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Case in point: the acquisition of Instagram by Facebook in 2012, for $1 billion,
which was 1% of what Facebook was valued at that time. Never before had a
firm paid $1 billion for a mobile app, and to make matters more fascinating,
Instagram was about 2 years old at that point. Zuckerberg, the founder and
CEO of Facebook, took Instagram’s skyrocketing popularity as a “threat”. With
more and more people shifting towards Instagram; this venture proved to be a
foe for Zuckerburg.
Zuckerberg then decided that he would acquire the app. The terms were
basically that Instagram would be allowed to run independently with no direct
intervention in their running, and that Facebook would not attempt to copy or
mimic the platform. Systrom, the founder of Instagram, found these
conditions acceptable. He weighed in the fact that by associating the app with
Facebook, there could automatically be a value addition to the app that would
make its worth grow. In 2012, Instagram was acquired at the worth of $1bn,
presently it is worth $102bn. Therefore, the impact of a CVC is substantial, if
not significant.
Harvard Business Review says that startups that went public after being
funded by a CVC, outperformed those funded by independent VC firms, with
an average annual growth rate of 189.9% as compared to 162.8% respectively.
Whether a CVC is a friend or a foe, is difficult to say, and depends grossly on
the circumstances, product and the parties involved. However, its emerging
significance in today’s tech world is of the utmost importance.
The dual nature of CVCs, with either strategic or financial objectives,
emphasises their crucial role in gaining insights, acquiring cutting-edge
technology, and mitigating the risks associated with internal R&D efforts. As
the tech industry continues to evolve, the question of whether CVCs are
friends or foes remains complex and context-dependent, underscoring their
emerging significance in shaping the future of innovation and competition.