Monday, April 23, 2012

Andreesen Horowitz to make $78M on Instagram deal

VC firm responds to criticism that it "fumbled" investment in photo-sharing app by back a rival as well.

Andreessen Horowitz stands to make about $78 million off an initial investment of $250,000 in Instagram, a partner in the investment firm revealed today in a blog responding to criticism that the investment firm "fumbled" its involvement in the photo-sharing app.



The New York Times ignited controversy earlier this week when it published a story that profiled how the VC firm "fumbled" its investment in Instagram, which was just purchased by Facebook for $1 billion, by investing in rival photo-sharing app PicPlz. The investment in PicPlz "was a calculated bet against Instagram and it left [Instagram CEO Kevin Systrom livid," the Times reported.

"Ordinarily, when someone criticizes me for only making 312 times my money, I let the logic of their statement speak for itself," general partner Ben Horowitz wrote in the blog. "However, in this case, the narrative that some critics put forth has the nasty side effect of casting two outstanding entrepreneurs--Kevin and Dalton Caldwell--in an unfair light and glosses over an important ethical issue that we faced."

Horowitz explained that Instagram's focus switched photo sharing based on the popularity the feature was experiencing at a company called Burbn. Prior to the morphing, Mark Andreessen and Horowitz were looking at investing Mixed Media Labs, which had a mobile photo-sharing service called PicPiz.

As Kevin iterated on Burbn, we made another investment in an excellent entrepreneur, Dalton Caldwell. Dalton's company, Mixed Media Labs, initially built a product called PicPlz. PicPlz aimed to be a mobile photo sharing service built on its own social graph. Furthermore, the graph would be public like Twitter rather than private like Facebook.
Subsequently, Kevin noticed that while Burbn wasn't taking off, the photo-sharing component of it was doing quite well. As a result, he pivoted Burbn into Instagram, which then competed directly with PicPlz. It's important to note that Kevin did not steal Dalton's idea--Kevin came to it organically based on the Burbn data.

More to come...

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