Sequoia Capital Said to Make $3.5 Billion Backing WhatsApp

Feb 20, 2014 4:45 pm ET

(Updates with additional investment in second paragraph. See EXT6 <GO> for more on the acquisition.)

Feb. 20 (Bloomberg) -- Sequoia Capital, the only venture investor in WhatsApp Inc., stands to make up to $3.5 billion on its investment in the mobile messaging service that Facebook Inc. agreed to buy for as much as $19 billion in the biggest Internet deal in more than a decade.

Sequoia, which backed some of Silicon Valley’s top companies since it was founded in 1972, paid about $8 million in 2011 and another $50 million in a later investment for a stake of more than 15 percent, according to a person with knowledge of the deal. Theholding is valued at $3 billion to $3.5 billion after Facebook’s offer, said the people, who asked not to be identified because details of the investment are private.

The purchase would be the biggest Internet deal since the $124 billion AOL-Time Warner merger in 2001 and allow Sequoia to reel in more cash following a year in which it returned about $3 billion to investors. The firm, based in Menlo Park, California, was an early investor in Apple Inc., Yahoo! Inc. and Google Inc., which held the biggest venture-backed initial public offering until Facebook’s 2012 IPO.

“This is a great deal for Sequoia,” said J.P. Gan, a Shanghai-based partner at Qiming Venture Partners, which manages funds with more than $1.1 billion in assets. “Sequoia has been very focused on Internet companies in their investment strategy and made a lot of great choices in recent years.”

The shares of Facebook, which is also based in Menlo Park, rose 2.3 percent to $69.63 at the close in New York.

Facebook Stock

Sequoia said in a blog post yesterday that Mountain View, California-based WhatsApp co-founders Jan Koum and Brian Acton have created the “communications backbone” of the Internet.

“As competitors promoted games and rushed to build platforms, Jan and Brian remained devoted to a clean, lightning fast communications service that works flawlessly,” Jim Goetz, who led the investment for Sequoia, wrote in the post.

Andrew Kovacs, a spokesman for Sequoia, declined to comment on the firm’s stake. A representative for WhatsApp didn’t respond to a request for comment.

Facebook’s purchase of WhatsApp includes $12 billion in stock, $4 billion in cash and $3 billion in restricted shares. WhatsApp has more than 450 million members, with 1 million being added daily, who use the service to send messages over the Web.

Google, based in Mountain View, and Microsoft also expressed interest in acquiring WhatsApp, people with knowledge of the matter said. Discussions with the companies never got to the negotiation stage, the people said.

Tim Drinan, a spokesman for Google, declined to comment on an offer. Peter Wootton, a spokesman for Microsoft, didn’t immediately respond to a request for comment.

LinkedIn Investment

WhatsApp, which is popular in Europe, lets users send messages through its service on mobile devices based on different operating systems, including Apple’s iOS, Google’s Android, Microsoft Corp.’s Windows Phone and BlackBerry Ltd.’s software.

Sequoia’s Chairman is Mike Moritz and top partners include Doug Leone and Goetz. Don Valentine founded the firm in 1972 and led investments in Apple and Cisco Systems Inc.

Since mid-2011, Sequoia has been part of some of the biggest technology IPOs including LinkedIn Corp., Palo Alto Networks Inc., ServiceNow Inc. and FireEye Inc., which all have stock-market valuations of more than $5 billion.

Another partner at the firm, Roelof Botha, posted a Twitter update yesterday after the WhatsApp deal was announced: “Finding it a little harder than usual to concentrate right now.”

--Editors: Josh Friedman, Reed Stevenson