The Knock-On Effect Of Facebook Purchasing Instagram

Facebook’s acquisition of Instagram has had a larger knock-on effect on Silicon Valley startups than could probably have been anticipated.

The dust has not yet settled after the epic valuation and purchase of photo editing application Instagram by Facebook for $1 billion dollars and it does not seem it will settle soon. For many startups, getting a valuation, leave alone getting bought out by a huge company, is the Holy Grail of getting your start-up anywhere.

Valuation, as the name states, comes from the derived value of your product. In other words, if the perceived value of your product stinks, so will your valuation and that essentially means no venture capital fund will touch you with a nine foot pole. This is why the Instagram purchase is so important because it has thrown the market wide open in that an app that perhaps many thought did not have much value ended up with a staggering valuation.

This has many startups in Silicone Valley and across the US celebrating because it has now become harder to profile a breakout success application and thus opens up the door for more diverse startups to get into a VCs office and pitch. It’s possible now that every VC firm in Silicon Valley is now looking at almost EVERY application as a potential winner.

Just recently, OMGPOP, the company behind the smash hit game Draw Something was acquired for some $200 million by social gaming giant Zynga in what many saw as an unprecedented occurrence (the game had only been on the market for 6 weeks). This unstructured breakout scenario will now make it easier for startups to push for funding as the traditional stereotypes venture capitalists relied on in the past have now been smashed.

As co-founder of photo app Pixable Andres Blank said, “Every time we went and talked to investors, they always complained about how low the exits have been for photo startups.” That has now changed and sentiment in the Valley has now taken a different turn as everybody views literally every new startup as potentially the next breakout success.

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