News broke earlier today that Facebook was buying popular messaging app WhatsApp for $16 billion, and while the social media giant ingesting yet another company is certainly news unto itself, the deal marks what could be one of the most successful venture capital investment deals of all time. Sequoia Capital reportedly invested a mere $8 million in WhatsApp back in 2011 — and while startups commonly raise subsequent rounds of funding amongst several investors, WhatsApp never announced any additional funding. Simply sticking with that initial investor would be striking, but it's even more arresting in light of the payoff.
The percentage of WhatsApp owned by Sequoia has been kept under wraps, but sources tell us it lands somewhere between 10 and 20 percent — meaning Sequoia could be reaping as much as $3.2 billion in cash and stock for that initial investment. It's a huge win for the firm, and makes other recent deals — Instagram reportedly closed a $50 million round of funding right before Facebook acquired it for $1 billion, for example — look puny in comparison.
"In terms of value creation, this is the biggest on record."
"In terms of value creation, this is the biggest on record," says Anand Sanwal, CEO of venture capital tracking firm CB Insights. eBay, long considered one of the great venture capital stories, raised $6.7 million and was valued at $1.9 billion after its IPO. Today's announcement also makes the the news that Snapchat turned down a $3 billion offer from Facebook seem a lot less shocking than it did at the time.
Ironically, just this past December WhatsApp CEO Jan Koum told the Wall Street Journal that the company had no intention of selling, going public, or raising new funding — a stance it was able to maintain because it wasn't spending money on extraneous expenses like marketing. "That will allow our company to stay independent," he said at the time. With $16 billion in the equation, however, it appears that became a very different story — and depending on where Facebook's stock goes in the months and years ahead, the number could soar even higher.
Update: Fortune reports that Sequoia may have ultimately invested as much as $60 million in WhatsApp, which might be a larger amount than the company publicly reported, but does nothing to change the epic scale of Sequoia's financial win.
Additional reporting by Ben Popper