Facebook boss Mark Zuckerberg hands over $1billion to buy Instagram... and makes its 26-year-old creators VERY rich

MydeaMedia

• 15-month old company was co-founded by Stanford classmates
• Deal comes eight years co-founder Kevin Systrom turned down Zuckerberg's offer to join Facebook in 2004 before it shot to success
• One venture capital firm that invested early will get hundreds of millions of dollars

By Julian Gavaghan and Lydia Warren

Facebook will hand over $1 billion to buy the photo-sharing software company Instagram, owner Mark Zuckerberg announced today.

The app, which allows users to alter and post images on their smartphones and tablets, will be paid for in cash and Facebook stock. Facebook will complete its initial public offering of stock next month.

The service - used by 30 million people, including celebrities Hilary Duff, Mandy Moore and Jessica Alba - is increasingly becoming a rival for Facebook, which also relies on people posting pictures.

Big spender: Facebook owner Mark Zuckerberg, far left, paid Instagram co-founders, Kevin Systrom (pictured right) and Mike Krieger (next to him) $1 billion for their popular photo-sharing app

In demand: Instagram allows users to give images different filters before posting them online

The deal comes just days after the service began offering a version for Android phones in addition to its popular Apple app.

Interestingly, it also comes eight years after one of the service's co-founders, Kevin Systrom, turned down Mark Zuckerberg's offer to join the Facebook team in 2004 - before it shot to success.

They first met after Zuckerberg moved to Silicon Valley in San Fransisco, near to where Systrom went to university at Stanford, he said in a 2011 interview with Fast Company.

  

Systrom, who was working on a photo sharing tool, said: 'When I met Adam and Mark, they were like, "Yeah, we're working on some photo stuff too, why don't you come talk to us about Facebook?"'

He added: 'Unfortunately, I decided I wanted to stay in school, and that's one of those decisions that I look back at - I would've loved to have been part of Facebook's growth over the years.'

But it appears he hasn't been too hurt by the decision to finish his studies; he is now revelling in his own success, along with fellow founder Mike Krieger.

Taste for finer things: CEO and food lover Kevin Systrom with British chef Jamie Oliver. Systrom admitted on Facebook that he loves desserts and champagne - and now he'll be able to afford a few extra bottles

Famous fans: Co-founder Mike Krieger takes a photo of himself and Michelle Obama using an Instagram filter

'Everyone has their Facebook story, so I won't say that's necessarily unique,' Systrom continued.

'But being at Stanford, I was given the opportunity to be in the middle of a ton of innovation, and meet some of the smartest people... When I finally did it [myself], it just felt so right.'

Mr Zuckerberg said he would keep Instagram running separately and users will still be able to use it on rival social networks, such as Twitter - yet experts predict the deal could be the death of the app.

THE RISE OF INSTAGRAM AND ITS 26-YEAR-OLD FOUNDERS

If you’ve ever wondered why so many Polaroid-style sepia picture of your friends on Twitter or Facebook, it’s because of Instagram.

You may never have heard of it but the photo-sharing smart-phone application has been downloaded by 27million people since it began life October 2010.

Users, including a hot of celebrities, use it to add stylistic filters, frames, and effects to photos, which can - by tapping one of 16 options - turn a straightforward snapshot of a housecat into what looks like a weathered Polaroid time-capsuled from 1977.

Its creators, the 26-year-old Stanford graduates Kevin Systrom and Mike Krieger (pictured above in their own Instagram creation) now stand to share the best part of $1billion that Facebook founder Mark Zuckerberg paid for their creation. 

The pair, who never met at university, sparked up an acquaintance when Systromm, who formerly worked on Google's Gmail and corporate development, spent his weekends building an app that allowed location-aware photo and note-sharing, dubbing it Burbn.

Krieger was an enthusiastic early Burbn user.
Despite that the fact they didn’t know each other, the pair had a lot in common.

Both participated in Stanford University's Mayfield Fellows program, which educates students in successful and failed start-ups, and gives them internships with an established company and a start-up of their choice.

Now they have another thing in common: incredible wealth.

Facebook has had a tendency to buy small startups and integrate the technology - or shut it down altogether.

One thing is certain, Instagram's 26-year-old co-founders, Kevin Systrom and and Mike Krieger, have now joined the leagues of the super-rich.

Both are Stanford graduates, yet did not meet at university. Instead, their paths crossed after Systromm, who had worked for Google's Gmail and a start-up that went on to become Twitter, created a photo sharing app called Burbn.

Krieger was an early Burbn user and reached out to the creator.

As the CEO, Systrom is the more vocal of the duo, appearing as the face of the company to laud the application's simplicity and sociability.

Throughout university, he developed two main interests - food and photography - with his Facebook profile boasting evidence of both.

Yet it was the photography angle he chose to develop, creating services that made photo sharking easier, even as just an 18-year-old undergraduate.

But he has not entirely abandoned his love of food, taking photographs of long cooking sessions, enjoying a recent dinner with British chef Jamie Oliver, and admitting on Facebook that 'champagne' is one of his favourite things (and he'll be able to afford a few extra bottles now).

Both men's profiles hint that they enjoy the finer things in life - Systrom, who was in fraternity Sigma Nu while at university, listing bowties and corduroy among his interests, while Krieger is pictured alongside vintage cars - and during a recent meeting with Michelle Obama.

And now the co-founders will be able treat themselves - as will the venture capital firm Benchmark Capital who invested early and now owns an extremely lucrative portion of the company.

The Stanford graduates met each when Systrom, then working for Google, set up a photo sharing service Burbn. Krieger was a fan. Fifteen months ago they founded Instagram.

On the company blog, Systrom wrote how he and his team are 'psyched' about the deal.

He also reassured users that Facebook would not stop the Instagram app - instead it will continue to exist independently of Facebook.

'Instagram is not going away,' he wrote. 'We’ll be working with Facebook to evolve Instagram and build the network.

'We’ll continue to add new features to the product and find new ways to create a better mobile photos experience. The Instagram app will still be the same one you know and love.

'We’re psyched to be joining Facebook and are excited to build a better Instagram for everyone.'

Celebrity favourite: Singers Rihanna and Selena Gomez regularly use the polaroid-esque photo app

In the money: Krieger and Systrom met after Systrom created an app. Krieger was an enthusiastic early user

The duo will be sharing their windfall with a few key investors. According to the Wall Street Journal, in early 2011 the start up raised $7million from venture capital firm Benchmark Capital, which valued the company at about $25 million.

That means Benchmark roughly owned a quarter on Instagram. Benchmark also has a firm member on the Instagram board that approved the sale to Facebook. The VC firm has invested in other tech companies like Twitter and GrubHub.

Instagram also raised about $500,000 in early seed money from Baseline Ventures, who own an undisclosed percentage of the $1billion company themselves.

The Wall Street Journal also reported that other firms given the chance to invest late last year refused when felt the then-$500million valuation was too high.

In just a few short months they would have doubled their money.

Facebook owner Mark Zuckerberg confirmed the deal on Monday. He wrote on his own Facebook account: ‘I'm excited to share the news that we've agreed to acquire Instagram and that their talented team will be joining Facebook.

Instagram handiwork: Mike Krieger's girlfriend Kaitlyn Trigger, 27, creates a Valentine's card with the app

Loved up: Mike Krieger is pictured with girlfriend Kaitlyn Trigger, who attended Yale

‘For years, we've focused on building the best experience for sharing photos with your friends and family. Now, we'll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests.

‘We believe these are different experiences that complement each other. But in order to do this well, we need to be mindful about keeping and building on Instagram's strengths and features rather than just trying to integrate everything into Facebook.

‘That's why we're committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.

‘These and many other features are important parts of the Instagram experience and we understand that. We will try to learn from Instagram's experience to build similar features into our other products.

'At the same time, we will try to help Instagram continue to grow by using Facebook's strong engineering team and infrastructure.

Fan: Kelly Brook is one of its celebrity users. Here she created a sepia-tinted pose of her with a coconut

Getting creative: Jessica Alba's Easter Instagram picture

‘This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users. We don't plan on doing many more of these, if any at all.

'But providing the best photo sharing experience is one reason why so many people love ‘Facebook and we knew it would be worth bringing these two companies together.

‘We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience.

'We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook.

‘We're looking forward to working with the Instagram team and to all of the great new experiences we're going to be able to build together.