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.
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.
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.