In a vacuum, "company X" and not knowing the performance of the fund as a whole, 2x return is ok (ie, LP's are content). When considering the company is Instagram and their growth rate and the LP's exit potential, the LP's can't be pleased.

Initial investors: Benchmark Capital, Adam D’Angelo, Jack Dorsey, and angel investors Chris Sacca of Lowercase Capital and Steve Anderson of Baseline Ventures.

Sure, no one can argue with that.

I'm probably missing something basic you're addressing - you said something like "well we don't know what the equity portion of the Instagram acquisition is worth"... but instagram does. And FB does. Sure, it's more of a negotiation because it's not publicly traded, but I doubt the Instagram founders got screwed on the equity portion (is that what youre implying?) in large part because there is at the very least a secondary market around FB shares. I mean, if anything, the founders have some serious upside in FB equity and probably wanted it weighted more to that v. cash. If you think the FB IPO won't be successful, I guess the equity piece is more scary... but I think owning a piece of FB and geting in today is probably a good move...

This is all I was trying to say! Ty for being more succinct than me.

Thanks. Jack Dorsey's public persona seems sort of d-baggey but damn can this guy pick/found companies.

WTF? How can you say 100% return in a week is not good? That is 5200% annualized return. Also, VCs investments are not all homeruns or nothing. There's usually a bunch of nadas a couple 2x or 3x their money over a period of YEARS and a couple homeruns. For a company with no business model and nada for revenue, do you really think they were going to go from a 500M company to 5B in a year?

lol jfc i forgot - FB filed a freakin' S-1

http://sec.gov/Archives/edgar/data/1...d287954ds1.htm

Pretty sure there are ways for 2 parties (in conjunction with a secondary market of trades, as well as private FB investors who have paid in at valuations during the past) to come to an agreed upon, and fair FB valuation today...

Yes - no one said they were all homeruns. They need the homoeruns to drive any return whatsoever because the failure rate is like 80% for early stage startups, and a couple 2x or 3x doesn't cut it. So if you put your capital to work in a potential homerun, and it gets quickly snapped up and you only make 2x... you can see how that would be disappoinitng?

You have to imagine if FB snapped it up with a 100% takeover premium today... and with Instagram growing their userbase wildly... even with zero revenues but say double the users six months from now, and a very tarnsparent market of buyers (Google, FB)... I think it could be worth much more, so the below still stands, imo.

fb stock was selling at about 100 bil valuation a week ago on sharepost fwiw

2x return is pretty good for a company considered wildly overvalued a week ago with no signs of knowing how to monetize

also mobile hasnt been advertiser friendly platform yea, could be years before advertising catches up ...but i do agree if instagram shows wild growth like it ht has , it had potential to be worth more , still a big if .

edit / semigrunching on my phone hvent read all previous posts

Agreed. And we don't know what it is. We only know this $1B that they are putting out.

All I'm saying is that if Facebook comes to you and says "Here's $200M in cash and 0.5% of our company, and that's $1B of value," much like if someone asks if you are a God, you say "Yes!"

it's actually a 450359962737049500% annualized return. annualized return is clearly the relevant metric here.

I would disagree only because the monetization wasn't the metric defining Instagram's takeover price. It was users. Just like with Netflix, whose entire valuation runup was 100% based on increased subscribers, and not their 1) financials or 2) the fact that their business model was very threatened.

I work in TV these days, and focus on distribution where we're learning to monetize ads across all platforms - I am fairly sure everyoen and their mother is wildly overvaluing the "mobile monetization opportunity" from an advertising dollars perspective. I think the one thing people always miss is that companies are not going to spend more (as a total universe of dollars) on advertising. It's just huge market shifts, and there's only so many ad dollars to go around.

Haha yeah - I'm pretty sure I missed your basic point in my crazy zomg homerun model spiel, thanks for the clarificaitno.

Aloysius is right. We all recognize that 2x in a week is awesome in a vacuum, but it isn't great as a VC investment.

Imagine that a fund makes 25 investments of equal size. Out of those the results are as follows:

5 are zeroes
5 are 1x
4 are 2x
4 are 5x
4 are 10x
3 are 25x

The net result of all of this is that you have made 5.9x your initial investment which would be solid performance.

Lets assume you were hoping for a 25x return on Instagram and only end up with 2x so you now only have 2 total 25x investments. This means that your return falls by 0.9x to 5.0x. Even if you had only hoped for a 10x on Instagram your return still falls by 0.3x to 5.6x.

If this happens a couple of times a 25% IRR can quickly fall into the low double digits and is even more exacerbated if Instagram was a significantly larger that the funds usual size.

Obviously a 2x is much better than a 0x but in terms of overall fund performance isn't ideal given they can't reinvest the proceeds.

This is super results oriented, it's not like some you expect to be 25x and some to be 0x. You expect all of them to be homerun potentials. You need to subtract 5.9x or whatever the EV was, not what your hoping for on Instagram.

Chris Sacca aint' bad either: Twitter, Uber, Turntable.fm, Oink, Facebook, bitly, and many more.

Check out this old interview with Instagram CEO. The interview is only weeks after Instagram started in 2010.

What is interesting is how Systrom states that all social networks start with a small niche audience, in Facebook's case university students and in his case photographers. Does that mean he thinks Instagram may become a social-network-to-be for mobile?