So who got hosed when Facebook bought Lightbox?

Updated: When London-based photo app developer Lightbox announced on Tuesday that its team was joining Facebook, you could almost hear the champagne corks popping.

Becoming part of the social Web’s most powerful company? Being moved out to Palo Alto? Joining a company on the brink of a huge IPO? No wonder they were pretty excited.

We started Lightbox because we were excited about creating new services built primarily for mobile, especially for the Android and HTML5 platforms, and we’re honored that millions of you have downloaded the Lightbox Photos app and shared your experiences with the Lightbox community.

Today, we’re happy to announce that the Lightbox team is joining Facebook, where we’ll have the opportunity to build amazing products for Facebook’s 500+ million mobile users.

But while the company’s seven-person team was no doubt pretty pleased, not everyone will be so happy about the deal.

Lightbox users, for example, are being left stranded. The service is being closed to new users before being shut down in a month, while the code is being open sourced — presumably in the hope that anyone who wants to keep the service alive can build their own version.

A number of users expressed their frustration: “This totally sucks,” said one.”Damn it!” said another.

Over on Lightbox’s Facebook page, meanwhile, a few users called them “sellouts” or said it was a “sad day”, but the general response was bittersweet: glad for the team, sad for the product. While not quite on the scale of Instagram’s user rebellion — a stampede of angry photographers that ended up boosting other apps — it still leaves a sour taste.

Still: Lightbox fans may be complaining, but the truth is that the app’s takeup wasn’t enough to entice Facebook. In fact, it was so unexciting that Facebook isn’t even buying any of the company’s assets — it’s simply doing a straight-up talent acquisition.

And it’s not just users, either

From the announcement again:

Facebook is not acquiring the company or any of the user data hosted on In the coming weeks, we will be open sourcing portions of the code we’ve written for Lightbox and posting them to our Github repository.

We’d like to thank the Lightbox community, our investors, and our families for supporting us during this journey.

So this is effectively just about hiring a team of smart mobile developers and putting them to work inside Facebook, perhaps alongside Instagram (at least, once that deal — now pushed back somewhere later into 2012, goes through).

But the fact that none of Lightbox’s assets were being sold left me with a question: are the company’s investors — who backed it to the tune of $1.2 million a little over a year ago — getting anything out of the deal?

And the answer, it seems, is no.

I’ve reached out to a few people linked with the deal, and while they are all staying pretty quiet, it seems that there’s very little upside to the buyout — possibly not even a little bit of pre-IPO Facebook stock.

The deal was made up of a large syndicate: Dave McClure’s 500 Startups, Ron Conway’s SV Angel, big venture firms like Index and Accel, and seven angels.

Most of those I spoke to effectively shrugged off the flat-as-a-pancake nature of the deal in simple fashion: that’s the way it goes. Facebook does this. It’s sensible for them.

And sure, if Facebook is making a talent buy, there’s a lot of sense in ditching all the assets: they can be sure they take on no responsibility, no ownership of old products, and no potential for complicated legal situations to arise further down the line. And, of course, it means the company can probably drive a harder bargain too.

But that’s not all that happens here. Remember, Facebook’s got form: When it purchased Gowalla in a similar fashion last December — effectively cutting a deal with the team that was much better than it was for those who had supported them — there were plenty of eyebrows raised.

At the time, Michael Arrington pointed out that deal pitted founders versus investors, investors who had stuck by the company were getting pennies on the dollar.

in 2010 I dove into the topic, noting a trend of startups being acquired for not much money, but founders and key employees were being given rich stock deals on the side.
This goes way back to Parakey, acquired by Facebook in 2007. Parakey investors got their money back and a little more, but stock grants were given to the founders that are probably worth hundreds of millions of dollars today.
I was more blunt in 2010 when Facebook acquired Hot Potato – and noted that there’s a real issue of breach of fiduciary duty when a founder takes a side deal but doesn’t cut investors in.

It’s not clear what’s happening with Lightbox, but the fact that the team is getting hired — rather than the product getting acquired — certainly sounds like a Gowalla-style deal. That, of course, means the argument put forward for Gowalla then could probably also apply to Lightbox: the product was small, going nowhere, and if the company didn’t get bought soon it would probably be dead sooner rather than later.

But the reality is that Facebook is now more — much more — than it was even just a few months ago. It’s on the verge of a vast public offering, and it has shown recently how happy it is to pay huge amounts to buy companies and teams in the right circumstances.

And while big investors may be sanguine about not getting a good deal, they’re also desperate to keep Facebook on good terms for potential future acquisitions. Piss the company off now, and every interaction with them gets a little bit harder — and the chance of getting a real slice of that $100 billion somewhere further down the line disappears very quickly.

That’s the politics of the startup game, I suppose: right now Mark Zuckerberg holds all the cards. But still, I can’t shake the feeling that somebody’s getting hosed here — and whoever it is, it’s not Facebook.

Update: Investor Dave McClure has responded in the comments to say “the investors are likely to get a modest return,” and that “We’re happy the founders are going to a great environment to continue working on photos, and that’s that.”

Another investor I spoke to said the deal ended up with a small return, but said talent acquisitions rarely meet anyone’s ambitions. Meanwhile users continue to express their sadness on the service’s Facebook page.

Mark Zuckerberg photograph used under Creative Commons license courtesy of Flickr user Deneyterrio