WhatsApp: What We Know About the Incorporation History of a $19B Company
As has now been widely reported, Facebook is acquiring cross-platform messaging app WhatsApp for a reported $19B. The Wall Street Journal reports that this will be the largest acquisition of a venture-backed company in history. While much has been written about this deal, it might be interesting to examine the corporate history of WhatsApp, Inc. According to California’s records, WhatsApp originally incorporated in California on February 24, 2009. While most startups seeking venture capital will incorporate as a C Corporation in Delaware, some startups will elect to form as an LLC or Corporation in their home state in order to avoid the extra fees associated with having to register as a foreign entity in the home state where they are transacting their business. Because WhatsApp is based in California, WhatsApp likely benefited from incorporating in its home state because it did not have to register as a foreign entity in California and pay the associated fees on top of its Delaware fees.
As shown below, WhatsApp eventually converted from a California Corporation to a Delaware Corporation.
As described in this prior post, it is common for a startup to convert from an entity in its home state to a Delaware corporation if it seeks to raise capital from institutional investors. Most venture capital firms can only invest in C corporations because of the negative tax and paperwork consequences to their limited partners of investing in a flow-through entity (such as an LLC or S corp). Investors will prefer Delaware for a number of reasons, including that they are familiar with the protections provided to directors (which is relevant to venture capitalists because they will typically take a board seat) provided under Delaware law.
Delaware records show that WhatsApp became a Delaware corporation on July 16, 2013.
It’s been known that WhatsApp raised a Series A round of $8M from Sequoia Capital in April 2011. TechCrunch is now reporting that Sequoia also led multiple other major rounds in WhatsApp that had been previously unreported.
It is possible that WhatsApp’s conversion from a California corporation to a Delaware corporation was in connection with one of these rounds. It’s also possible that WhatsApp’s conversion was part of preparations for a potential merger or other exit. Rumors have swirled that in April 2013, Google and WhatsApp were in acquisition talks.
It is also interesting that no EDGAR results appear for Form D filings made by an entity named “WhatsApp.” Jason Mendelson and others have blogged about (and cautioned against) the perceived rationale for not filing a Form D, and the implications for a startup’s SEC exemption under Regulation D.
Perhaps we will learn more in the coming months about some of WhatsApp’s early legal decisions. It appears to have worked out historically well for those involved.