The Story of Instagram’s First Angel Investor

Meet Steve Anderson — the visionary who was the first to take a bet on Instagram’s co-founders

Being an early angel investor in a company like Instagram is what dreams are made of, and Steve Anderson lived that dream.

Steve was Instagram’s first investor, and has pretty much gone against every rule in the book when it comes to investing in Silicon Valley startups. After working for companies like Microsoft, eBay and Starbucks he was ready to strike off on his own. But he didn’t want to give up a big chunk of his ownership to secure funding from a Sand Hill VC.

Instead, he started Baseline Ventures and started investing in companies while allowing founders to maintain more ownership than they otherwise may have with a traditional VC.

Baseline’s $250,000 to $1 million checks take anywhere from a 5% to a 15% stake while giving founders a year to 18 months to develop a product with minimal pressure.

A huge bet: Instagram (called Burbn at the time)

Instagram was one of the earliest companies he decided to bet on, or rather, the founders: Kevin Systrom and Mike Krieger.

Steve met Kevin in a bar, and although it wasn’t a formal pitch meeting, Kevin briefly showed him the product he had so far (when it was still called Burbn). One part photos, one part chat, one part gamification. All on a mobile browser.

Steve soon decided to invest $250,000 as an angel, although it wasn’t clear the exact direction the app would be going in, but Steve believed in Kevin’s abilities. He helped Kevin find his co-founder, Mike Krieger. Steve has said in many interviews that Mike and Kevin are “product-market fit geniuses”.

At the time, Steve had just parted ways with one of the most influential and respected angel investors of all time, Ron Conway, who had backed Google and PayPal and had been a mentor from Anderson’s Kleiner days.

They had their differences when it came to investing philosophy, and Steve wanted to stick to his guns.

Four months after Steve’s investment, Kevin and his cofounder, Mike Krieger, decided to chuck the initial app idea and trim the features down with a focus on making it a photo-sharing tool instead. But they were hesitant in how to approach Steve and tell him the news.

Steve was very supportive, and Kevin has stated before that “I meet too many people who care too much about money in the Valley. I never felt like Steve was ever worried that we were going to screw up. He may have been worried, but he showed confidence.”

A big win: Facebook buys Instagram

Later on, Steve’s fund had a 12% ownership in Instagram when it was acquired by Facebook for $1 billion. This, along with other notable successes such as Twitter and Heroku, which was purchased by Salesforce for approximately $250 million in 2010, brought Steve into the spotlight.

Baseline Ventures is a one man show, and Steve has an uncanny ability to spot brilliant founders and write a $500k check in 30 minutes, and he loves it this way. “My partnership meetings are really short,” he says. “Me, myself and I have a long debate.”

Although he has an enviable batting average, turning $70m into $700m, he’s had some painful misses like Dropbox and Uber (twice).

Steve has always made it clear though that he doesn’t want founders to feel like they’re working for him to get back ten cents on the dollar. He knows very well that in this business you also have to be ready to lose money.

What Steve looks for in founders

• The ideal founder is both thoughtful and decisive.
• No one gets their idea right on the first try, so opinions and decisions should be guided by a well-developed worldview.
• Coding skills are important, but there is no specific language preference.
• Early-stage financing should not be raised until product-market fit is achieved.
• A strong network is critical for seed investors to discover promising opportunities.
• Accelerators and incubators are helpful for those without established networks.
• The decision to shut down a failing company ultimately lies with the entrepreneur.
• Sufficient funding should be available to pivot or reexamine goals before running out of cash.

His advice to founders

“My advice to everyone, myself included, is to always keep your options open. When I founded Baseline Ventures, I believed strongly in its potential for success, despite receiving negative feedback from mentors, investors, and other peers in the venture community. Nevertheless, I remained steadfast in my belief while also preparing a backup plan.

I encourage everyone to save money as it provides the flexibility needed to pursue other options in case things don’t work out. I knew that if Baseline Ventures failed, I had the option of seeking employment elsewhere, although my true desire was to remain a founder.

Even if you are confident in your decisions and others tell you otherwise, it’s important to remain open to the possibility that they may be right. You can always learn from these experiences, whether you succeed or fail.”

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