We’ve been talking to sources all day about that new $1 billion valuation Twitter financing, and more information is coming in. The big missing part of the story was who was actually doing the investing at that massive valuation.
The primary investor in the deal, we’ve heard from a source with knowledge of the transaction, is New York-based Insight Venture Partners, which has raised over $3 billion since being founded in 1995. They were (or rather their founders were) early investors in Photobucket, which was acquired by News Corp./MySpace in 2007 for around $250 million.
What’s not clear is if Twitter is capping the round at $50 million. One source says they may raise more. With that valuation, who’d blame them? Not me.
Yo Mike – Your post is really good, I’mma let you finish, but Facebook did a round with the biggest social media valuation of all time. OFF ALL TIME.
Hahaha! It really doesn’t get old does it.
Yes it does.
@Everyone Besides You: Grow a humor – I hear it is good.
+1
One would imagine the preferences, and terms, make this not quite so simple a deal. I’d imagine if Twitter is worth <$Xb, they are going to get a lot more than their apparent % ownership in any sale.
@Jason – I actually think the terms may have been substantially simpler than you’re imagining. In fact, I’d be surprised if they got anything more than a gratuitous liquidity preference if even that. There’s a lot of money chasing Twitter right now, and the new money is really not in a position to be demanding terms.
Several months ago I mentioned in a post to Fred Wilson that I wished I could do an arb trade with Twitter & Facebook: Long 40 shares of Twitter (at it’s then valuation of $250K) and short 1 share of Facebook (at it’s then valuation of $10 Billion). That would make it a balanced $10B against $10B. That trade is only going to get better – count on it.
Congrats to twitter! I’m very interested in the next wave of innovation I’m sure their working on and most likely used to raise the round. Any insight?
1 billion valuation for a company with zero revenue?
This is the valley!
I agree that it is overvalued. For me it’s not that they have no revenue…rather:
1) I don’t see a potential revenue model. Especially one that won’t frustrate the user group.
2) There are many other players (who have a sizable user base) that could easily switch on this type of functionality. Integrating this functionality probably makes more sense than having a standalone site/tool like twitter.
3) There are low change pains for the users. The content grows stale quickly, and users aren’t really invested. As users leave twitter, there last tweet could be a link to where they can now be followed. This isn’t like email, where you are highly invested in your current email address.
twitter is going to fail so bad
anyone remember the company notes that leaked? “WE WANT TO BE TEH PULSE OF TEH WORLD LOL, 500000 EMPLOYEES, SUPER COMPANY TO RULE THE WORLD LOL”
its an archaic code and a stupid fad. biz stone is just an ugly guy with a stupid name and horrible ideas.
i actually think he has a pretty cool name.
agreed, Biz Stone is a pretty gangster name.
I think they just punked TC again – just like FB did a couple of weeks ago.
Oops, another bubble will be popping soon…
unless the celebrities want to pay millions to keep their twitter stream open so that their their fans know what they have for breakfast
I dont see twitter making any significant amount of revenues unless they charge for the api then third party app developers will be wondering why is it worth to charge their users
the problem is in 140 characters without the short url’s thrown in twitter is full of crap that is of no value to the community or any biz only value it creates is for the user who is tweeting away 140 characters at a time
I actually pity the investors
I’m hoping all goes through in good shape. What usually separates VC’s from internal management teams is that VC’s can be ruthless about getting to ROI, and good for them they should be. The faster the likes of twitter finds a healthy financial model the faster mainstream business will have examples of how to build their own SM ROI metrics in mass market applications.
big ad dollars needs big ad ecosystem. this will take years before they can build a big enough advertiser ecosystem around their model – if they have one, and they survives that long, that is.
good ol’ media + ad money is where it’s at. still.
and yet the site remains buggy. Still have to click 3 times to “yes I am sure I want to delete this DM” & the top overlay won’t go away. Hope they use some money to fix these problems and add new features, not make them more annoying (like the last update did)
Fonzie just jumped the shark.
Why is it that Twitter has not released a revenue model? The answer is simple – they only have one shot, and if it doesn’t work they will lose a ton of credibility and the ability to raise at ridiculous valuations. Better to ride the wave of popularity and get investors that have WAY too much capital to put in big chunks to continue to fund their way towards thinking of a means of monetization.
Don’t get me wrong – I like Twitter and use it nearly every day, but the second they try to make money off me or charge me I am done, there are too many other ways to let people know what I am doing.
Whoever is evaluating Twitter has more money than sense. It will never monetize enough to cover its own wasteful existence.
The only thing that might save Twitter is if the human race gets over itself (and what it had for dinner), and Twitter manages to reduce its server costs per head, but self-indulgence is the one growth area of the internet I would firmly place my bets on.
I think we’re just beginning to see the value from Twitter and it’s such a big space that there will be room for more than a single player even as Facebook, Google, and others evolve. More thoughts here – http://bit.ly/J0Ep1, but to me this makes sense as a high risk, high reward bet by investors.
Twitter is just a feature in facebook. WTF?
yes and there is no 140 char limit imposed there also
I seriously doubt if the VC’s pay attention to comments on techcrunch cause some of the people commenting here are way smarter then them
Clearly people here don’t seem to understand how new investors may look at it. Clue: They are not betting that Twitter will exit at $1B+. It all depends on the terms of the financing, the interest rate and the liquidation preferences.
Here is how it works.
Let us say I have $50M in assets that I am looking to put to work and expecting to make about 8%/year of gains and want liquidity in the next 2-3 years with minimal risk. It is actually very difficult to do this in mainstream investments because of the risk factor.
So I evaluate Twitter and make a determination that the probability of Twitter exiting (and so an investment becoming liquid) with at least $50M (not $1B) in the next 2-3 years is so high it is a virtual guarantee that I can get my money back IF I have the first dibs on any liquidation. On the other hand, there are some good chances that Twitter may hit one out of the ball park and I might get a significant return but I am not necessarily betting on that.
So I make a deal with Twitter for a new series of investment where I get liquidation preferences over existing investors for any exit below the valuation, get paid 8%/year interest on the investment for the preferred shares. The company benefits by establishing a high floor for valuations that I am not really betting on happening (but would be nice if it did).
So as an investor I lose only if the exit is less than $50M and will make money at 8%/year at any point between that and $1B sale with probably almost as much guarantee as a Treasury (if not more) but liquid possibly within 2-3 years. It is a fantastic deal for most money managers with cash sitting on the sidelines.
… if I can negotiate the right financing deal as detailed above.
How good a deal this is for Twitter and/or for the new investors is impossible to say unless one see the terms of the financing. The $1B valuation itself may be irrelevant to the new investor but helps Twitter establish a floor (which really doesn’t mean anything if it fails to raise revenue).
So the only interesting piece here is why they are doing this deal at the moment with supposedly $30M in the bank. Most likely, as people have pointed out, it is because it is better to do this when you are taking a risk with a revenue model and have as much runway as possible before coming up with a revenue model that works, otherwise, the terms for financing will become more onerous.
So I suspect that this is just a precursor to launching some revenue generation tests which may or may not work.
The valuation itself is meaningless for all practical purposes.
http://www.sociallifeworld.com thinks twitter will be the next facebook myspace
hahaha suckers.