Twitter lands $800 million venture capital deal, breaking record(mercurynews.com)
mercurynews.com
Twitter lands $800 million venture capital deal, breaking record
http://www.mercurynews.com/wiretap/ci_18596988
73 comments
Again with the "Startup" tag. AirBNB got it yesterday. How does this 4 year old billion+ valued company with hundreds of employees still get called a "startup"? What definition could people possibly be using? All companies "started" at some point. I don't see people calling GM a startup but then again I think they actually made money last year.
If you define a startup as a company still looking for a business model as Steve Banks might, then twitter very well fits in that definition. It's also easy to label companies with a startup culture of moving fast, raising capital and innovating a "startup".
Neither of these are good reasons to label a company a "startup." Arguably, Salesforce.com is 'still looking for a business model' despite being public, as are any number of other companies. And every tech company likes to think they have a culture of 'moving fast, raising capital and innovating.'
Wikipedia provides a reasonable starting place: "A startup company or startup is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets."
Wikipedia provides a reasonable starting place: "A startup company or startup is a company with a limited operating history. These companies, generally newly created, are in a phase of development and research for markets."
[deleted]
Compared to GE, it seems to fit. It's all a matter of perspective.
startup = A company with no real revenues yet? but with potential?
IIRC the monster Groupon round paid out early investors--typically a sign to run away (IMHO, something I said just the other day [1]). This deal at least seems to offer to buy out employees (which, to be frank, I would take at this point) so that's better.
But still... Facebook has taken in over $2 billion in VC funding but has a valuation approaching $100 billion. Twitter has taken in $1.16 billion for an $8 billion valuation.
I personally think Twitter is at serious risk of losing relevancy (this decade's Myspace) and they've reached a point where they need to figure out a business model (although technically they've just bought themselves another 2-3 years).
[1]: http://news.ycombinator.com/item?id=2829358
But still... Facebook has taken in over $2 billion in VC funding but has a valuation approaching $100 billion. Twitter has taken in $1.16 billion for an $8 billion valuation.
I personally think Twitter is at serious risk of losing relevancy (this decade's Myspace) and they've reached a point where they need to figure out a business model (although technically they've just bought themselves another 2-3 years).
[1]: http://news.ycombinator.com/item?id=2829358
Absolutely true. Novelty of tweets and the structure of the social graph (public facing/searchable) only gives it 2 years anyway before Facebook gets it 70% right, Goog has a start but no veritable base to contend from.
I've got Twitter's most successful shot at a business model physically next to me. Unfortunately, because the realities of a team moving quickly enough, in the right steps, and with enough disruption to become viable is a near impossibility, they'll probably wither (I don't see IPO and save for MS or another hungry to innovate by acquisition, I don't see another round coming).
What we'll do is build up our bootstrapped MVP, get traction and users the old fashioned way and likely eat some scraps mistakenly left on the veritable opportunity table.
I've got Twitter's most successful shot at a business model physically next to me. Unfortunately, because the realities of a team moving quickly enough, in the right steps, and with enough disruption to become viable is a near impossibility, they'll probably wither (I don't see IPO and save for MS or another hungry to innovate by acquisition, I don't see another round coming).
What we'll do is build up our bootstrapped MVP, get traction and users the old fashioned way and likely eat some scraps mistakenly left on the veritable opportunity table.
Facebook has taken in over $2 billion in VC funding but has a valuation approaching $100 billion. Twitter has taken in $1.16 billion for an $8 billion valuation.
Be careful equating a implied valuation based on a late stage private financing to actual valuation. It works when when companies are worth $1 million and there are one or two classes of stock. Not so much in these cases. The public markets will have the final say, and that could be a very, very different story for both Twitter and Facebook.
Be careful equating a implied valuation based on a late stage private financing to actual valuation. It works when when companies are worth $1 million and there are one or two classes of stock. Not so much in these cases. The public markets will have the final say, and that could be a very, very different story for both Twitter and Facebook.
What Twitter needs is private group chat.
Does this mean they are bleeding money? Why would they need such a huge infusion other than if they have run out of cash?
Well, I don't know.
In other words, I think the claim that they are spending the money to "aggressively innovate" is PR bullshit. They need the money to pay their immense infrastructure bills because their revenue stream so far has been too feeble.
In other words, I think the claim that they are spending the money to "aggressively innovate" is PR bullshit. They need the money to pay their immense infrastructure bills because their revenue stream so far has been too feeble.
Maybe they want to hire a lot of salespeople to sell ads directly? (unlikely, 800 mil buys, what about 1200 senior sales people? they can't need that many). Maybe they are trying to license some technology (unlikely, what licence cost that much?).
Most likely they are trying to get some cash to buy a company they need.
Most likely they are trying to get some cash to buy a company they need.
Why are valuations being the ones praised instead of profits or even revenue nowadays?
Because railroad tracks without trains may not make money, but are still valuable to the train owners.
I am no expert, but I am guessing it is because many startups are pre-profit or even pre-revenue. Whether you consider Twitter to still be a startup is another question. However, consider that until fairly recently, much effort had been devoted to scaling, quite possibly at the expense of new features and strategies to drive revenue.
Becuase it's only investors that have skin (money) in the game and so for them the valuation is more important than profit as they want to be able to exit at a far higher valuation than when they entered. Profits are only important to people working there or that own shares and are long term investors.
Because businesses by their nature are generally serving the middle class, but the money is concentrated among the top .01%.
This leads to big valuations and relatively low revenues. As wealth continues to concentrate at the top of society the trend will continue. This would not have happened 100 years ago when the top tax bracket was ~90%.
Money is worth less to those with wheelbarrows of it. Ownership matters more. Call it inflation if you want.
This leads to big valuations and relatively low revenues. As wealth continues to concentrate at the top of society the trend will continue. This would not have happened 100 years ago when the top tax bracket was ~90%.
Money is worth less to those with wheelbarrows of it. Ownership matters more. Call it inflation if you want.
"This would not have happened 100 years ago when the top tax bracket was ~90%."
Not to be too pedantic, but 100 years ago was a great time to be a millionaire, the highest tax brackets were inconsequential, the tax for the top bracket of $500,000 was 7%. Rockefeller didn't have too much tax planning to worry about.
The high brackets came with the depression and later WWII.
Not to be too pedantic, but 100 years ago was a great time to be a millionaire, the highest tax brackets were inconsequential, the tax for the top bracket of $500,000 was 7%. Rockefeller didn't have too much tax planning to worry about.
The high brackets came with the depression and later WWII.
Wow, that is a monster bet.
From the NVCA's own data that deal alone is nearly equivalent to Q2's top TEN deals:
http://www.nvca.org/index.php?option=com_docman&task=doc...
You want to talk about "disruptive": DST and their limitless oligarch cash coming in and liquidating employees before a traditional liquidity event (public stock).
Wow.
From the NVCA's own data that deal alone is nearly equivalent to Q2's top TEN deals:
http://www.nvca.org/index.php?option=com_docman&task=doc...
You want to talk about "disruptive": DST and their limitless oligarch cash coming in and liquidating employees before a traditional liquidity event (public stock).
Wow.
[deleted]
Keep it moving people.. there's no bubble here...
Wow, the remaining 400 mill is a 200k salary * 500 people * 4 years. Is Twitter past 500 employees?
What do all these people do? I can't see twitter needing 600+ people.
I can see how it can happen. I've worked at some media companies that do a lot less than twitter does and they've hit 120+ employees, just doing ads. Twitter does ads, as far as I can tell via promoted search results, trending topics, and follow suggestions.
There are people who traffic the ads, people who manage accounts, sales staff that get the accounts, marketers, biz dev, product managers, financial analysts, accountants, and engineering + QA who just do ads, optimization, billing, reporting, and trafficking UI. On top of that you have middle management, then senior management on top of that. Add to that support like HR, legal, facilities...it all adds up.
Not saying that it needs to be that way, just that I've seen it be that way.
There are people who traffic the ads, people who manage accounts, sales staff that get the accounts, marketers, biz dev, product managers, financial analysts, accountants, and engineering + QA who just do ads, optimization, billing, reporting, and trafficking UI. On top of that you have middle management, then senior management on top of that. Add to that support like HR, legal, facilities...it all adds up.
Not saying that it needs to be that way, just that I've seen it be that way.
Generally most of those people aren't making developer salaries, though -- 200k is high for support staff loaded salaries. Account reps, if you don't include commissions, are probably more like $30-50k base.
Interesting how little fact-checking newspaper do these days, before making crazy and false claims such as this.
http://blogs.wsj.com/venturecapital/2011/01/10/has-a-company...
Looks like Twitter did definitely not break the record here. Remember Groupon?
http://blogs.wsj.com/venturecapital/2011/01/10/has-a-company...
Looks like Twitter did definitely not break the record here. Remember Groupon?
Well, they might be right, if they are referring only to the money that are invested in the company itself (i.e. by issuing new shares, not by buying out existing shareholders).
Out of the $800M Twitter investment, only half of it was an actual VC investment, so we are looking at $400M.
Let's see the others:
- Groupon got $950M, but I think 3 quarters of that went to buying out existing shareholders
- Clearwire got $900M from Intel and Motorola. Even though Intel Capital is an actual VC fund, I am not sure about Motorola having a VC fund, and in any case this sure sounds like a strategic investment, rather than a VC one
- Western Intergrated Networks got $889M, but if you like at the investors, they are private equity rather than VC: Blackstone Group, Madison Dearborn Partners, Oak Investment Partners and Providence Equity Partners
So, I think they are right if they are referring to traditional VC investments. The only problem is that I am not exactly sure what a traditional VC investment means.
Out of the $800M Twitter investment, only half of it was an actual VC investment, so we are looking at $400M.
Let's see the others:
- Groupon got $950M, but I think 3 quarters of that went to buying out existing shareholders
- Clearwire got $900M from Intel and Motorola. Even though Intel Capital is an actual VC fund, I am not sure about Motorola having a VC fund, and in any case this sure sounds like a strategic investment, rather than a VC one
- Western Intergrated Networks got $889M, but if you like at the investors, they are private equity rather than VC: Blackstone Group, Madison Dearborn Partners, Oak Investment Partners and Providence Equity Partners
So, I think they are right if they are referring to traditional VC investments. The only problem is that I am not exactly sure what a traditional VC investment means.
I am not even sure if Twitter is that mainstream. However, its mainstream as far as businesses (customer service, deals/coupons, etc.), celebrities (one-way traffic) is concerned. I still don't see many of my friends even care to be on Twitter, because from a social conversation pt of view, there is no conversation really.
On a lighter note, that's 5.7m per character!
On a lighter note, that's 5.7m per character!
"the 2-year-old startup" -- nice bit of background research there.
In hindsight my comment isn't quite so pithy now that the article has been edited
I love twitter, but I think that the problem they are facing is whether they can maintain their position if they turn too far away from being an ecosystem.
The strength of twitter is it's protocol like structure which could potentially be invaluable just like TCP/IP is (I know they are not by any metrics the same)
But whether they can turn it into a business in the long run that is hard to say. I would worry about conflict of interest just as we are seeing with google now betting against it's own customers.
The strength of twitter is it's protocol like structure which could potentially be invaluable just like TCP/IP is (I know they are not by any metrics the same)
But whether they can turn it into a business in the long run that is hard to say. I would worry about conflict of interest just as we are seeing with google now betting against it's own customers.
What do you mean by google betting against it's own customers?
I mean google getting into all sorts of business areas that have used google to build a business. Latest with travel.
Comes at the right time for Twitter, as Google Plus is major competition, even if everyone wants to pit Plus against Facebook. (The media likes X vs Y stories, so Twitter's position has not been scrutinised as much as Facebook's.)
Twitter is not exactly mainstream and early adopters have already jumped on Plus in a big way. So they will really need to ramp up on innovation if they are to stay active in light of Plus. The $8B valuation (if accurate) makes me wonder if the risk from Plus was considered. The deal was surely set in motion before Plus's momentum was apparent, and I still don't see people acknowledging what Plus means for Twitter (or for Posterous, Tumblr, etc...but ignoring that for now too).
Twitter is historically lacking in the following areas, which Plus has covered:
- You can't easily follow conversations (versus Plus's comments against a status)
- You still can't search for old tweets. You can't even find your own old tweets. (Plus doesn't have integrated search, but it's already possible via a site: search on google and it's surely coming to Plus.)
- While Twitter has lists, they've never really embraced them the way Plus embraces circles. (e.g. Sticking someone in a circle is always just a click away.)
- While Twitter has favorites, they've also never embraced them the way Google/Plus embraces +1. Given the success of the ubiquitous Facebook Like button, it's astonishing this aspect has never been taken up.
- Better integration of media and links - images, URLs, etc are held as metadata, not shoehorned in with a URL shortener.
- ... speaking of which, the arbitrary 140-character limit is gone, so no more SMS speak and URL shorteners. Twitter did a great job teaching us it's good to be concise, but we can shed the 140 bondage already.
- Integrated into Google's various properties, which is itself a competitive advantage.
- Scaleability has always been a major concern for Twitter (and likely the reason why there hasn't been as much innovation in other areas), whereas we can be fairly certain Google has that covered.
- And of course the business model, which Twitter is still massively tweaking. We can be fairly certain Plus will more than pay for itself in the case of Google.
It's a bit like when the web took over from Gopher [1]. It did so quickly because it subsumed gopher, and it feels that way with Plus. Anything you can tweet, you can plus. But you can do much more with it. For a startup, it would be a lot of hard work getting the user base to make it worthwhile, but with Google they've already been able to build up the network.
I've been wondering lately that Twitter is on the way to becoming a niche network for anonymous users, given the recent real name controversy, unless it gets moving. For now at least, I am getting more feedback from Plus posts than tweets, despite having ~20% as many followers on Plus.
I say all this as a major fan and developer of Twitter who wants the platform to stay relevant. (But also a former Googler, who also wants Plus to thrive...so take it how you will!)
[1] http://en.wikipedia.org/wiki/Gopher_(protocol)
Twitter is not exactly mainstream and early adopters have already jumped on Plus in a big way. So they will really need to ramp up on innovation if they are to stay active in light of Plus. The $8B valuation (if accurate) makes me wonder if the risk from Plus was considered. The deal was surely set in motion before Plus's momentum was apparent, and I still don't see people acknowledging what Plus means for Twitter (or for Posterous, Tumblr, etc...but ignoring that for now too).
Twitter is historically lacking in the following areas, which Plus has covered:
- You can't easily follow conversations (versus Plus's comments against a status)
- You still can't search for old tweets. You can't even find your own old tweets. (Plus doesn't have integrated search, but it's already possible via a site: search on google and it's surely coming to Plus.)
- While Twitter has lists, they've never really embraced them the way Plus embraces circles. (e.g. Sticking someone in a circle is always just a click away.)
- While Twitter has favorites, they've also never embraced them the way Google/Plus embraces +1. Given the success of the ubiquitous Facebook Like button, it's astonishing this aspect has never been taken up.
- Better integration of media and links - images, URLs, etc are held as metadata, not shoehorned in with a URL shortener.
- ... speaking of which, the arbitrary 140-character limit is gone, so no more SMS speak and URL shorteners. Twitter did a great job teaching us it's good to be concise, but we can shed the 140 bondage already.
- Integrated into Google's various properties, which is itself a competitive advantage.
- Scaleability has always been a major concern for Twitter (and likely the reason why there hasn't been as much innovation in other areas), whereas we can be fairly certain Google has that covered.
- And of course the business model, which Twitter is still massively tweaking. We can be fairly certain Plus will more than pay for itself in the case of Google.
It's a bit like when the web took over from Gopher [1]. It did so quickly because it subsumed gopher, and it feels that way with Plus. Anything you can tweet, you can plus. But you can do much more with it. For a startup, it would be a lot of hard work getting the user base to make it worthwhile, but with Google they've already been able to build up the network.
I've been wondering lately that Twitter is on the way to becoming a niche network for anonymous users, given the recent real name controversy, unless it gets moving. For now at least, I am getting more feedback from Plus posts than tweets, despite having ~20% as many followers on Plus.
I say all this as a major fan and developer of Twitter who wants the platform to stay relevant. (But also a former Googler, who also wants Plus to thrive...so take it how you will!)
[1] http://en.wikipedia.org/wiki/Gopher_(protocol)
Twitter is not exactly mainstream
You're joking, right?
You're joking, right?
Twitter is most definitely mainstream. When Presidential candidates and major news orgs are using your service, I think we can assume it's "mainstream".
Political activists and major news orgs are among the earlier adopters for most platforms. There are plenty of sports people and celebrities too, and all their watchers. But you could say the same about Second Life a few years ago. Twitter's certainly gone well beyond that, but I still think it's much more of a patchwork of many niches than "the social fabric" that Google Plus and Facebook are heading towards.
Uh... the President took questions on twitter like two weeks ago.
If that's not mainstream, I have no clue what is.
If that's not mainstream, I have no clue what is.
Have a listen to this podcast:
http://mixergy.com/clay-johnson-bluestate-interview/
Politicians everywhere have learned to adopt technology early, it's critical for public relations and community-building. Just like Obama visits Facebook or Google for a Q&A. So that alone, and even the niche who follow every tweet (as opposed to the vast majority who pick it up second or third hand via journalists) is not mainstream.
Mainstream is hundreds of millions of ordinary people sharing photos with each other. That's the game Google and Facebook are playing.
Politicians everywhere have learned to adopt technology early, it's critical for public relations and community-building. Just like Obama visits Facebook or Google for a Q&A. So that alone, and even the niche who follow every tweet (as opposed to the vast majority who pick it up second or third hand via journalists) is not mainstream.
Mainstream is hundreds of millions of ordinary people sharing photos with each other. That's the game Google and Facebook are playing.
There is a difference between adoption and if it is mainstream or not. People knowing what twitter is but not giving a shit about it enough to have an account doesn't prevent it from being mainstream. I'd say Ford is pretty mainstream, but only a patchwork of people drive Ford.
I say "not exactly" because it's not mainstream in the same sense that Facebook or email is. When I speak to non-tech people about Twitter (most of whom use Facebook), most of them still find it a bit of a curiosity and few of them actively use it.
The fact that it's not as mainstream as Facebook or e-mail is not a relevant argument. It's like me saying Drake isn't mainstream because he's not as big as Michael Jackson.
Twitter is mainstream. Besides celebrities and other public figures, it's a way for people within industries to follow one another.
Twitter is mainstream. Besides celebrities and other public figures, it's a way for people within industries to follow one another.
[deleted]
$8 billion valuation ...
That's 40 times the $200 million in yearly revenues that equity research firm Hudson Square recently estimated Twitter takes in.
That's 40 times the $200 million in yearly revenues that equity research firm Hudson Square recently estimated Twitter takes in.
That ratio, in isolation, is totally useless.
> That ratio, in isolation, is totally useless.
Yes, because this time is different.
Yes, because this time is different.
Can you cut the cryptic message and tell me what you're talking about? The Reinhart/Rogoff book? Or are you just trying to irrelevantly reply with a nice catchphrase?
"The phrase This Time Is Different has often been cited as the four most dangerous investing words in the English language."
http://moneywatch.bnet.com/investing/blog/wise-investing/thi...
http://moneywatch.bnet.com/investing/blog/wise-investing/thi...
> Can you cut the cryptic message and tell me what you're talking about?
Yeah, sorry for that, I know it sounded too reddit-like, but in addition to what arethuza was saying bellow I can tell you how I can still remember reading a The Economist 30+ pages special report on the CDS market around 2007. They were saying how that one time all was different,about how the risks were spread among multiple players, how the market fundamentals had changed etc. And then 2008 happened (and yes, I know that technically the CDS market wasn't the one that blew up, but I think everybody now can see how stupid those assumptions were).
To sum it up, reading this article on Twitter reminded me of that period, and many like it. You cannot just foul the fundamentals.
Yeah, sorry for that, I know it sounded too reddit-like, but in addition to what arethuza was saying bellow I can tell you how I can still remember reading a The Economist 30+ pages special report on the CDS market around 2007. They were saying how that one time all was different,about how the risks were spread among multiple players, how the market fundamentals had changed etc. And then 2008 happened (and yes, I know that technically the CDS market wasn't the one that blew up, but I think everybody now can see how stupid those assumptions were).
To sum it up, reading this article on Twitter reminded me of that period, and many like it. You cannot just foul the fundamentals.
That said, my original point was that we're looking at a financial ratio, and the first rule of applying financial ratios is that they are useless in a vacuum. We don't know the fundamental valuation of the company.
I didn't say it's inherently under- or over-valued, just that the ratio is meaningless.
I didn't say it's inherently under- or over-valued, just that the ratio is meaningless.
I thought it was the fear of an "exothermic CDS chain reaction" that created the real prospect of a global financial meltdown - the CDOs were merely the fuse.
It sets a lower bound on the P/E ratio at which money is being invested, no?
Yes, you may have a really (REALLY) rough idea of the lower bound of the P/E ratio. However, the going concern is that it is over- not under-valued, so that estimate is useless. Also, we (I) have no idea of what their net income picture looks like, so the upper bound of the P/E could be in the clouds. Last, P/E valuation is useful insofar that we can compare it to its competitors.
Wow, though I love Twitter, the thought of trying to 5-10x 800 million scares the hell out of me.
disclaimer: I don't understand finance well and don't claim to.
Can someone explain why such a large portion of the money in both this deal and the Groupon deal went to insiders instead of being used for infrastructure/personnel/normal business-growing costs?
Also, is this a more recent trend or have things commonly worked this way?
Can someone explain why such a large portion of the money in both this deal and the Groupon deal went to insiders instead of being used for infrastructure/personnel/normal business-growing costs?
Also, is this a more recent trend or have things commonly worked this way?
Investors at different points in time have different things to offer a company. An angel investor brings more than money to a company in the first few years (connections, guidance, etc.), but they may not be able to help as the company transitions to a medium-sized firm. That, plus the fact that they still hold a non-negligible share of the company, makes it desirable to cash them out and return control to the core of the company (later investors, executive team, etc.). Especially if they have board seats, it doesn't make sense to have somebody who's not as qualified (or interested) with that much control. So, you buy them out.
I can't speak to how it has been done in the past, but it doesn't make much sense to me to force all involved parties to wait for IPO + 18 months to divest from a company, especially if they're going to actively hinder the companies growth.
Also, the terms you get from shifting pre-existing shares (e.g., employees) around are probably better than creating new ones. The later investors get a greater chunk of the pie for less money because the company doesn't have to create new shares, and the early investors would prefer to get cash today than more highly valued shares tomorrow.
I can't speak to how it has been done in the past, but it doesn't make much sense to me to force all involved parties to wait for IPO + 18 months to divest from a company, especially if they're going to actively hinder the companies growth.
Also, the terms you get from shifting pre-existing shares (e.g., employees) around are probably better than creating new ones. The later investors get a greater chunk of the pie for less money because the company doesn't have to create new shares, and the early investors would prefer to get cash today than more highly valued shares tomorrow.