
Instagram - dwynings
http://bhorowitz.com/2012/04/22/instagram/
======
cletus
Congratulations on the investment. The return is nothing short of spectacular.
It's a truly excellent example of execution _and timing_.

But the point that keeps resurfacing in my mind is SpaceX. SpaceX, from
nothing, created a low-earth orbit delivery system that is revolutionizing
satellite launches and (soon) the cost of getting men into space... for less
than the price that a bunch of people can send photos to each other with
cheesy filters [1].

It would be difficult to overstate the impact Elon Musk has had, is having and
will have on _humanity_ (and no this isn't hyperbole) through SpaceX (and
maybe even Tesla). And it didn't even require, relate to or is connected with
some bullshit social network.

I'm also reminded of Steve Yegge's OSCON talk [2] from some months back. The
computer power we have available now is stunning. used for the right purposes
it could fundamentally change humanity for the good, whether that be in
bioinformatics or whatever, is hard to overstate.

Yet we're using all this power and the brightest minds on the planet... to
send cat pictures. It's actually reached the point that when I get unsolicited
recruitment email or read about some new startup on HN that I tune out as soon
as I see the word "social".

There's something astoundingly depressing about all this.

EDIt: I should add that my issue isn't that the founders and investors sought
wealth. I don't begrudge them that at all. Not by any means am I anti-
capitalist. Bill Gates, as one example, is doing huge amounts of good with his
accrued wealth.

The issue is more on what society values.

[1]: <http://news.ycombinator.com/item?id=3857904>

[2]: <http://www.youtube.com/watch?v=vKmQW_Nkfk8>

~~~
pg
If it makes you feel any better, there's nothing new about this situation. One
could just as well complain in the 1930s about the money and effort that were
going into popular films instead of whatever other more virtuous project.

This case actually sounds like a fairly mild one. Instagram didn't have many
employees, so only a few people were diverted from curing cancer to sending
cat pictures.

~~~
cperciva
_only a few people were diverted from curing cancer to sending cat pictures_

Pre-acquisition, sure. But how many people will see the instagram acquisition
and decide to give up on curing cancer to help people send cat pictures
instead?

~~~
Mz
Burned out (and homeless) in San Diego says: I am completely ready to make
that (type of) switch, and it has nothing whatsoever to do with any company
being acquired. Most people don't really want to get well. They want a better
drug. I am currently seriously planning to burn my health site to the ground
and start something shallow and hopefully profitable, like an astrology site.

Not kidding at all.

~~~
_dps
Mz, you don't know me but I've often read your comments here with interest and
respect. I also know several people in the San Diego ecosystem (I was in LA
for many years). I admire what you're doing with healthgazelle and if I can
help let me know (email is in my profile).

~~~
Mz
While the sentiment is appreciated, I cannot imagine what to ask for. I need
either a huge cash gift to wipe out my debts or to declare bankruptcy, which I
am currently trying to work on through legal aid. I also need an online
income. I suck at self promotion and most people have either given me well
meaning advice which failed to make any real difference or pooh-poohed the
idea that any of my current sites could be commercialized and monetized. While
it bothers me to take the site down, my webhosting expires in May and not only
can I not afford the $120-ish dollars to renew for another year but if someone
gave me the money, as has happened the previous three years, I would spend it
on food, not hosting service. I see little reason to continue taking verbal
abuse for a project which makes no money and is of interest to very few
people.

I also do not know how to get off the street in part because I have been
healthier sleeping in a tent these past few months. I do not wish to remain
homeless but I also do not want to rent a typical American apartment ever
again. I do not know how to go from homeless to homeowner, which is probably
the only hope I have for arranging a housing situation which does not
contribute to my health issues.

You are more than welcome to email me. I just have no idea how it would help.

Thanks

Edit: Though I do have a non-internet business idea I am toying with. And
concerned that it will go nowhere because a) I can't get a business loan in my
current circumstance b) I won't qualify for a business loan if I successfully
declare bankruptcy and c) I don't know if I can successfully run an IRL
business given my health issues.

~~~
derefr
> While it bothers me to take the site down, my webhosting expires in May and
> not only can I not afford the $120-ish dollars to renew for another year but
> if someone gave me the money, as has happened the previous three years, I
> would spend it on food, not hosting service.

How about if someone offered to take over the project(s) from you? In effect
equivalent to the above, but non-fungible.

~~~
Mz
Since all three of my current sites are deeply rooted in first hand personal
experience, I do not see how that can be realistically accomplished. I either
need a (financial) miracle within the next month which makes it worth my while
to continue developing my sites or they need to die. I don't see any other
reasonable alternative.

But thank you for asking.

~~~
nmridul
How about if someone offers to host the site free for some time. And once you
have recovered, you can move it your own server. Even if you are not going to
update it any time in future, the information already there could be of some
help to someone. Just don't take the sites down since could be providing some
value to some one in the mean time. Let me know.

~~~
Mz
I will think about it however free hosting will not solve anything. Other
people have paid the hosting for the last three years. Keeping the site up
does not change the lack of traffic. It does not change the lack of
credibility I have with the CF community. It does not change the general
perception that I am some attention mongering egomaniac who got myself well as
some publicity stunt. It does not change the fact that no one wants to
compensate me for the information there. Given that I am currently homeless,
it rubs me the wrong way that people still want to preserve the site but not
give me one thin dime. Meanwhile, people in the CF community raise thousands
of dollars for the CF Foundation because they are desperate for better drugs.
If everyone here is so fucking idealistic, why are there zero donations?

I do not know what the answer is but at the moment I see no reason to be
idealistically trying to preserve the information for the benefit of other
people and I find it incredibly offensive that people are suggesting I should
given that I am homeless. Either give me money, help me effectively monetize
it, or say goodbye to it. If it has value, it should be worth something to
people. If it is not worth something to people, then bleeding a homeless
person for sympathy seems pretty freaking sick.

~~~
OzzyB
Take all the info you have on your site, dump it into a PDF, give it a title,
and sell it as an e-book on Amazon -- let the site die.

If someone out there thinks your information is valuable, they can pay $15-25
bucks for it; at least then you don't have to keep paying/updating your site
and you might put a few bucks in your pocket.

~~~
loumf
If you search for "convert wordpress to book" you get a bunch of sites,
including this one <http://www.blogbooker.com/wordpress.php>, which is free.
There are a lot more.

------
andrewfelix
There is something wrong with a world that allows an investment of $250,000 to
turn into $78,000,000 in such a short period.

Now before you downvote me, I'm not suggesting what these guys did was wrong,
or that FB's money is dirty, or even that anyone directly suffered as a result
of this transaction.

But capital is like a liquid, it ebbs and flows. The fact that so much of it
can flow in such a small amount of time toward such a small group of people
bothers me. Especially when you consider the impact that investment could have
made in other places.

Ok _now_ you can downvote me.

~~~
jerf
Well, then, take heart. You also live in a world where a $78,000,000
investment can, in a short time, be turned into $250,000!

Feel any better?

~~~
andrewfelix
Ha ha! Yes I do feel strangely better. I wonder why? Perhaps I'm just annoyed
I haven't managed to make a decent financial investment...ever.

~~~
nirvana
I think your inability to make good financial investments is directly linked
to your hard leftism and your desire to punish people who do.

Unfortunately, the policies you advocate are the cause of poverty in this
society... and when they do something like create the housing bubble -- you
turn around and blame the victims, rather than the perpetrators. (The housing
bubble was created by clinton administration regulations requiring banks to
loan money to people who couldn't repay- after it burst the obama
administration effectively nationalized the banking system, moving the country
closer to fascism.)

Your "how quickly they forget" tells me that you view the world thru the lens
of propaganda, not reality, and thus it was heartening to see once again that
the source of this support for evil is simply jealousy.

~~~
icebraining
I may be wrong about this, but wasn't the program that effectively
nationalized the banking system the TARP, which was signed by Bush before
Obama was elected?

~~~
nirvana
That's a fair perspective. And really, you could go all the way back to the
founding of the federal reserve as the beginning of the nationalization of
banking. But I was specifically referring to the Obama administrations
"reforms" that put the federal reserve in control of regulating the banking
industry.

------
yabbadabbadoo
_funding Kevin to compete with Dalton would be a violation of the original
implicit commitment we made to Dalton—to not fund competitors to PicPlz._

This is very interesting. Is this common practice among VCs? PG has said that
they don't reject YC aspirants simply because they're building something that
competes directly with another YC company: _The way we deal with it is that
when two startups are working on related stuff, we don't talk to one about
what the other's doing._ [1]

For some reason, I assumed this practice extended to VCs as well.

[1] <http://ycombinator.com/faq.html>

~~~
jasoncrawford
Different investors approach this differently; it depends on the velocity of
investments they make and on how hands-on they are.

For instance, SV Angel (Ron Conway's fund) has an explicit policy much like
YC's: they _will_ invest in competing companies, but that they _won't_ reveal
one company's private information to another (and they don't really get
involved in the management of their portfolio companies). Both SV and YC are
making a lot of small, early-stage investments, so this makes sense for them.

A traditional VC, though, is very hands-on (usually a partner takes a board
seat after an investment) and thus often has a policy of not investing in
competing companies--it would just be too hard to not share information, at
least implicitly, when you are sitting on the board and actively helping
manage the company. Andreessen-Horowitz is a VC firm, and this seems to be
their approach as well. It makes sense when you're making fewer, larger,
later-stage investments.

~~~
malay
The idea that you can mask learned knowledge of a company's strategy by simply
not explicitly revealing sensitive information is a difficult concept to wrap
my mind around.

It is not possible to unlearn the information. If you are acting as a
strategic advisor, the information has to weigh in your mind and you
implicitly will end up revealing information, practically subconsciously. A
simple case would be where one company explains an experiment they ran
(perhaps testing a feature with a small part of their customer group) and the
result of the experiment. If the competitive company comes in and says they
are thinking of running a similar experiment and explicitly asks the advisors
what they think—what is the response given?

I have a hard time understanding how this type of accumulated information
could not enter into future judgments the advisors are making. As a management
consultant who faces this type of challenge frequently (and overcomes it by
avoiding competitive clients and never sharing my work) I am honestly curious
how one elevates themselves above this type of subconscious thinking.

~~~
jasoncrawford
Well, that's exactly why VCs don't invest in competing companies.

------
Mystalic
Andreessen Horowitz did the only ethical and logical thing it could do. It was
in a tough spot, so it did the thing that wouldn't violate its implicit
agreements with Kevin and Dalton.

I don't think either side is complaining, and I doubt Andreessen's LPs are
either.

Can we put this matter to bed now?

------
earbitscom
All I know is this...this is the kind of support I want from the people I work
with. A16Z consistently show me they're the kind of people I want to be
working with.

------
waterlesscloud
A couple of things I thought about while reading this, unrelated to the
ethics...

1- If he's able to assign a precise value to the investment outcome, that
implies that Facebook assigned an explicit value to their stock involved in
the transaction. I don't know if that had to be the case or not, maybe it did.
But what it makes me curious about is...what valuation did they use? The
current second market valuation? Something else? The $100 billion bandied
about isn't an official valuation is it?

2- What Facebook bought was an open social graph, as opposed to their current
private one. Now that makes a lot of sense as something worth a lot of money,
specifically to Facebook that otherwise has no way to make their private graph
public, at least not in any way that doesn't piss off their users. Of course,
now they have some verrrrrry tricky waters to navigate.

~~~
jwegan
1\. It was published the day after the Instagram acquisition that Facebook had
assigned a valuation of $75 billion to their stock.

2\. I doubt Facebook bought Instagram for the "social graph" . Facebook has
always been laser focused on user engagement. One of the core features on
Facebook that keeps users engaged is photo sharing with their friends.
Instagram was an up and coming challenger in the sharing photos with your
friends arena and that is the primary reason Facebook bought them.

~~~
repsilat
Re: #1, this is a part of a reasonable answer to "How are they worth so much?"
- the purchase of Instagram was made "roughly 30 percent in cash and 70
percent in stock[1]", meaning that the $1B was really ~$300M in cash and a bit
under 1% of Facebook.

Maybe that still looks high, but it's certainly not as outrageous as a billion
dollars. The bit that makes it look crazy is Facebook's valuation at nearly
$100 per active user.

1: [http://dealbook.nytimes.com/2012/04/18/with-instagram-
deal-f...](http://dealbook.nytimes.com/2012/04/18/with-instagram-deal-
facebook-shows-its-worth/)

------
kjhughes
_So our choices were: a) invest in Dalton b) invest in neither or c) invest in
Kevin and violate our commitment to Dalton._

I would have thought that suggesting that Dalton and Kevin join forces would
have been one of the options.

~~~
waterlesscloud
What happens when the idea doesn't work out and they pivot? Do they stay
together then?

~~~
kjhughes
Presumably they'd then be in the same position as any co-founders regarding a
pivot: They'd have to reach agreement on whether and how to alter their plan.

------
staunch
If I was Dalton (PicPlz) I would have been fine with my investor exercising
their pro-rata rights in another investment, even it had become competitive.
It's not ideal, but I don't think it's unethical. I'd be much more concerned
about them sharing information, so there would have be a discussion about
that.

~~~
jasoncrawford
See my answer to "yabbadabbadoo". It's just too hard to _not_ share
information, at least implicitly, when a VC takes a board seat on competing
companies. So most VCs have a policy like Andreessen's.

------
mhartl
Andreessen Horowitz continues to show that they are among the classiest
investment firms in the business, as well as being one of the best. Bravo.

------
sakopov
Christ, 78 mil for an app that shares pictures. I must be the only one
thinking this is money which could be used more wisely developing better
medical equipment and generally solving real engineering problems.

~~~
caycep
well, one of the technical challenges in medicine is how to share medical
imaging between different hospitals and doctors. the current "PACS" systems
that do that suck.

Instagram or something like that would be a neat way to accomplish that.

Turing completeness and all...

~~~
jpadkins
The reason why it is a hard problem is HIPAA regulations, not because of some
deficiency with the PACS. Any social or semi-public solution would be
instantly shut down.

------
dantiberian
Is this standard of ethics amongst VC firms the exception or the rule? A lot
of news and comments paint VC firms in a bad light but this story seems to
suggest that strong ethics are still alive and well.

------
sethbannon
Ethical and transparent -- two phenomenal qualities in a VC.

~~~
JabavuAdams
What do you expect? People don't talk about their unethical dealings.

This is not to say anything about Andreesen Horowitz -- but recognize that
this is a savvy piece of marketing, just as the Valve employee manual "leak"
is a savvy piece of hiring material.

------
EGreg
I am really thrilled to read something like this from the venture capital
community :)

------
ricardonunez
I think it was a great investment and great for them for the transparency. For
those that criticize how much money was in so short period of time. You are
probably in the wrong industry. I'm sure nobody feel bad for when somebody
else do a bad investment. Thinks can go in both ways.

------
kposehn
What else is there to say now? He makes it very clear, shows how they value
and respect both entrepreneurs and sets the record straight.

Very well done.

------
2pasc
That means that our friend Jack Dorsey also pocketed another 78M - along with
Adam D'angelo? When most people will never strike 10M in their
entrepreneurial/investment career, these guys have pulled three already...
That's really impressive.

~~~
spullara
They were probably not invested at the same level but I'm sure they did well.

------
nazgulnarsil
all of the anger over instagram seems to come from zero-sum thinking. I liked
one of the touches of David Brin's novel Sundiver, where people who think in
terms of zero or negative sum games are deemed insane.

------
villagefool
Can someone please explain what "...Kevin came to it organically based on the
Burbn data" means?

~~~
kjhughes
Ben Horowitz is countering accusations that Kevin pivoted into photo sharing
based on Dalton's work. He's saying that Kevin saw that Burbn's photo sharing
was its most popular feature and so naturally (organically) Kevin pivoted in
that direction.

------
DanI-S
Imagine if other industries were this transparent.

------
benihana
So when faced with a sticky situation, he does what he thinks is ethically
right, then makes $78,000,000 (with six zeros). If someone can't step back and
evaluate that situation for what it is, they have a serious issue with
perspective.

------
hooande
This deal absolutely stinks. It sure seems like someone said, "Hey Facebook,
you just got paid. Why don't you buy instagram for an amount of money that we
made up so that my buddies and I can get even richer?" And they made _78
million dollars_ behind that.

1\. If people can make up money, then it lowers the value of money for
everyone.

2\. If people can make up money, then it destroys any semblance of fairness in
the system. Why are we working every day when some people can just invent tens
of millions of dollars for themselves?

This isn't how markets are supposed to work. An asset isn't worth one billion
dollars just because someone you know has a billion dollars to spend. The last
thing I expected to see was a blog post bragging about it.

~~~
ericflo
> An asset isn't worth one billion dollars just because someone you know has a
> billion dollars to spend.

Actually that's nearly the definition of what something is worth: how much
someone is willing to pay for it.

