WhatsApp was making decent money and not burning VC money at all when we sold to FB. this was in 2014. There is no such thing as clearly economically unsustainable. It is just harder.
Whatsapp was making money, but was that enough for the VCs? Even if it was not burning currently, it might have burned it in the past, so if the VCs trigger the clauses to ask their money back, you might not be able to give the money to them, ending up bankrupt. Plus, VCs might have a majority on the board. They see nothing but money, so they will push for the option that results in the highest payout for them, even if it is immoral, and even if that means using their powers to kick out the founders.
VCs look for businesses that 10x their investment in a very short time frame, and use that money to finance their many more failed ones. What might be a solid business in the wild is something they cull.
WhatsApp was (is?) famously lean. They essentially never needed to spend a cent of VC money, even though they took on two rounds.
I think the story goes that when they took on a Series B, one of the cofounders sent a screenshot to Sequoia (repeat, sole investor) of the untouched bank account containing their Series A. Or maybe it was a screenshot of the Series B heading into the acquisition, I forget which.
It helps with hiring as a signal effect; if sequoia thinks the company you’re thinking joining is a worthwhile investment of they’re capital, they’re more likely a worthwhile investment of your career.
The spare capital is good insurance against risks that might make fundraising in the future difficult. For example, needing to invest in PR/marketing, because an entrenched company with more resources released a competing product. Or legal fees, if you get sued for one thing or another.
It’s also genuinely useful to have experienced investors on your board or in your intimate network, to ask for fiduciary-bound advice when waging your own battles. You typically “pay” for this service by raising money. I think this one is generally underrated by people who view the VC relationship as strictly transactional. Running a high visibility young company is incredibly stressful and it’s valuable to have people at the table who have seen it before.
I imagine this last reason is probably the main one for WhatsApp’s choice.
If I pay you 1000 shares that I think are worth $1, I count it as a $1 expense, even though I’ve lost zero “dollars”. If that equity grows to be worth $10mm, at the end of the year I need to report a $10mm expense in stock compensation. This doesn’t mean I’m $10mm poorer, it means I’m 1000 shares poorer and the valuation has changed. You’ve already “paid” for the loss with the shares.
The reason you report it in dollars is because one can theoretically sell those shares to obtain money to feed the business, so it’s important for investors to know if you’re burning through a lucrative pool of equity.
It has no direct impact on cash liquidity, operating margin, or cash flow. I think many commenters in this thread missed that distinction. There’s a huge difference between reporting a loss and running out of money.
My number still stands. Or if looking at net cash, it was never enough to cover all expenses.
The gist of the misunderstanding is that there are many more things that register as "expenses" when calculating net loss without burning your cash pile. Stock compensation just happens to be the biggest one.
They had $10.21mm in revenue in 2013 and $3.82mm in 2012. [page 4]
$9.94mm net cash used in 2013. $3.5mm in 2012. [page 6]
[1]: http://web.archive.org/web/20141031201145/http://investor.fb...
EDIT: looks like it was $1 on IOS and free everywhere else: https://venturebeat.com/2012/12/03/facebook-whatsapp-talks/