I don't understand this at all. Unless FB started and finished this deal in the 24 hours following the round, why in the world would the founders let this round close?
In all seriousness: somebody explain this please.
In all seriousness: somebody explain this please.
It's my assumption that many large scale deals get negotiated informally over a longer period of time and rarely is it as simple as an investor comes in on a thursday at a first introduction and a deal is signed by sunday.
If my startup was valued at 500m last week (I wish!), and someone offered me 1b for it today, I'd consider the extent of due diligence required on my part would be checking to see if the cheque cleared...
(Having said that, presumably FB _did_ due diligence - before Thursday's 50m on 500m round - I'd love to have been a fly on the wall when Instagram explained that in the final few days of the sale… "Oh, BTW, we sold 10% to Sequoia et al on Thursday - that doesn't change anything here, right?")
Christine Herron · Director at Intel Capital "It's common to use an impending investment valuation to drive a higher acquisition valuation. Strategic/acquisition values are typically much higher than investment values. eg, as of today, Instagram is worth more to Facebook than it is to Sequoia, because Facebook gets strategic value in addition to market value. Also note that an investor with a signed term sheet would be fully aware that acquisition discussions were taking place, as well as what valuation range they were in. I would be surprised if Sequoia did not go into this with eyes wide open. They win either way - an instant 2X multiple on investment (and a crazy high IRR), or a highly desirable company that they believe has growth potential. Call me jealous."
Having 50M in the bank meant they could credibly walk away from the deal, continue operating and realistically be worth 4 or 5 times the 500M valuation the next time they raise.
In essence making the investment deal set their acquisition price.