Twitter Raises $200 Million at $3.7 Billion Valuation; Adds New Board Members

There's an assumption that people who invest $200 million have information you don't have or that they're smarter than you are. I worked for eToys and watched the company simply run out of money after raising $250 million. I worked for Jobster and watched the company become walking dead after raising $55 million.

The Madoff investors are also a prime example of what economists call "asymmetric information" at work.

There is an odd inverse correlation where the larger the deal, the less insider info the investors have.

Today Twitter burns cash at a furious rate, has only 25 million uniques on their website, has a product riddled with bugs, has a terrible uptime record and after years of trying to scale, continue to have terrible uptime and app performance.

But most important of all: Twitter do not yet have a business model, and the experiments they're doing, like the groupon twitter clone, demonstrate that they are flailing around in the dark.

It's quite possible that Twitter may go the way of eToys.com and other big busts: After raising a spectacular amount of money they will simply run out of cash and have their assets bought for a pittance.

So lets explore this scenario briefly: If twitter does simply implode, it will be catastrophic for our industry because the press will brand it as a wider systemic problem and will most likely describe it as the "second dot-com bubble bursting". The mainstream press have been particularly kind to Twitter, so expect them to be just as unkind if it dies. VC and angel money will dry up for a time and the correction that guys like Fred Wilson have been predicting (see his recent comments re an angel investment bubble) will come to pass.

Lets hope Twitter becomes profitable and sustainable or we will all be hurt badly by the shrapnel.

I'm probably just ignorant, so I'd really be interested in hearing what those with expertise have to say.

At a $3.7 billion valuation doesn't that mean that twitter has to IPO or be bought for at least $10 billion to make it worth it? and aren't those exits exceedingly rare?

I'm sure people investing $200million aren't idiots, so it's not like this logic is lost on them, so I'd be really interested in what the investment terms are to make this a sensible deal.

I'm currently find this discussion ignorant and annoying.

People are claiming a $3.7 B valuation implies a $10 B exit, and that this is absurd somehow, so therefor the VC's must be stupid.

Here's the Math so you can understand the logic.

Google claim they can make $10/year from advertising, per user on Android phones[1]. Current speculation is that Facebook is on course to make around $1.6 B from 500 million users this year (ie, $3.2/user/year)[2]. If Google and Facebook can do this, than surely Twitter can make a comparable number - but lets say $2/user/year to be conservative. Twitter has ~150/million users, so they should be able to make around $300M/year. Google's P/E is ~20, but they are a mature company, and Facebook seems to be trading at a P/E of ~50. For out estimates we'll split the difference and give Twitter a P/E of 30. 300M * 30 = $9 Billion.

People seem to think that Twitter can't make any money from advertising. In my view, this is a pretty extraordinary claim - everyone else can make money, so why can't Twitter? They actually have a lot of advantages (eg, desktop & mobile installs) that most websites don't have. Many companies pay to be included on toolbars etc that end up on people computers, and yet to here people here talk you'd think having millions of people install your thick client is a disadvantage!

[1]http://blogs.computerworld.com/17099/google_says_android_alr...

[2]http://www.marketingpilgrim.com/2010/09/facebook-revenue-est...

Though I may simply be ignorant to their plans, I have yet to see compelling evidence that Twitter really knows how on earth it can really monetize itself. My guess (as I said in an earlier Tweet) is that the network itself is worth millions of dollars to businesses (quite likely even more than the $3.7 billion valuation) but I don't see how it translates into real revenue for Twitter, the company, as operator of that network.

One of the things that's always amazed me about Twitter is that with everything the company has done to make a really cool service, they seem to be in the absolute worst position possible to actually monetize that service.

An interesting aside: plenty of people (myself included) have been saying things like "the people at Twitter can't figure out how to monetize".

This is true but it assumes that there is some easy monetization, they just haven't discovered it. Yet - I haven't heard anyone else come up with a reasonable plan to do so, and it's not like twitter doesn't have thousands of people who are intelligent, experienced at this, and want desperately for them to succeed.

Sure it might look like they are flailing, but lets not keep implying that it's because they don't know what they are doing, don't have the right people in charge, aren't savvy enough to figure it out, etc.

Stop talking about profits. Twitter creates value for millions of users, they will figure out how to monetize those users. If you put profits above all, it will slow you down.

People were saying the same things about Facebook and they figured it out. Same for Youtube, same for Google, etc etc. Twitter is a 4 year old company, there are thousands of companies that dont make any profits in their first 4 years, it even took Amazon 7 years to be profitable.

The fact that Twitter revealed a online form to buy ads at the same time with closing new round of financing says a lot. for me it says that twitter is desperately screaming: 'please, dont call us money burning losers. there is a possibility for us to make money, look we even have a online form to buy ads' :)

Below is my tweet in reaction to the news. Hopefully someone can justify this growth capital for me.

  Nobody is directly competing with you @Twitter. 
  What the hell is the rush that you need $200mm for??
  This is a goddamn #bubblebath

Congrats to them, hopefully we see some good features (more stability) and a business model that doesn't piss everyone off and kill it :)

Looking at Costolo's blog post, I was shocked to see they only have 350 employees!

Each employee represents $10 million in valuation.

Damn, gotta open CNN to see what people are tweeting about this!

Reading this makes me lose all faith in business, startups, and humanity in general. 5 years later and they aren't profitable, aren't stable, and aren't really innovating anymore. It's like they're dying to become the pets.com of the late 2000's

If Google was willing to pay $6 Billion for Groupon, how is Twitter not worth more? That's a serious question, not a snarky one.