Chris Best was working at his desk late in the afternoon on Feb. 19 of last year when he saw the news: Facebook had agreed to buy WhatsApp for $19 billion. With a B.
"Holy shit that's a big number," Best, cofounder and CTO of Kik, a messaging startup based in Canada, recalls thinking at that moment. "I remember there just being a general atmosphere of disbelief and excitement. It got sent around [the office] by e-mail. People were like, 'Whoa!'"
A few thousand miles away in San Francisco, Jim Patterson's initial reaction bordered on disbelief.
"That's gotta be a typo," says Patterson, founder of CoTap, which some dubbed a WhatsApp for enterprise. "Did someone add a digit?"
The WhatsApp deal, more than any other acquisition in recent memory, prompted a collective gasp from consumers, analysts and tech founders around the world. Facebook committed $19 billion — that number would rise to $22 billion when the deal closed in October — to a startup with just 55 employees. Put another way, Facebook and CEO Mark Zuckerberg bet 10% of its total market cap on the mobile messaging space. It made Facebook's $1 billion Instagram deal look almost cute by comparison.
Those in the industry eventually collected their jaws off the ground, but the impact of the WhatsApp deal can still be felt one year later. Investors and founders we spoke with generally characterized the blockbuster acquisition as either a watershed moment that proved once and for all the tremendous value of messaging applications, or at the very least, a large link in a chain of events that led to greater consumer and investor awareness.
"It got us into the conversation in a bunch of places," Best from Kik told Mashable in a recent interview. That included countless media outlets and at least one investor. Valiant Capital Partners approached Kik's team after the WhatsApp acquisition in part because of the Facebook deal, according to those we spoke with at the startup, and would go on to lead a $38 million round of funding in Kik.
Tango, another popular messaging service, confirmed raising $280 million in funding exactly one month after the WhatsApp acquisition was announced. Eric Setton, cofounder of Tango, said the funding talks had concluded before the WhatsApp news, but he believes the Facebook deal helped in other ways, including partnerships with media brands for its content discovery featurethat launched several months later.
"It legitimizes a lot of things," says Setton, who characterized the WhatsApp purchase as "a landmark deal" in an interview. "That acquisition, coupled with our investment, has allowed us to do amazing things ... I think that the caliber and the quality of the content partners that we were able to sign up was definitely of that quality because of the legitimacy that people now see in Tango and the messaging space in general. People feel they now need to be present."
IMAGE: CBINSIGHTS
On the whole, VC funding to startups in the messaging space surged 400% to $1.4 billion in 2014, according to new data from CB Insights presented in a post called "The WhatsApp Effect." The majority of those funding dollars were large investments in more established players like Tango and Snapchat.
Those private investments only helped make the big players in the messaging space even bigger — and raised the bar for new competitors. Adding to that is the gradual consolidation of messaging services: Just days before the WhatsApp announcement, Rakuten agreed to buy messaging app Viber for $900 million. A few months later, Kakao merged with Daum.
"Because you have such major players — WhatsApp, WeChat, Facebook Messenger — it would obviously be a tall older if someone said, 'I’m gonna come out with something thats a WhatsApp killer,'" says Christine Tsai, a managing partner at 500 Startups, a startup investor and accelerator program.
"We haven’t seen, or I haven’t seen, a lot of copy cats.""We haven’t seen, or I haven’t seen, a lot of copy cats."
That's not to say there haven't been any WhatsApp lookalikes. David Hirsch, a managing partner at Metamorphic Ventures, says he noticed a spike in startup pitches related to WhatsApp in the first six months after the acquisition; however, most were focused on specific "verticals," or use cases, rather than going after the consumer market at large. His firm in particular invested in Snowball, an app to provide a unified inbox for those who use multiple messaging services, as well as TalkSpace, an app for messaging therapists.
Along the same lines, Patterson, the CoTap founder, says he's noticed a gradual increase in the number of startups going after enterprise messaging in recent months. "It's too late to come in with just a stock messaging app," he says, noting deals like WhatsApp should also serve as validation for the workplace messaging market. "It would be hard to believe that it will be that important on the consumer side and nothing on the enterprise side."
Before launching CoTap, Patterson worked as CTO at Yammer, which Microsoft bought in 2012 for $1.2 billion. The Yammer deal was — and by all rights should still be — considered a tremendous exit for a startup. But Patterson points to one other lingering effect of the WhatsApp acquisition: Even the billion-dollar deals somehow look just a little bit smaller now.
"I still think it's extraordinarily difficult and rare to build a billion-dollar company, and anybody would be happy to be involved with such a thing," Patterson says. "But the gauntlet has been thrown down. There's a new ceiling. You know that kind of outcome is possible."
As if to underscore that point, Snapchat, which famously rebuffed a $3 billion acquisition offer from Facebook in late 2013, is now said to be looking to raise more funding at a valuation as high as $19 billion. Anything less just wouldn't do.
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