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Facebook’s purchase of WhatsApp a win for venture capitalists

The instant-messaging app is the latest startup to make big money for its investors

Jim Kerr is Alberta Venture's web editor. Get in touch with him at jkerr@albertaventure.com.

Feb 20, 2014

by Jim Kerr

Venture capital scored a big win on Wednesday when Facebook announced its $19 billion purchase of popular instant-messaging app WhatsApp.

The deal reportedly includes $4 billion in cash, about $12 billion in upfront stocks and another $3 billion over the next four years in restricted stock. It also pads the pockets of Sequoia Capital, the company said to be the lone investor in WhatsApp.

According to The Verge, Sequoia invested $8 million in the app in 2011 (though they may have ultimately invested up to $60 million), meaning this “could be one of the most successful venture capital investment deals of all time.”

The website cites sources who peg Sequoia’s stake in WhatsApp at between 10 and 20 per cent, which means a possible return on investment of almost $4 billion.

So, what does Facebook see in WhatsApp?

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Reuters reports WhatsApp boasts 450 million monthly active users (compared to Facebook’s 1.2 billion), with about 70 per cent of those users active on a given day (compared to 62 per cent for Facebook). It’s also reportedly very popular in Europe and Latin America, with reports from last year that showed market penetration among smartphone users at over 80 per cent in countries like Brazil, Spain and Germany.

Facebook CEO Mark Zuckerberg says WhatsApp users won’t notice any changes with the service going forward, and that includes in-app ads. WhatsApp co-founders Jan Koum and Brian Acton left Yahoo in 2007 to start a company that “shuns advertising altogether,” and recently wrote on the WhatsApp blog, “You can still count on absolutely no ads interrupting your communication.”

On the markets, Facebook shares began Thursday down 3.1 per cent.

Check back in March for Alberta Venture’s look at why right now is such a great time to start a tech company.

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