Real World Funding Scenarios and an Example
Everyone has heard of the huge success of companies such as Amazon, Google, Apple, and Facebook. They all started with the founder’s belief, energy, and determination (plus of course a great idea that offered products and services to the masses!)
But, here is a much more recent success story that shows exactly why persistence is something that all founders need.
Instagram – THE #1 Photo-Sharing Application
As all will be aware, Instagram is a free photo- and video-sharing application that enables users to take photos/videos, apply relevant filters, and share them via social networks.
Instagram’s incredible rise to fame and fortune in just a few months will stagger many, but do not believe for one minute that it was all plain sailing!
The social media application took just 8 weeks for software engineers to develop before being launched in October 2010 on Apple’s mobile operating system. In under 2 years, Facebook (META) acquired the company for $1 billion in cash and stock!
Let’s backtrack with some basic founding and funding detail
Kevin Systrom, a 27-year-old graduate of Stanford University was working at a travel recommendations startup; Nextstop. His previous work experience included time with Google and as an intern at Odeo (the company that would later evolve into Twitter).
Systrom had no formal computer science training but was determined to learn code at night and during weekends while working for Nextstop. The result was a prototype of a web app; Burbn – (inspired by his taste for fine whiskeys and bourbons).
This app allowed users to check in, post their planned activities and share photos. While location-based check-in apps were common at the time, it was the photo-sharing feature of Burbn that made it stand out.
A crucial turning point….
It was at a startup party (for Silicon Valley-based Hunch) in March 2010 that things turned dramatically. Systrom met and gave a demonstration of Burbn to 2 venture capitalists from Baseline Ventures and Andreessen Horowitz.
The result? After another meeting, Systrom quit his job, focussed on developing Burbn, and within 2 weeks had raised a total of $500,000 in seed funding (from both the mentioned venture capitalist companies).
We have already mentioned the importance of seed funding in terms of recruiting key employees. That is exactly what happened with the recruitment of 25-year-old Mike Krieger (also a Stanford graduate) who knew Systrom from their time as students. Krieger’s previous experience was as an engineer and user-experience designer for the social media platform Meebo.
Between the two of them, the Burbn app was reassessed and the decision was made to primarily focus on one aspect; photographs that were specifically taken using mobile devices.
Leading apps in the photography category were studied and it was the Hipstamatic app that stood tall. While very good, Hipstamatic lacked the social media sharing capability. This led Systrom and Krieger to build an app that bridged Hipstamatic and a social media platform (aka Facebook).
Burbn was stripped down to its photo, commenting, and ability to “like” posts. This improved app was renamed Instagram (a combination of Instant and Telegram). A key factor was that the app should be minimalist and require users to take as few actions as possible.
The new Instagram app took the mentioned 8 weeks of fine-tuning and beta-testing between friends. It was on Oct 6, 2010, that the initial Instagram iOS app was officially launched.
Successful? It racked up 25,000 users in one day! By the end of its first week, users had downloaded Instagram 100,000 times. Roll on to mid-December of that year and the user base had reached 1 million.
Series A funding and then acquired by Facebook
With such a sudden rise in the user base, more investors became interested. In February 2011, Instagram entered a Series A funding round and raised $7 million.
One of these investors was Benchmark Capital which put Instagram’s value at around $25 million. It is little surprise that other leading social media technology companies (including Twitter and Facebook) were attracted.
While this new round of financing gave the opportunity to hire lots more people, Systrom and Krieger resisted that and kept the company small, employing around 12 employees only.
It is reported that Twitter made a formal offer of around $500 million in stock but this offer was declined. Roll-on to 2012 and just prior to Instagram’s IPO (Initial Public Offering), Facebook acquired the company for $1 billion in cash and stock on 9th April of that year.
Just four of many key facts worthy of note before and after the Facebook acquisition:
- By March 2012 the Instagram user base had grown to around 27 million users.
- When Instagram released the app for Android phone users in April 2012 it was downloaded over 1 million times in less than 1 day.
- By 2018 Instagram became the second-most downloaded free app available from the Apple app store (it was second only to YouTube’s free mobile-device app).
- By 2020 more than 1 billion people were using Instagram each month.
As is very clear in the case of Instagram and other high-profile startup successes, securing the necessary funding at various stages of your company’s life is an absolute must.
In the conclusion below there is a solution that will give you assistance, advice, and the potential to leverage the necessary funding in a way that will benefit your venture.
Whether you are a founder of an early-stage venture or one that is beginning to establish itself one thing is clear, understanding funding and the different options available for fundraising is essential.
To help you along this complex road, expert advice should be sought. That is exactly what the highly-experienced team at WOWS Global can bring to the table.
We offer private market solutions that are second to none. Our digital ecosystem has been designed to unify companies and investors.
Not only can WOWS Global advise and guide you through the funding maze, but our state-of-the-art, online, highly secure systems will provide you with all the tools necessary to run your company most efficiently. That includes access to our sought-after cap table management suite.
For further details and a no-obligation discussion please reach out to us at:email@example.com