The Behind-the-Scenes Bidding War That Got WhatsApp $19 Billion

Ever since acquisition rumors started building in late 2012, WhatsApp—the fast-growing messaging service with serious outer-bubble appeal—seemed destined for a multi-billion exit. But how, pray tell, did Facebook decide 19 was the "magic number"? One source tells Valleywag that it began with a $250 million funding offer.

Bits and pieces of the back story have emerged since the deal was announced, as observers tried to do the math behind the largest venture-capital back exit ever. A plate of chocolate-covered strawberries is cute and all, but it doesn't explain much.

According to that source, Mark Zuckerberg offered to invest $250 million in WhatsApp at an $8 billion valuation—a major leap from its $1.5 valuation in July, 2013, based on documents found by VCExperts. In response to Facebook's investment offer, the source said that Google, which also had its eye on WhatsApp, offered to buy the company for $10 billion. Fortune reported the same offer from Google last week.

This is where the billions start multiplying. Facebook decided to roughly double the acquisition amount. "Zuck wanted to do this deal badly," said the source, adding that the Morgan Stanley bankers brought in to negotiate the deal by Sequoia (the venture capital firm behind WhatsApp) weren't even familiar with the app.

"Morgan Stanley bankers had no clue. Basically he can sell anything," another source told Valleywag, referring to Michael Grimes, the banker behind Facebook's infamous IPO. Fun fact: in a lawsuit about that IPO, Grimes claimed that he didn't break the law banning investment bankers from influencing analysts because after giving Facebook's vice president of finance a handwritten script about what to tell analysts, he walked down the hall when she made the calls. "I took extra precaution to do that, and sat on the floor," he testified.

In any case, according to our second source, Google was willing to go up to $20 billion or more to beat Facebook's offer. Google CEO Larry Page chatted directly with WhatsApp CEO Jan Koum (pictured above). But Koum wanted WhatsApp to be a product that evolved on its own, whereas Google likes to integrate acquisitions into their overall services. Koum didn't feel that WhatsApp would have the same place as YouTube has had and that it would morph into something he didn't want, said the source. The Information first reported that Google was willing to beat Faebook's offer last week, noting that WhatsApp rejected Google partly because they thought Google was only in it to spite Facebook.

Google, Facebook, and WhatsApp all declined to comment to Valleywag, just a they did with this previous report from The Information about Google offering WhatsApp millions to be notified if Facebook came calling. Much like the tug-of-war for Snapchat, we're left with unverified rumors from people familiar with limited aspects of the deal—furrowing our brows at the current calculus for startup valuations.

However, after Mark Zuckerberg's hyper-speed interview at the Mobile World Congress yesterday, one thing seems certain. WhatsApp's nearly half a billion users are part of the long-term plan to get Facebook on smartphones around the world through Internet.org. As our initial source put it: "Messaging isn't that core—global reach is more important." Someone tell the rest of Silicon Valley.

To contact the author of this post, please email nitasha@gawker.com.

[Image via Getty]