When Twitter announced a round of financing last week they mentioned most of the investors – an A list crowd that includes Union Square Ventures, Charles River Ventures, Marc Andreessen, Dick Costolo, Ron Conway, and Naval Ravikant. But they didn’t disclose the amount raised, even though it is customary to do so. We sniffed around and heard that the the company held a special meeting with their new investors and specifically asked them not to disclose the amount raised. We heard that it was a small round, between $1 – $5 million, but frankly I suspected it would be on the low end of that range.
Other startups, notably Technorati, have also tried to keep venture rounds quiet. But inevitably they leak because so many of the limited partners who invest in these funds must disclose information to the SEC. That hasn’t happened yet with Twitter, but the numbers are leaking. As best as we can tell, the company raised a $5 million round, on a $20 million pre-money valuation.
Very strange. Why bother to keep it secret, when everyone knows Arrington is on the job! =^)
Really, I don’t understand keeping it secret, unless they hope to generate a bit of buzz around it – which seems rather pointless to me.
Competitive advantage is the only reasonable excuse for this, as since there is no way to keep it quiet, there is no point.
5 on 20 pre? Doesn’t that mean 20% ownership?
^^^
Math is not your thing huh Kyle?
these numbers would be much more meaningful in the context of what Twitter’s burn rate is…
how many employees do they have?
BDB: This is too simplistic a calculation, but on a $10 CPM that’d be 6,700 views. I don’t know how much the average Twitter user visits the site, but they definitely would take a few years to hit that many.
As VC Paul Kedrosky noted, Twitter’s attraction lies in the many vague possibilities it has for earning money. Surely the team knows some specific ways they could start to pull in revenue, but if they just went with one now, they could implement it wrong and waste huge opportunities down the road.
Twitter is not run by a bunch of first-timers. Several of the creators made Blogger, which was a great service for its time. I trust they won’t waste their money or their popularity.
My theory about the secretiveness is that the competition in their market – microblogging is really heating up and they desire to keep that quiet so that potential competitors know how to compete financially. If it was me I’d keep all that stuff as quiet as possible.
David Krug, ask Yossi Vardi what the true value ($ wise) of ICQ is today…AOL paid a lot of money for it, but in the end, it wasn’t worth a whole lot. In the beginning though….and btw, in the beginning, it was all public. When there’s froth, real froth (hundreds of millions of dollars worth of froth) and not just Fred Wilson drinking the kool-aide, it’s ALWAYS public.
@ Eric
Pre-money valuation is what the company is worth before it gets the venture money. 20 + 5 = 25. 5 / 25 = 1 / 5 = 0.2 = 20%.
Guess accounting isn’t your thing . . .
@ Mike Arrington
“We heard that it was a small round, between $1 – $5 million, but frankly I suspected it would be on the low end of that range.”
!=
“As best as we can tell, the company raised a $5 million round, on a $20 million pre-money valuation.”
@ Noah
Thank you!
Given the huge growth and buzz surrounding Twitter, I would have expected a larger round. However, it does make sense that the company is being smart with their funds. I’m quite certain it doesn’t cost a lot to run a micro-blogging service.
Cheers,
Aidan
http://www.MappingTheWeb.com
@Robert
Good point. ICQ is like an old pile of rubbish it still exists?
So why do 6 top VCs bother to invest together a mere 1 or 2 million? I’m sure e.g. Ravikant could have handled that by himself, taking a nice 20%.
@Aidian: I’m not so sure twitter’s service comes cheap. I don’t pay a thing for the txt messaging support, twitter picks up that bill. Sure, they’ve got a bulk rate, but still, I’m curious what their monthly bill is…. (perhaps Michael could poke around and find out this figure as well
It may be that rather than put 20% in the hands of one person, they preferred to split it up so no one of them would have that much control. If 5 of the six decided to bite, they’d each only own 4%. This would allow the major stock holder more control, possibly keeping these investors off the board.
@ Noah – great job pointing out the contradiction between the two comments.
I would be very surprised to see so many different VC firms and angel investors going in for a combined 20% of the capitalization. I’m sure they have preferred and liquidity preference, but even then I really doubt they would be willing to accept that little control. If it was one firm taking that much (e.g. Sequoia taking 20% of Mahalo), I could buy it.
It’s fun to see so much money being wasted. It looks like these investors really are acting like a charity: http://livingin...l-as-a-charity/
@Jay
An interesting thing about Twitter is its ability to do stuff for other services, Lifehacker had an interesting write-up the other day about SMS’ing your life.
They talk about the Twitter Google Calender bot and the Remember the Milk bot. I think it is free for any company to implement a bot right now, but I could see Twitter charging for the service later on. They would become the service provider of the SMS part of your application. You benefit because of the ease you can add SMS to your website/service, they benefit because you are paying them.
Interestingly enough, the twitter bots remind of some IM buddy of the late 90s early 2000s that did basically the same thing. You could add him as a friend and then you could ask him for the weather or about movie time. I can’t remember the name though.
Anyway, I am not so sure money was being wasted here because that is just one potential revenue stream and a pretty dang useful feature…-Metagg
Michael: That link to Technorati is broken.
I am curious to see how twitter competes as a stand-alone product in the future. Twitter’s web application is nice, but you cannot choose whose updates to see and it gets crowded if you follow more than a few people. I have used the service for four months and like the concept, and have used it in several ways including documenting a trip to Atlantic City. Twitter’s success hinges on the strength of its SMS features — which in my case have been lacking recently.
In the SMS arena, Twitter faces competition from textmarks and facebook. The former allows you to easily setup groups for general discussion, private messages, and a dynamic group status update — and an option for the owner to monetize on a per-message or monthly-fee basis. The latter has status updates, follow, and direct messaging built in to their service, but are limited by lack of international availability and that it is a “closed network”. However, twitter allows you to close off your updates to friends only.
Regardless, I am intrigued to see the progression of “microblogging” over the course of the year.
I agree with Tim. The only reason they want to spread the news around is probably because they want to raise the interest. Competition always makes sense!
This is great news–kind of makes twitter more “legitimate” and gives me even more reasons to keep on twittering.
There’s also a great write-up recently in the WSJ, which is an interesting read.
As metagg mentions, there are a lot of interesting ways to use twitter, especially when it comes to connecting to “your audience”.
That WSJ story was funny – did you see the screenshot of ESPN’s twitter page? Almost 3,000 updates and less than 100 friends! Oops, that sounds like marketing failure, not success, to me.
The best bet for Twitter IMO is to go to all the universities and license the product to them as a fast-notification system to their students in the case of another Virginia Tech tragedy. Then once you have all those students signed up, you have potential to build & market other services for them.
Still blocking my comments I see.
What’s their plan? I didn’t ask, but they know where they’re goingJack Dorsey’s interview 7-27-7
@Derek: I had the same conversation with a fellow alumni when it happened.
Why secret? It’s easy, a $20M pre-money is NOTHING if compared to all the buzz around Twitter. With other social networking sites we speak in terms of BILLIONS, not Millions. In addition, unique visitors don’t mean users. The number of users has not been disclosed yet. I think it’s less than we imagine.
why does it have to be a secret