In this definitive telling of the history of Instagram we get CEO Kevin Systrom's reasoning for ultimately choosing Facebook's $1 billion offer over Twitter's $520 million—and it has less to do with money than you might think. "I’m not sure what changed my mind, but he presented an entire plan of action, and it went from a $500 million valuation from Sequoia to a $1 billion [one from Facebook]," Instagram CEO Kevin Systrom told Kara Swisher for Vanity Fair. "Obviously, the equation was completely different." When he says "completely different," he doesn't just mean the numbers since that would have been a fairly obvious decision. In the end, Facebook's final price for Instragram was $715 million in cash and stock because of the post-IPO decline in its stock price. Systrom will never know if Twitter would have paid more (its offer was stock-only) since he didn't ask for a counter and sources have before said that Twitter would have sweetened their deal if given the opportunity. What Systrom valued most was independence to build Instagram.
So how did Facebook CEO Mark Zuckerberg convince Instagram to give up the independence it coveted? Well, the $300 million in cash Zuck proposed didn't hurt. But, Zuckerberg also offered the independence Systrom wanted. Often when bigger companies buy up smaller ones in Silicon Valley, the littler start-up dies. The purchaser usually kills the product, using the deal instead for the technology and its engineers. Zuckerberg however promised to let the app continue operating within Facebook, unlike a traditional "acqui-hire." "Most of the other things we bought were talent acquisitions, but in this case we wanted to keep what it was and build that out," Zuckerberg told Swisher.
That, supposedly "clinched" the deal. But, on top of it, much like the traditional business world, networking paid off. Systrom and Zuckerberg had developed a close relationship, as Swisher explains:
"Kevin would call me and I would call him," Zuckerberg says of his relationship with Systrom during the early days of Instagram. The two had been casual acquaintances ever since meeting at various gatherings at Stanford while Systrom was a student. (Zuckerberg had even tried to get Systrom to drop out to work at Facebook.) After Instagram’s launch, Zuckerberg had Systrom over to his house in Palo Alto for dinner several times to talk about what he called "philosophy."
Systrom had had a similar relationship with Twitter co-founder Jack Dorsey, working with him earlier in his career. Dorsey helped the company get off the ground, letting some of his "influential" start-up friends try the app before its initial release, according to the New York Times. "From the start, Instagram was a simple application and a joy to use," Dorsey told Swisher. He also participated in a $25 million investment round. But as other offers came in from Zuckerberg and venture capitalists, Dorsey had fallen out of touch, focusing more on his other ventures, according to Swisher. By the time Zuckerberg came along, Systrom had a strong working relationship with him. In the middle of the negotiations the Facebook CEO even invited him to a Game of Thrones viewing party. "This never had the feeling of negotiation, because we kind of wanted to work together," Zuckerberg told Swisher.
And, the rest, as they say was a very less than friendly history between Twitter and Instagram. Head to Vanity Fair to read the entire history of Instagram, but mostly to see the awesome life-size Instagram of Systrom on the beach.