PitchBook February 20, 2014
WhatsApp has agreed to be acquired by Facebook (NASDAQ: FB) for a colossal $19 billion—the single largest acquisition of a VC-backed company ever. The deal includes $12 billion in Facebook stock, $4 billion in cash and $3 billion in restricted stock units for founders and employees.
One detail that caught our eye was the April 2011 $8 million Series A round led by Sequoia Capital that valued the company at $32 million, PitchBook data show. Fast forward to today and that translates into a 9.2% stake valued at $1.47 billion, generating a breathless return of 184x for those Series A investors. The fund used by Sequoia (Sequoia Capital 2010) is a $1.36 billion fund, meaning that the firm will return nearly all of that just from their portion of this single Series A investment.
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For those not familiar with WhatsApp, it is a cross-platform mobile messaging app that lets users exchange messages without having to pay for SMS (short message service). The company, which has 450 million monthly active users (more than 70% of whom are active each day), charges users 99 cents annually after the first year. WhatsApp employs only about 50 people, including 32 engineers, and has spent nothing on marketing to date. The company will remain autonomous and will operate independently, while its co-founder and CEO, Jan Koum, will join Facebook as an executive and will take a seat on Facebook’s Board of Directors.
WhatsApp has had a secretive funding history, but new details show the company raised a $257,000 seed round in 2010, followed by its only publicized VC round in April 2011, an $8 million Series A led by Sequoia. In mid-2013, Sequoia invested an additional $52 million in a Series B round that valued WhatsApp at approximately $1.6 billion pre-money.
Interestingly enough, the company was in talks to be acquired by Facebook back in 2012, and Google also made an attempt last year, offering a rumored $1 billion for the messaging app. In both cases, the company turned down the offer, with WhatsApp’s co-founder and CEO Jan Koum explaining to The Wall Street Journal in December last year that the company hoped to remain independent for a long time.
“We view monetization as five, 10 years down the road,” Koum said. “We’re trying to build a sustainable company that’s here for the next 100 years.”
The good news is that the acquisition, which lets the company continue to operate independently of Facebook, allows the WhatsApp team to do just that. But when close to $20 billion beckons, it’s hard to say no.
In fact, PitchBook data show that among completed acquisitions of VC-backed companies in the last five years, $19 billion is larger than the next 16 acquisition sizes combined. That’s right. Well-known acquisitions since 2009, such as Microsoft’s $1.2 billion purchase of Yammer, Yahoo’s $1.1 billion deal for Tumblr and Facebook’s $1 billion acquisition of Instagram don’t even come close to what’s being paid for WhatsApp. The second-largest acquisition of a VC-backed company in the last five years was for Helsinki, Finland-based Supercell, in which investors Softbank and GungHo Online Entertainment acquired 51% of the company for $1.5 billion, valuing the company at $3 billion.
Update Feb. 20, 2014, 1:15 p.m. PST
We’ve also run some analysis showing that when the deal officially goes through, WhatsApp will have the fourth largest valuation step up from first round (excluding seed and angel rounds) to exit since 2010. Its final valuation of $19 billion is roughly 472 times larger than its valuation of $40.3 million after its Series A round in 2011. Meanwhile, the company will have the 10th largest valuation step up from final VC round to exit since 2010. See our top 10 list of valuation step ups below.