No Revenue? No Problem. More Money for Twitter on the Way.
by Peter Kafka
Posted on January 25, 2009 at 9:21 AM PT
Remember the good old days of Bubble 2.0? When a webby company with no real business plan could raise piles of money at an eye-popping valuation?
That would have been par for the course as recently as a year ago, but now only one company seems able to pull this off at any scale: That would be Twitter, of course.
A person familiar with the situation tells me that the thrust of TechCrunch’s report from last night is indeed correct: Twitter is raising a third round of financing that should double both its valuation and the total amount of cash it has raised–it’s looking to raise something like $20 million at $200 million to $250 million valuation.
TechCrunch says that IVP has signed a term sheet; I’m told there was interest from multiple investors at that price range, so we may see more folks signed on before the deal is finalized.
Twitter, famously, generates almost no revenue, and has yet to explain how it will do so. But I’m told emphatically that the company has still kept its burn rate very low. So it doesn’t need the cash it’s collecting now–it’s doing so because it can.
The deal is yet another indicator that the Twitter team thinks they have a huge hit on their hands: Last fall, they walked away from a deal worth $500 million in cash and stock from Facebook. The new deal means they’ll eventually have to look for an exit at a much higher price than that since their new investors will want a significant return on their investment.
But it also gives them that much longer to figure out exactly how they’re going to make money. And in these post-boom times, that’s a great luxury.
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Comments
Diluting ownership in a winning hand – ‘because it can’ – makes no business sense. And $45+ MM in less than 4 years w/ 10 – 20 employees is a strange brew unless they are planning an m&a roll-up or have built a grossly inefficient communication system. Too bad the coverage is focused on breaking the headline rather than connecting the dots.
Posted by Jonathan Marcus at January 25th, 2009 at 1:21 pmSo connect some dots for us, Jonathan:
Posted by Peter Kafka at January 25th, 2009 at 1:51 pm1) Are you saying Twitter’s existing investors should have done an inside round? Or that they shouldn’t have raised the extra cash, period?
2) I understand how they might use the cash in a roll-up (though not sure *what* they’d roll up – the Summize deal likes a one-off, but that’s a complete guess). Don’t get where you’re going with the communication system line. Please enlighten us.
“When you send one message to Twitter and we send it to ten followers, you aren’t charged ten times — that’s because we’ve been footing the bill. When we launched our free SMS service to the world, we set the clock ticking.”
Posted by Jonathan Marcus at March 1st, 2009 at 8:50 pm