Photo courtesy of Karl Nilsson.
A simple, brilliant idea paired with impeccable technical proclivities and a good negotiator transformed the two men behind Instagram from start-up entrepreneurs to near billionaires overnight. After the initial acquisition of the mobile app to Facebook in April, The Federal Trade Commission officially cleared the deal terms between the world’s most high-profile social network and its most popular photo app on Wednesday. As a result, Instagram founders Kevin Systrom and Mike Krieger are rich enough to head off to the islands and retire. While the lucrative arrangement may not have been perfect – shares of Facebook stock continue to drop in price, closing at $19.44 a share on Wednesday, which affects the value – these two Stanford grads are sitting pretty and living large, and remarkably, it only took two years to get it done.
Impressive? Yes. Jealousy-evoking – To no avail.
The idea behind Instagram began when both twenty-somethings took their experiences working at Google and Microsoft coupled with their imagination for social innovation, and forged a unique invention. Instagram was an immediate success, and Facebook took note, acquiring the company on April 12 for approximately $1 billion in stock and cash. According to The Guardian, Systrom’s reported 40 percent stake is now worth $400 million, and Krieger’s slice comes to about $100 million. The rest gets divided amongst investors and employees.
“The whole equity split always is really interesting to me with startups. I think everyone has a different prescription for how you should split up,” Systrom pointed out during a speech at Stanford in May 2011. “It turns out that if you work hard, good things happen. And I think that that’s really the basis of it. You should just try to be as fair as possible for the stage of the company you’re at and the work people have put in before or after, and make sure to treat your employees really well. And when you bring on people and you have a large option pool, make sure to be generous, because those are the people that are going to stay with you until 4 am.”
Generous, indeed, considering the company is believed to have employed around 20 people. Systrom also stressed the value of his recruits when he discussed getting the project off the ground in the first place.
“Starting a company is 50 percent building your product, and 50 percent a lot of other stuff: bank accounts, insurance, taxes that you didn’t know existed, filing for things in the City of San Francisco and forms in the basement of City Hall to make sure that your founder from Brazil can get a job with you,” he explains. “When people decide on whether or not they’re going to go into entrepreneurship, you need to remember that building a product is great, but there is a lot of legwork involved in getting a team off the ground, I think specifically in recruiting a team … It’s finding the people to bring in to make that idea happen and supporting them by shielding them from the press and the checking accounts that you have to set up, etcetera … especially raising capital.”
Despite the gargantuan success, The New York Times dissected the deal a bit further on Monday, coming to the conclusion that the pay-off for Systrom and Krieger could have actually been significantly more. As the article breaks it down, “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 … The Instagram founders are out almost $300 million, at least on paper.”
Though the numbers still remain high, it’s a pretty big slip given there was an alternative solution. As the article goes on to say, Instagram could have asked for a fixed value on their stock option so that no matter how low the shares dropped, they would have received the approximate number of shares to add up to that value. By contrast, they settled on a fixed share value, so they’re stuck with their 23 million no matter the worth.
But alas, ‘tis simply the problems of rich people.
How do Systrom and Krieger spend their ridiculous amounts of money? On Red Wing boots and Suntory Yamazaki 18 whiskey, they told GQ in July.
“I got my first pair of Red Wings when I went to the Sundance Film Festival,” Systrom recalls. “Sundance is this brief moment in time when every bougie person from L.A. comes to the middle of Utah and invades this poor little town, and everyone’s wearing little French skirts and little shoes. Last year, Mike was there with me. It was snowing like crazy—a blizzard. Everyone was getting their feet soaked and I was so happy because I had these Red Wing boots. I made a New Year’s resolution to wear ‘big boy’ shoes because I wore the crappiest pair of sneakers for the longest time, and I was like, ‘I’m 28, I’m going to wear big boy shoes.'”
Systrom undoubtedly displays a more grown-up and high-end sense of taste post-Instagram success – Red Wing boots can run over $250 a pair. But again, when money ain’t a thang and you’re doing your thing, it’s only natural to look the part.