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Right before the Mayans predicted the end of the world, Mark Zuckerberg agreed to pay $1 billion for Instagram. Surely a sign the good times were behind us.

The company was two years old. It had about 30 million users and no revenue.

We’re all the idiots now, but at the time, a billion dollars for an app that put a sepia filter on your latte seemed like a pretty bad deal.

But, like the Mayans, we got that one wrong.

Most of the time, a billion dollars is too much to pay for photos of brunch. But Zuck (we’re close like that) wasn’t paying for filters.

He was buying the next place people would spend their attention. Zuck saw it before almost everyone else did.

While Facebook was the product he invented. His greatest talent, time and time again, has been understanding trends and what to acquire next.

Instagram for $1 billion. WhatsApp for roughly $19 billion. Oculus for $2 billion. People are still laughing at that last one, but it could end up being the biggest deal of them all. He did not need every important idea to originate inside Facebook. He needed the right ideas to end up inside the company.

That distinction made him one of the best serial acquirers in tech.

And yes, the Instagram deal looks like a steal now.

By 2018, Bloomberg Intelligence estimated that Instagram would be worth more than $100 billion as a standalone company—a 100x increase over the announced purchase price in six years.

Then court filings gave us a hard number: Instagram generated $32.4 billion of advertising revenue in 2021 alone. That was more than 32 times the headline acquisition price in a single year.

While we don't know the exact amount of profit Instagram has generated during that time, it doesn't take an Einstein to realize that this was a home run.

The inexperienced buyer asks, “How did they arrive at this valuation?” The seasoned dealmaker asks, “What is this business worth in my hands?”

Valuation is part art, part science. But first-time buyers often approach it like a math problem with one correct answer. At the end of the day, the purchase price is simply what one specific buyer is willing to pay.

A business can look expensive to a financial buyer and cheap to a strategic one. One sees the existing cash flow. The other sees customers, distribution or a capability that would take years to build.

Instagram had one set of financials, but it did not have one value. To everyone else, it was an app with no revenue. To Facebook, it was the future of mobile attention.

A great acquisition is not cheap on the day you buy it. It becomes cheap because of what you do with it afterward.

Important note: price still matters. Overpaying for a mediocre business remains a reliable way to ruin your week or life (kidding). You need to understand the cash flow, the risks, and your competitive advantage. What can you see that another buyer cannot? What would take you five years to build but could be acquired tomorrow?

Sometimes the smartest way to invent the future is to buy it before everyone agrees on what it is worth.

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fitness challenge

20-minute AMRAP:

founder challenge: make a build-or-buy list

Write down the three capabilities your company will need most over the next two years. For each one, ask: should we build it, partner for it, or buy it?

Most founders default to building because it feels cheaper. It usually isn’t once you account for your time, the learning curve, and the cost of waiting.

Want a full week of these? Try the free 7-day founder fitness challenge →

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