April 10 (Bloomberg) -- Silicon Valley is one of the few places where a 27-year-old Web entrepreneur can parlay a photo- sharing application with no known source of revenue into $1 billion -- in two years.
Evidence of that came yesterday, when Facebook Inc. announced plans to buy Instagram, a startup co-founded in 2010 by Kevin Systrom, a Stanford University graduate and former Google Inc. employee.
The Instagram app, owned by Burbn Inc., fetched $1 billion in cash and stock after building an audience of more than 30 million people, mostly users of Apple Inc.'s iPhone. That kind of growth was enabled by the spread of social networking and smartphones, and the plummeting costs required to build an Internet company. Instagram has just 13 employees, up from four a year ago, when the app was used by 4 million consumers.
"It's a massive accomplishment," said Shervin Pishevar, a managing director at Menlo Ventures in Menlo Park, California. Pishevar backs social-media companies, though he didn't invest in Instagram. "This is an indicator of what great teams and great products with amazing execution can accomplish in historic amounts of time," he said.
While the deal may raise concerns about another technology bubble, the price tag is only about 1 percent of Facebook's projected valuation when the world's largest social-networking site sells shares to the public. And Chief Executive Officer Mark Zuckerberg, who founded the company in a Harvard University dormitory, understands the model of establishing an audience before generating sales. That's how he built Facebook.
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