Venture capitalist Ben Horowitz is pushing back on criticism suggesting Andreessen Horowitz, an early investor of Instagram, failed to make a greater return on its investment in a company Facebook has purchased for $1 billion because of a poor strategic decision to back another entrepreneur.
"Ordinarily, when someone criticizes me for only making 312 times my money, I let the logic of their statement speak for itself," Horowitz writes in a blog post, revealing that his firm's $250,000 investment in Instagram two years ago will be worth $78,000,000 when the Facebook deal closes.
It's unusual for any VC to open the kimono all that much, and a firm with the (known) track record of Andreessen Horowitz -- Twitter, Skype, LinkedIn -- doesn't seem a likely candidate for damage control. What makes this even more interesting is that Horowitz is saying there was no actual legal requirement driving the firm's decision, but rather a moral imperative to honor a commitment to a founder it had done business with first when it became clear that the investors could not expand their relationship with both.
Still, The New York Times reported there was dissension and anger between the firm and Instagram's cofounder Kevin Systrom when Andreessen Horowitz decided to double down on Dalton Caldwell and PicPlz.
The investors were ethically compelled to go with Caldwell when he and Instagram founder Systrom ended up working on more or less the same idea, Horowitz says. So instead of exercising rights to invest more heavily in Instagram -- and get a bigger share of that Facebook billion -- Andreessen Horowitz returned these rights to Systrom for nothing and stuck with Caldwell, whose agreement with the firm included an "implicit commitment" not to fund competitors. (More irony: Caldwell pivoted out of PicPlz anyway.)
"And that’s the thing that we did that many writers think was really stupid," Horowitz says. "Despite that, if we had to do it again, we would."
Horowitz wants to make something else perfectly clear, too. Systrom "did not steal" the photo-social-network idea from PicPlz, which "aimed to be a mobile photo sharing service built on its own social graph" even though he had come to the VCs not with Instagram but "Burbn (an idea to) roughly to build a mobile micro blogging service."
"He pivoted to Instagram because that’s where his users were — period, end of story," Horowitz says.
