In Facebook's billion-dollar buy of photo-sharing app Instagram, Wall Street is nowhere to be found.
Lawyers involved in the deal told The Huffington Post that no Wall Street firms advised Facebook or Instagram on the sale. Greg Roussell, a partner at Fenwick & West, one of the law firms representing Facebook in the takeover, confirmed there were no financial advisors involved.
Traditionally a deal of this size would involve Wall Street banks offering their sage advice, their connections, and maybe their ability to help with financing, all in exchange for hefty fees. Not this time.
Instead, venture capital firms were among the deal's biggest financial winners, marking a shift in power from Wall Street to the VC world.
“Traditional Wall Street is being disrupted,” said Robert Peck, President of CoRise, a merchant bank specializing in startups. “The venture capital firms are becoming more like Morgan Stanley and Goldman Sachs -- kingmakers.”
Some of the best venture capital funds have just as much power to bring dealmakers together as a Wall Street bank has, Peck said. "So unless you need the balance sheet of a large banker" to help finance the deal, banks are less relevant, Peck said.
Howard Lindzon, a partner at private equity fund Knights Bridge Capital Partners and co-founder of a social media startup called StockTwits, agreed, saying the absence of a Wall Street presence in helping broker such a big takeover was telling.
Much of what banks used to do, Lindzon said, can be done by the VC firms backing some of these companies -- or, if a company is big enough, like Facebook, the company can do it themselves.
“Venture capital is the new Goldman Sachs,” Lindzon said. Especially in deals involving mobile app-makers and small startups, traditional Wall Street will be increasingly left out in the cold, he said.
"Instagram didn’t need an advisor," Lindzon said. "They had fifty million users. I’m sure they walked into Facebook and said ‘If you don’t buy us, [someone else] will want to buy us.'”
Meanwhile, venture capital firms that invested in Instagram before the Facebook takeover turned tidy profits on the deal. Sequioa Capital, Greylock Partners, Thrive Capital and Benchmark Capital doubled their take-home from a $50 million fundraising round that valued Instagram at $500 million just before Facebook paid $1 billion, as TechCrunch points out.
And the absence of Wall Street from the deal leaves the company's founders and employees with more cash. Co-founder Kevin Systrom stands to rake in $400 million, according to Wired. Co-founder Mike Krieger will take home $100 million, according to the Wired report. And Instagram’s 13 other employees will each get a wad of cash from a $100-million pile, divvied up according to their time with the company.
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