Sequoia’s A Big Winner In Facebook’s WhatsApp Acquisition, With Its Stake Worth About $3 Billion

Next Story

Facebook’s $19 Billion WhatsApp Acquisition, Contextualized

Facebook today announced its $19 billion acquisition of WhatsApp. Obviously WhatsApp has a lot to cheer about, having grown to 450 million active users over the course of the last five years. But from a pure venture perspective, the purchase represents another huge win for Sequoia Capital and partner Jim Goetz.

(UPDATE: After talking with more sources, we’re able to provide more context around WhatsApp’s funding history and Sequoia’s involvement.)

While the only funding that WhatsApp had publicized was the $8 million Series A led by Sequoia, the company had raised two subsequent rounds of financing, including an unreported $50 million Series C round. Sequoia led both of those subsequent rounds, investing about $60 million in WhatsApp over the years, which added up to a total ownership stake in the high teens, I’ve been told.

The deal is the largest acquisition of a venture-backed company in history, which also clearly puts it in the early lead for the biggest single venture return this year.

In a blog post today, Goetz said it’s been a privilege to work with the WhatsApp founders. “It’s been a remarkable journey, and we could not be happier for these talented underdogs whose unshakeable beliefs and maverick natures epitomize the spirit of Silicon Valley.”

Of course, WhatsApp isn’t the first company Sequoia had invested in before being acquired by Facebook — it led a $50 million round of financing in Instagram just days before the photo-sharing app was acquired. But it’s by far the biggest.

Assuming Sequoia owns almost 20 percent of WhatsApp, its stake is now worth about $3 billion in cash and stock. The deal by itself could provide more than a 2x return on the $1.3 billion fund the initial WhatsApp investment came from, and represents a 50x return on its investment in the company.

In an interview a few hours after the deal was announced, Goetz highlighted the international appeal of the app. While it’s not as well known in Silicon Valley circles, the app has huge engagement with users around the world.

“If you were in Spain of Brazil, most of the population there is interacting with WhatsApp multiple times a day,” Goetz said. Saying that he expected the app to become a household name in the U.S., Goetz pointed out that it has nearly half a billion users, and “is likely to touch a billion or more in the not-too-distant future.”

With that user growth also comes engagement, which Goetz believes is the highest amount in the ecosystem. And the fact that WhatsApp makes money — and has for years. “When we invested in the Series A, they had already paid income taxes, which is rare for a company at that stage,” he said.

It’s a huge deal for Sequoia, and in a strange way the WhatsApp acquisition might even be considered the firm’s revenge on Facebook for a prank Facebook CEO Mark Zuckerberg famously pulled on the partnership. Once upon a time, he pitched Wirehog while in his pajamas, reportedly out of spite for Sequoia partner Michael Moritz’s treatment of Sean Parker at Plaxo.

Big surprise, Sequoia never invested in Facebook.

But it seems to have made a ton of money off the social networking giant after all.