By Sarah McBride and Poornima Gupta
SAN FRANCISCO, April 11 Facebook's willingness
to pay $1 billion to buy the 12-person start-up Instagram has
Silicon Valley venture capitalists happily re-doing their math
on the potential value of hot young companies.
The fact that Facebook was the buyer is itself seen as a big
plus for the valuation of startups that may be adding
subscribers rapidly but in some cases are still far from being
profitable or ready for the public markets.
Until now, "it's really just been Google," said
Jeremy Liew, a partner at Lightspeed Venture Partners who backs
LivingSocial and others. "You really can't get an auction with
only one bidder."
The price paid for Instagram, a company with no revenue,
will also make it easier for potential acquirers to justify
spending big for something perceived as strategic, according to
Jeff Clavier, managing partner at SoftTech VC.
Some venture capitalists think Instagram was a one-off.
"It's certainly an outlier from a valuation standpoint," said
Matt Murphy, a partner at Kleiner Perkins Caufield & Byers who
manages its $200 million iFund. "There was a big strategic
concern or threat there" for Facebook, he said.
Investors also caution that the dynamics that enable
so-called Web 2.0 companies like Instagram to gain huge numbers
of customers very quickly can also cut the other way.
One need only look at Highlight, a location-based social
application for iPhones that was all the rage early last month
and is now almost forgotten, or even Turntablefm, which lets
far-flung friends listen to music together and has lost buzz
after acclaim last summer.
Still, companies with certain characteristics -- massive
growth in users or a competitive edge in mobile applications,
for example -- could be in the hunt for a 10-figure payday. Here
are some of the hottest prospects:
WHAT IT IS: A virtual pinboard that lets people easily
assemble pictures and other bits of content online. Users follow
each other, Twitter-style, and comment on each others' pins,
which can include anything from hot cars to vacation
destinations. The nature of the content makes it
e-commerce-friendly, and tremendous growth over the past six
months puts it at the heart of the social networking revolution.
"If anyone wanted to make a counter-statement to Facebook,
Pinterest would be a good way," said Clavier, who is not an
investor in the site.
FUNDING TO DATE: $37.5 million from Andreessen Horowitz,
Bessemer Venture Partners and others.
An investor told BusinessInsider last month the company was
now worth $1 billion, up from the $200 million valuation it
claimed in October at its last funding round.
KEY FACT: User base has grown to 19 million from 2 million
in just six months, according to comScore Inc.
WHO ARE THESE GUYS: Founders Paul Sciarra and Ben Silbermann
met at Yale. Half the 200 emails Silbermann sent to his friends
asking them to join Pinterest at its launch went unopened.
WHAT IT IS: A blogging service that allows for mixed media
posts, such as pictures with short captions.
"It's in the same space as Pinterest," said John Lilly of
Greylock Partners, who worked on the $50 million funding round
that Instagram wrapped up just before its sale to Facebook. "But
it's significantly bigger than Pinterest is on almost every
FUNDING TO DATE: $125 million from Greylock, Sequoia and
In September 2011, Tumblr was valued at $800 million.
KEY FACT: High level of engagement, with users creating 14
original posts each month on average, Tumblr says.
WHO ARE THESE GUYS: Founder David Karp, doing Harvard
drop-outs like Facebook CEO Mark Zuckerberg one better, quit the
Bronx High School of Science at age 15. Spark Capital and Union
Square Capital were two of Tumblr's earliest investors, as they
were at Twitter.
WHAT IT IS: Software that lets users take notes -- including
written text, copies of web pages, or photos -- and then access
and search them from anywhere, including phones.
Evernote would make a good acquisition for a company that
needs to bolster its cloud capabilities, such as Hewlett Packard
Co, said a venture capitalist who did not invest in
Evernote but wishes he had.
FUNDING TO DATE: More than $95 million from DoCoMo Capital,
Sequoia Capital and others.
Around the time of its funding round last summer, the
speculation was that Evernote would join the $1 billion
valuation club, but according to TechCrunch it did not quite
KEY FACT: 26 million users.
WHO ARE THESE GUYS: The research team is led by Stepan
Pachikov, who once worked on the handwriting-recognition
technology in the Apple Newton. Internet maven Esther Dyson and
PayPal cofounder Max Levchin have sat on the board since 2006.
WHAT IT IS: A service that allows users to store and share
files easily online.
Like Evernote, Dropbox could be a good acquisition for a
company that has fallen behind in cloud-based services, but it
would be a lot more expensive.
FUNDING TO DATE: $257 million from Index Ventures, Greylock
Partners, Sequoia Capital and others.
Dropbox's last funding round in October valued the company
at around $4 billion, according to media reports.
KEY FACT: 1 billion files are saved every 3 days on the
service, the company says.
WHO ARE THESE GUYS: Co-founders Drew Houston and Arash
Ferdowsi both attended MIT; Ferdowsi dropped out.
WHAT IT IS: A free text and talk service that operates
independently of wireless carriers. The service provides a
telephone number when you sign up to make phone calls; the
number can connect to public telephone networks.
Pinger works across platforms, including Apple Inc's
iOS and Google's Android. A disruptive technology in
the telecom sector, Pinger could be an attractive buy for a
major carrier such as AT&T or Verizon.
FUNDING TO DATE: $19 million from Kleiner Perkins Caufield &
Byers, DAG Ventures and Deutsche Telekom.
At its last funding round earlier this year, the company did
not disclose a valuation.
KEY FACT: One of the top five installed apps on Apple's iOS
WHO ARE THESE GUYS: CEO Greg Woock used to work for the
Virgin Group's Sir Richard Branson; a representative from
T-Venture, Deutsche Telekom's venture-capital arm,
sits on Pinger's board.
WHAT IT IS: An online music service that was launched in
Europe before coming to the United States. Spotify offers free
accounts that allow users to play specific songs -- unlike other
music services that only allow users to pick stations or genres
-- as well as premium subscriptions.
Some are disappointed in Spotify's sales of premium
subscription, but others say value lies in its reach. Amazon.com
or Google could be potential acquirers.
FUNDING TO DATE: $189 million from Kleiner Perkins Caufield
& Byers, Accel Partners and others.
Spotify is raising money now at a valuation of more than $3
billion, according to media reports.
KEY FACTS: 7.5 million U.S. visitors just a year after its
U.S. launch, according to comScore. Partnered with Facebook for
a streaming music service.
WHO ARE THESE GUYS: CEO Daniel Ek founded his first company
at age 14, building websites for small businesses. He and
co-founder Martin Lorentzon built up Spotify from their native
Sweden. Sean Parker, the Silicon Valley consigliere who guided
Facebook and co-founded Napster, has played an active role and
sits on the board.