A friend emailed me a few months back asking me my thoughts about entrepreneurship and the valley, my quick brain dumped response included this paragraph:

Expectations! If Instagram hadn't sold for $1b, would Snapchat be worth $3b? I don’t think so. Microsoft's investment in Facebook many years ago set the big valuation stage and raised prices for everyone around the valley. Instagram's sale to Facebook raised prices yet again (even Instagram's own investors had valued it at $500m the week before). Current valuations are a reflection of all the valuations that have come before, which is why you should never get angry when a company is sold for a staggering amount of money because it means your company most likely just got a little more valuable, no matter what company it is.

With Facebook buying WhatsApp for the incredibly awesomely staggering amount of $19 billion this week, I thought I would take a moment to expand on the above thoughts a bit, focusing on Instagram’s sale in particular, since I think it is the single most important event in the last few years affecting company valuations.

I think the general consensus of almost everyone over the last few months is that Instagram sold for way too little. The problem with that reasoning is it exists in a world where Instagram did sell for what was, at the time, a staggering sum of money. Before Instagram sold, people weren’t talking about unicorns, baby unicorns, or Thunderlizards at the same frequency they are now, neither were so many companies reaching billion dollar valuations or making billion dollar acquisitions; Instagram’s sale changed all that. It’s been a few years now, but I remember the coverage being just as dramatic, and people being just as shocked, for Instagram as it has been for WhatsApp this week¹.

A rising tide raises all ships, and both Instagram and WhatsApp have definitely raised the tide. If you were a decently successful company in the process of raising later stage growth money in 2012, Facebook basically gave you a gift. It was only after that sale that you started regularly hearing about billion and multi-billion dollar valuations. And my bet is you wouldn’t have if Instagram hadn’t sold.

If you’re a founder, or employee, at a startup right now, congratulations, because chances are Facebook just gave you another gift and your company just got a bit more valuable. Every Venture Capitalist in the world just had their expectations on valuation pushed upwards, and that’s good for all of us venture backed startup people.