Zuckerberg did Instagram deal by himself, whittled Systrom down from $2 billion

zuckerberg via LA TimesIt’s not certain what’s more remarkable — that Instagram CEO Kevin Systrom reportedly asked for two billion dollars for his photo-sharing company when negotiating with Facebook boss Mark Zuckerberg earlier this month, or that Zuckerberg did the deal all by himself, apparently without the knowledge of his board.

Many in the tech community were surprised enough that Facebook bought the start-up for one billion dollars — this is a company which has just 13 employees, launched less than two years ago and is yet to turn a profit, after all. Two billion and people would have been spurting their coffee out all over the place on hearing the news.

‘Told, not consulted’

According to a Wall Street Journal report on Tuesday, the first the Facebook board knew of Zuckerberg’s intention to acquire the company behind the incredibly popular Instagram app was on April 8 — when he contacted them by email to say that an agreement was about to be signed. Indeed, according to one person in the know, the Facebook board “was told, not consulted.”

Hours later, Zuckerberg had sealed the deal on what became the social networking company’s biggest ever acquisition.

In negotiations which reportedly took place over three days at Zuckerberg’s Palo Alto home, the Facebook co-founder negotiated with Systrom, trying to persuade the Instagram boss to accept $1 billion — half of Systrom’s original asking price.

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As the WSJ points out, for deals of this magnitude, companies usually bring in teams of lawyers and bankers to pore over contracts in the lead up to a possible deal being struck — a process that can sometimes take weeks, if not longer.

People familiar with the matter told the WSJ that Zuckerberg was worried that had he approached Systrom with a team of lawyers, the Instagram boss may have been turned off the deal. In the end, Zuckerberg pretty much sorted the whole thing by himself, although in the latter stages Facebook’s director of corporate development, Amin Zoufonoun, was said to have lent a hand.

Lightning speed

Zuckerberg was able to do things by himself, and move at lightning speed, mainly because he owns 28 percent of Facebook’s stock and controls 57 percent of its voting rights. Systrom is in a similar position, owning 45 percent of his company.

The speed of the deal was likely down to Zuckerberg’s fear that another company might make a move on Instagram, a company he wanted because of its popularity with the mobile community — an area in which Facebook has been having less success — and because it needed a decent imaging client.

Android

Two days before Zuckerberg approached Systrom, Instagram released a long-awaited version for Android-powered devices. Millions more users downloaded the free retro-styling photo app within days, adding to the already enormous iOS user base and taking it beyond the 30 million mark. Unable to wait any longer, Zuckerberg got on the phone and invited Systrom to his place.

After three days of talks, the deal was done. A somewhat comical touch to the proceedings came when, according to the WSJ, Facebook board member Marc Andreessen turned up at Zuckerberg’s house for their usual meeting. Andreessen, who invested in Instagram in its early days, had no idea Systrom was in another room — until he walked in on his meeting with Zuckerberg. No doubt the Facebook CEO had to lift Andreessen’s jaw off the floor and help him return it to its original position.

The WSJ said that while Facebook’s board did actually vote on the deal, it was simply a case of going through the motions.

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