Inside the Deal: How Sequoia made a 50x return from WhatsApp

October 11, 2023
Startup Investing

Over the next few weeks, in our weekly Inside the Deal series, we'll be covering some of the biggest VC bets ever made. Today we're taking a look at the success story of messaging app, Whatsapp.

From its humble beginnings in 2009 to becoming one of the most popular messaging apps in the world, WhatsApp's journey is marked by unconventional choices and a unique approach to funding. 

In October 2009, Brian Acton convinced five former Yahoo! friends to invest $250,000 in seed funding. Acton became a co-founder and was given a stake in the company. He officially joined WhatsApp on November 1. 

The $8 million game-changer

In 2011, Sequoia Capital made a game-changing move by investing $8 million in a relatively obscure messaging app called WhatsApp. This investment marked the beginning of an exclusive partnership between WhatsApp founders Brian Acton and Jan Koum and Sequoia Capital. 

Unlike many startups that seek multiple investors to raise capital, WhatsApp took a different path. They decided to work with a single VC firm from the very start.

WhatsApp's unique strategy was built on a manifesto against advertising, vowing never to compromise user experience with intrusive ads. This commitment to their vision played a significant role in their decision to cultivate a single source of outside capital, ultimately raising just $60 million in outside equity financing.

Sequoia Capital's conviction pays off

Sequoia Capital's unwavering conviction in WhatsApp's potential paid dividends. Even as WhatsApp scaled to hundreds of millions of users with minimal revenue, Sequoia remained the sole investor, contributing an additional $52 million in July 2013 when WhatsApp was valued at $1.5 billion.

At that time, WhatsApp generated $20 million in revenue, making Sequoia's investment an astonishing 75x+ revenue multiple. Facebook had been tracking WhatsApp for months using Onavo, a VPN and data analytics app. The data showed that WhatsApp was not just a rising competitor, but a potential Facebook killer.

When Facebook acquired WhatsApp for $22 billion, Sequoia's total investment of $60 million translated into an 18% ownership stake, worth over $3 billion. This represented a remarkable 50x return on their investment.

This was Facebook's largest acquisition to date. The deal was broken down into: 

  • $4 billion in cash
  • $12 billion in Facebook shares
  • Restricted stock units for WhatsApp's founders and employees worth $3 billion 

As of 2023, each WhatsApp user is worth about $44. WhatsApp has 2.24 billion users, which would value the company at $98.56 billion.

WhatsApp's journey from an $8 million investment to a $3 billion return demonstrates the power of conviction, strategic partnership, and staying true to a vision. It stands as a testament to the potential for unconventional approaches in the world of tech startups and venture capital.

Interested in angel investing? 

Brian Acton convinced his former Yahoo! friends to invest in his startup and it paid off big time. There are many other examples of early investors getting big returns by investing in their network of friends, colleagues, founders, etc.

Use PIN to empower your network to invest together in the best startups. Learn more here.

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