The inside story of why selfie app MSQRD sold to Facebook, even though it had 2 other offers

When the small team behind MSQRD, the face-swapping selfie app that Facebook bought earlier this month, saw that CEO Mark Zuckerberg had posted a video using its Iron Man mask on his timeline, it sparked a frenzy of joy.

"We didn't know if there would be any public welcome or anything," Nikolay Davidov, partner at Masquerade investor Gagarin Capital, tells Business Insider of the sale. "And then the way he did it was so cool. Everyone was so excited - like 'freaking out' excited."

The team had two other concrete offers from "tier-one" companies - one abroad and one in the US - and interest and conversations with three or four other companies, says angel investor Yuri Gurski, but Facebook had been his target for the Belarus-based company from the beginning.

"It is the Russian dream," he says, explaining that one of the top tech sites in the country actually used to be called "Zuckerberg calls," alluding to the fact that a call from Zuck would be the epitome of startup success, before it changed its name. Besides being an investor, Gurski is currently the vice president of product of Russian startup Mail.ru.

Although Gurski declined to add specifics, a person familiar with the situation tells Business Insider that Twitter was one of the interested parties.

Other than the initial freak-out at Zuck's message, the team didn't take time to celebrate. One of the stipulations of the acquisition was that MSQRD's app would live on in the app store as well as getting its tech integrated into Facebook products, meaning that all hands were on deck hustling away on its next update.

"I think that once the update is out, they'll celebrate the deal with eight hours of sleep," Davidov joked.

Where the Snapchat-like app came from

When the news of Facebook's acquisition hit, many headlines pointed out the obvious: MSQRD looks just like Snapchat's Lenses feature.

As both companies increasingly tackling digital video, the deal gives Facebook a way to quickly catch up to a feature that its competitor launched last fall after buying another Eastern European startup, Looksery.

The MSQRD team, as you might expect, says its tech is better. Gurski says that the startup's facetracking and real-time 3D graphic rendering are better than Looksery's, in part because cofounder Eugene Zatepyakin had been working on the tech behind it for about three years.

At almost 30, Zatepyakin is the eldest of the three cofounders. Eugene Nevgen and Sergey Gonchar are both 23, and Nevgen's also currently the cofounder and CTO of another A/B testing startup called SplitMetrics. (A/B testing is testing two designs against each other - say, for a web site or app - in real time to see which one gets more desired actions, like clicks on a registration button.)

Gurksi says that he's been mentoring Nevgen for several years and that Masquerade got started through conversations they had about the explosion of personalized video. Originally, the company planned to build a service that other messenger services could integrate into their existing products. But once they saw how much people enjoyed their beta version, they decided to create a standalone app.

They launched it in the app store right before Christmas. It took off in Eastern Europe and spread to the US after Masquerade launched an update with American-centric masks, like Leonardo DiCaprio for the Oscars.

The allure of FB

When Facebook acquired Masquerade, it had 16 million users, and Davidov estimates that it will finish March with more than 25 million downloads.

"Joining Facebook will allow them to bring the product to an incredible amount of people," he adds. "Even their 16 million users at the time of the deal can't compare to Facebook's 1.6 billion users."

Gurski says that enormous reach and the fact that Facebook still has a "startup spirit" made it the perfect place for Masquerade.

Gurski and Gagarin Capital collectively invested about $1 million in the startup. He and the team started talking with Facebook thanks to a "few friends" who had connections there.

The acquisition was a good deal for both parties, he says.

One of Masquerade's advisors, Jonathan Hart, says he wasn't surprised by how much interest the young app received from other companies.

"Silicon Valley didn't know what hit 'em and they should expect more of these innovations to pop up out of nowhere," he told Business Insider via email. "Not everything amazing is birthed in Silicon Valley."

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