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I would like someone to sit me down, and explain the economics of why accept a buyout immediately after raising. And NOT the part of accepting $1 Billon. But wh

I would like someone to sit me down, and explain the economics of why accept a buyout immediately after raising. And NOT the part of accepting $1 Billon. But why they closed a round with a buyout just around the corner.

marcamillion 14y ago
For 2 main reasons that I can think of: a) You don't know if the acquisition will actually happen. Therefore if it doesn't, you aren't left with nothing. b) It gives you a stronger bargaining chip to increase the price of the acquisition because you literally have a strong alternative. Instagram could tell FB to screw off, they are already getting $50M.
- nodesocket 14y ago
  I wonder if the investors (Sequoia, Greylock) knew of the pending acquisition offer from FaceBook when they put forth the 50M investment? If they did, that was the easiest investment ever.
  - RexRollman 14y ago
    If they did, was it legal?
    - damoncali 14y ago
      Yes.
    - __abc 14y ago
      It might actually be illegal not to disclose that.
  - lancewiggs 14y ago
    They may have brokered the deal, and at least gave credibility to the investment to make it easier for Facebook to pay the price. Beautiful result for the portfolio - we are in a bubble and flipping this so quickly means that they have $ return in the bank way before the more speculative investments.
  - damoncali 14y ago
    I believe I read that Marc Andreessen is an investor (and board member?) in both companies. Seems painfully unlikely they did not know. And why wouldn't Instagram TELL them?
refurb 14y ago
Raising a round SETS the pre-money and post-money valuations of a company. I've known companies that have taken a measly $8M round when they are already independently profitable. It's basically a bargaining chip. Let's look at two different scenarios: 1. Your last round of financing was two years ago and you raised $2M at a post-money valuation of $8M. Two years pass and you're hot, what is you company worth? Look at some comparables (which the acquirer will try and rip apart). Do a multiple of your revenue (which the acquirer will try and rip apart). 2. Now you're hot and you think you might be acquired (or maybe not!), you raise $5M at a $50M post-money valuation. Now when you sit down at the bargaining table, you can say "Well that VC over there thinks we're worth $50M, what do you think we're worth?" In option 2, you've got a lot more bargaining power.

marcamillion 14y ago

For 2 main reasons that I can think of: a) You don't know if the acquisition will actually happen. Therefore if it doesn't, you aren't left with nothing. b) It gives you a stronger bargaining chip to increase the price of the acquisition because you literally have a strong alternative. Instagram could tell FB to screw off, they are already getting $50M.

nodesocket 14y ago
I wonder if the investors (Sequoia, Greylock) knew of the pending acquisition offer from FaceBook when they put forth the 50M investment? If they did, that was the easiest investment ever.
- RexRollman 14y ago
  If they did, was it legal?
  - damoncali 14y ago
    Yes.
  - __abc 14y ago
    It might actually be illegal not to disclose that.
- lancewiggs 14y ago
  They may have brokered the deal, and at least gave credibility to the investment to make it easier for Facebook to pay the price. Beautiful result for the portfolio - we are in a bubble and flipping this so quickly means that they have $ return in the bank way before the more speculative investments.
- damoncali 14y ago
  I believe I read that Marc Andreessen is an investor (and board member?) in both companies. Seems painfully unlikely they did not know. And why wouldn't Instagram TELL them?

refurb 14y ago

Raising a round SETS the pre-money and post-money valuations of a company. I've known companies that have taken a measly $8M round when they are already independently profitable. It's basically a bargaining chip. Let's look at two different scenarios: 1. Your last round of financing was two years ago and you raised $2M at a post-money valuation of $8M. Two years pass and you're hot, what is you company worth? Look at some comparables (which the acquirer will try and rip apart). Do a multiple of your revenue (which the acquirer will try and rip apart). 2. Now you're hot and you think you might be acquired (or maybe not!), you raise $5M at a $50M post-money valuation. Now when you sit down at the bargaining table, you can say "Well that VC over there thinks we're worth $50M, what do you think we're worth?" In option 2, you've got a lot more bargaining power.