How Instagram Got Crushed In Their Deal With Facebook

At the beginning of 2012 many business insiders would have argued that Instagram, the popular photosharing app, was Facebook’s top competitor. So what does Facebook do in this situation? The same thing any company would do. Buy ‘em out! It was fear that lead Mark Zuckerberg to buy Instagram for $1 billion (twice it’s reported value) but in the end, according to this article by NY Times, Facebook gave Instagram a raw deal.

In hindsight, perhaps Instagram should have cut a different deal with Facebook.

In April, Facebook agreed to acquire Instagram, the hot social media photo-sharing site, in a deal valued at the time at about $1 billion.

The problem is that Facebook did not agree to pay $1 billion in cash. The deal terms said Instagram would receive $300 million in cash and about 23 million shares of Facebook stock once the deal closed. Facebook stock at the time of the deal was valued by the parties at about $30 a share.

But since that time, Facebook’s initial public offering has taken place — and we all know what happened. Facebook shares have fallen substantially, and the Instagram acquisition is now valued at about $735 million. The Instagram founders are out almost $300 million, at least on paper.

Instagram’s founders could have avoided this situation by bargaining differently.

Read about Instagram’s business blunder here