Tuesday, April 10, 2012

Building a billion-dollar enterprise, 3

Just got back from a trip to Chesapeake, Virginia. On Friday, I joined a bunch of other kinfolk in attending the change of command ceremony in which our nephew, Vernon H. Stanfield, assumed command of his first ship, the USS Whidbey Island.

On Sunday, J. and I celebrated my 60th birthday with dinner and a movie ("The Artist").

Yesterday, while I wasn't looking, Instagram announced that it is being acquired by Facebook.

The price? $1 BILLION.

Again, remember what Instagram is - a company with one product that does one thing, and which has zero revenues (what have co-founders Kevin Systrom and Mike Krieger lived on til now?).

And now Mark Zuckerberg says, "I want it. Here's $1 billion."

Of course, it's not an all-cash deal: Instagram's owners will get a combo of cash and Facebook stock. Still, the deal is a staggeringly powerful reminder that going public is not the only way to establish a company's value. Another is selling off pieces to private equity. And a third is by selling it to another company.

The tricky thing about the third way is that the price being paid may bear no resemblance to what the company would fetch on the open market. I doubt that if Instagram had done an IPO now, it would have weighed in at $1 billion.

But that is neither here nor there. When a single buyer makes and offer, however cockeyed, that buyer IS the market.

My #1 takeaway? Not only is it possible to build a billion-dollar enterprise in five years, it is possible to do it IN 18 MONTHS (Systrom and Krieger launched Instagram in October, 2010).

Meanwhile, another news item invites a contrast-and-compare exercise: Tumi Holdings, Inc., which makes high-end travel bags, is planning an IPO to raise up to $319.3 million. At the high end of the proposed price range of $15-17, the company would be valued at $1.15 billion, just a sliver more than Instagram.

Tumi has been in business for 25 years.
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