valued at $500 billion, and most of their growth has come from Instagram.

It’s worth noting that Instagram’s rapid growth is due largely in part to their acquisition by Facebook. By integrating Instagram into Facebook’s ecosystem, they opened the app up to a much larger audience and experienced growth that would likely have taken much longer to achieve.

Kevin Systrom does not have any regrets however, as he recently explained to the Wall Street Journal:

“I think for where we were, we made an awesome decision. The whole idea of joining Facebook was that we could scale way more quickly than we would independently. So if that is your goal, I think we’ve fulfilled that, and then some. If your goal, on the other hand, is not to have a billion dollars but two, or three, or four or whatever, well, good luck spending it. That’s not what makes you happy in life.”

Whatever helps you sleep at night, old sport. Not that anyone is keeping score, but had Kevin Systrom not sold to Facebook so early, his $40 billion net worth would make him the 20th richest person on the planet.

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