Jan Koum chose a significant spot to sign the $19 million deal to sell WhatsApp to Facebook. Koum, Brian Acton, Sequoia’s venture capitalist, and Jim Goetz, Sequoia’s venture capitalist, drove just a few blocks to WhatsApp’s Mountain View headquarters. They then went to a disused building across the railroad tracks. This was the former North County Social Services office, where Koum (37) used to stand in line to get food stamps. That’s where the three of them inked the agreement to sell their messaging phenom -which brought in a miniscule $20 million in revenue last year — to the world’s largest social network.
Forbes claims Koum owns 45% WhatsApp, and is therefore worth $6.8billion (net of taxes). Koum was born in a small village near Kiev, Ukraine. He is the son of a housewife, and a builder who built schools and hospitals. His parents did not have hot water and he rarely spoke on the phone with them in the event that the state tapped it. Although it sounds terrible, Koum still longs for the life he used to live in rural areas. This is one of the reasons he opposes the advertising hurlburt.
Koum and his mother moved to Mountain View at the age of 16 as a result of the anti-Semitic and political environment. They were able to get a small apartment with government assistance and a two-bedroom apartment. His dad never made it over. Koum’s mom had packed their suitcases with pens, a stack 20 Soviet-issued notebooks and a few other items to save money on school supplies. Koum took up babysitting to make ends meet. They lived on her disability allowance when his mother was diagnosed as cancer. Koum could speak English but didn’t like the casual and feisty nature of American high school friendships. In Ukraine, he spent ten years with the exact same small group of friends. “In Russia, you really learn about someone.”
Koum was troublemaker in school, but at 18 he had learned computer networking skills by buying manuals from a used bookstore and returning them after he was done. Koum joined the Efnet hacker group w00w00, which he used to chat with Sean Fanning, the founder of Napster.
He enrolled at San Jose State University, and worked as a security tester at Ernst & Young. He found himself in 1997 sitting across from Acton (44 year old Yahoo employee) to inspect the company’s advertising system. Acton recalls that he could see that he was different. “He was very straightforward, like ‘What’s your policy here?’ Other Ernst & Young employees were using “touchy-feely” tactics such as gifting wine bottles. Acton says, “Whatever.” “Let’s get to the point.”
Acton’s straightforward style was liked by Koum too. “Neither one of us has the ability to bullshit,” Koum says. Six months later, Koum was interviewed by Yahoo! and hired as an infrastructure engineer. Two weeks into his job at Yahoo!, one of Yahoo’s servers crashed. David Filo, Yahoo’s cofounder, called his mobile to ask for help. Koum replied discreetly, “I’m in Class.” Filo asked, “What the fuck is your class doing?” Filo said, “Get your arse into the office.” Filo was a small engineer and needed any help he could get. Koum said that he hated school. He quit.
Koum was left alone after his mother succumbed to cancer in 2000. His father, who had died in 1997, was also affected by the tragedy. Acton was the one he credits with helping him reach out and providing support. Koum recalls that Acton would invite him to his home. They went skiing together and played ultimate Frisbee and soccer.
The couple also witnessed Yahoo’s many ups and downs over the next nine-year period. Acton was a part of the dotcom boom and suffered huge losses in the 2000 crash. Acton, despite his dislike for advertising today, was actually very involved in advertising back then. He was invited to help launch Yahoo’s crucial and delayed advertising platform Project Panama in 2006. He says that he finds it depressing to deal with ads. He was feeling emotionally draining. Koum said that he could see the fatigue in his eyes when he was walking through hallways. He wasn’t enjoying it either. Koum’s LinkedIn profile describes his three years at Yahoo unenthusiastically with the words “Did some Work.”
Acton and Koum left Yahoo in September 2007. They took a year off to relax, travel around South America, and play ultimate frisbee. Both tried to apply for Facebook jobs, but failed. Acton states, “We’re part the Facebook reject club.” Koum was spending $400,000 of Yahoo savings and was drifting. In January 2009, Koum bought an iPhone. He realized that the App Store, which had been around seven months old, was about to create a whole new industry. Alex Fishman, a Russian friend, invited him to West San Jose to host weekly movie and pizza nights. Sometimes, up to 40 people showed up. They talked for hours about Koum’s idea of an app over tea at Fishman’s kitchen counter.
Fishman recalls that Jan was showing him his address book. Fishman recalls that Jan was showing him his address book. Koum could handle the backend but Fishman needed an iPhone developer. So Fishman introduced Koum and Solomennikov to Igor Solomennikov in Russia, who he had found on RentACoder.com.
Koum chose WhatsApp almost instantly because it sounded like the word “what’s going”. A week later, on Koum’s birthday, February 24, 2009, he founded WhatsApp Inc. in California. Fishman says that Fishman is very thorough. The app had not even been completed. Koum spent many hours creating the backend code that would synch his app to any phone number around the world. He also pored over a Wikipedia entry listing international dialing prefixes. He would then spend many frustrating months updating it for all the regional variations.
The early WhatsApp was notorious for crashing and getting stuck. When Fishman installed it on the phone, only a few of the hundreds of numbers in his address book, mostly from Russian friends, had downloaded it. Fishman and Koum discussed the issues over ribs at Tony Roma’s in San Jose. Koum made notes in one the Soviet-era notebooks that he had brought over many years ago and saved for crucial projects.
After a month of playing ultimate frisbee, Koum admitted that he should probably quit and look for a job. Acton balked. Acton said, “You’d be an idiot not to quit now.” Give it a few more weeks.”
Apple helped when it launched push notifications in June 2009. This allowed developers to ping users even if they weren’t using the app. Jan updated WhatsApp to make it so that every time you change your status (e.g. “Can’t speak, I’m at work”), WhatsApp would notify everyone in your network. Fishman’s Russian friends began using WhatsApp to ping one another with funny statuses such as “I woke up late” or “I’m on the way.”
Fishman says that “at some point it kind of became instant messaging.” “We used it initially as a way to say hello and then get a reply.” Jan viewed the status changes on his Mac Mini at Santa Clara’s townhouse, and realized that he had accidentally created a messaging system. Koum says that being able to instantly reach someone halfway around the globe using a device that is always at your side was very powerful.
BlackBerry’s BBM was the only free texting service available at that time, but it only worked for BlackBerries. While there was Google’s GTalk and Skype, WhatsApp was the only free texting service that allowed you to log in using your phone number. Koum launched WhatsApp 2.0 with a messaging feature and saw his active users grow to 250,000. Acton was unemployed, and he was trying to launch another startup that was not going anywhere. He took Koum to see him.
Acton and Acton sat down at Acton’s kitchen tables, and began sending each other messages on WhatsApp. Acton already had the double check mark to indicate that another phone had received a message. Acton realized that he was looking at an SMS experience that could be richer and more efficient than MMS messages, which were often ineffective and used to send photos or other media. Acton says, “You had the entire open-ended bounty that the Internet offered to you.”
Koum and Acton worked at the Red Rock Cafe in Mountain View, which was a popular hangout for founders of startups. The entire second floor is filled with people sitting on their laptops, writing code silently, while the rest of the room is empty. Acton was often seen there, writing notes and Koum typing. Acton gathered five former Yahoo friends and invested $250,000 in seed financing. He was awarded cofounder status and a stake. On November 1, he officially joined. The founders still own a combined stake of over 60%. Koum is believed to hold the greater share as he implemented Acton’s original idea nine months prior to Acton joining. According to some early employees, they had equity shares close to 1%. Koum will not comment on the matter.
They were overwhelmed by emails from iPhone users. Excited at the prospect of international free SMS, they wanted to “WhatsApp” their BlackBerries and Nokia friends. Koum was still unaware of Android and hired Chris Peiffer, a friend from LA to create the BlackBerry version. Peiffer recalls that “I was skeptical.” “People have SMS,” Peiffer recalls. Koum explained that different countries had different metered texts. He said, “It stinks.” Peiffer looked at the impressive user growth and decided to join.
They found a startup that sublet some cubicles in a warehouse converted to a building on Evelyn Ave through their Yahoo network. Evernote occupied the entire building, and eventually they would be kicked out. They used blankets to keep warm and were supported by cheap Ikea tables. There was no WhatsApp sign at the office. Their directions were “Find the Evernote Building. Turn around at the back. Locate an unmarked door. Michael Donohue (one of WhatsApp’s original BlackBerry engineers) recalls his first interview.
Acton and Koum worked for free the first few years. Their biggest cost was sending verification messages to users. Acton and Koum were using a cutthroat SMS broker like Click-A-Tell. They would send SMS to the U.S.A for 2 cents but to the Middle East 65 cents. The company spends about $500,000 per month on SMS verification. Although the costs were not so high back then, they were enough to drain Koum’s bank account. WhatsApp started to bring in revenue gradually, about $5,000 per month by the beginning of 2010, which was enough to pay for its costs. To keep the app’s growth from being too rapid, the founders changed it from free to paid. They updated WhatsApp for iPhone in Dec 2009 to send photos and were stunned to see the app’s user growth despite the $1 price tag. Acton said to Koum, “You know, we can actually keep paid.”
In the U.S. App Shop, WhatsApp was firmly in the top 20 apps. Someone asked Koum why he didn’t brag to the media about it during a dim-sum lunch with staff. Koum responded, “Marketing and the press kicks up dust.” It can get in your eye and distract you from the product.
Venture capitalists didn’t need the media to inform them that WhatsApp was becoming viral. Acton and Koum refused to speak. Acton saw VC funding a bailout. Sequoia partner Jim Goetz, however, was persistent and spent eight months trying to get the founders to engage. After meeting with 12 other companies in the messaging sector like Pinger, Tango, Baluga, it became clear that WhatsApp was the leader. To Goetz’s surprise, the startup was already paying corporate income tax. He finally met up with Acton and Koum at the Red Rock Cafe and answered all their questions. He promised to not push advertising models but to be a strategic advisor. After receiving $250,000 in seed funding, they agreed to accept $8 million from Sequoia.
Acton and Koum decided to raise more money two years later, in February 2013. WhatsApp’s user base had grown to around 200 million users and its staff to fifty. Acton said, “For insurance.” He recalled how his mother, who owned her own freight forwarding business, used to be a nightmare about making payroll. They decided to hold another funding round in secret. Sequoia would also invest $50 million in WhatsApp, which was valued at $1.5 billion. Acton took a screenshot from WhatsApp’s bank balance at the time and sent it to Goetz. It was $8.257million, which is still more than all the money they had received in years past.
Acton now had an even larger amount in his bank account and he went to a local landlord interested in leasing a three-story building. Although the landlord didn’t know WhatsApp, the money spoke. WhatsApp is currently building a new building. This summer, WhatsApp will be moving in as its staff grows to 100.
Koum speeds past the building in his Porsche as he heads to a boxing class he frequently misses and is late for. Will he finally post a Whatsapp sign? He says, “I don’t see any reason why there should be a sign.” He scoffs. He says, “We all know our work.” He then pulls up to the San Jose block building, grabs his gym bag, and enters the dimly lit gym to take a private lesson. The coach is a small, gum-chewing man who stands next to a boombox blasting rap music. The coach smiles and says, “He likes Kanye.” As Koum throws powerful, slow punches, he holds his two hands high. Koum takes a few breaks every few minutes, taking off his gloves to check for Acton’s messages about WhatsApp’s servers. The coach said that Koum’s boxing style was very focused. Koum doesn’t want his students to learn kickboxing, but he wants to master the art. The same could be said for a messaging service that is as simple as possible.
Koum is adamant that it’s true. He puts on his shoes and socks.