
Twitter Closing $800M Funding Round at $8 Billion Valuation - jamesjyu
http://mashable.com/2011/07/20/twitter-8-billion/
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dotcoma
how sick is this? A company that had already raised north of 300 million and
had never even made half as much in revenue gets... another 800 million? what
for? how ridiculous is this?

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damoncali
I think you answered your own question. Without revenue, outside capital is
needed for growth. And it's tough to tell if the valuation is dumb without
seeing the terms of the deal.

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nivertech
$8B is still in the acquisition range. Google was ready to pay $6B for
Groupon. The next round (if ever) will make twitter un-acquirable. IPO, lower
valuation or die.

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vaksel
well to be fair Groupon was actually generating cash...Twitter generates god
knows what

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damoncali
Don't be so harsh. Without Twitter, there'd be no <http://backupmytweets.com>

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nodata
Why does selling a 10% chunk of a company value the remaining 90% at the same
price?

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damoncali
It doesn't. It's just an implied valuation based upon simplistic math.

For example, suppose that $800M had a 1x liquidation preference plus a modest
hurdle rate (say its 7%). That investor makes good money if Twitter gets sold
for (1.07 x $800M) $856M - a far cry from $8B. The risk of such an investment
going negative is quite low (relatively speaking), as would be the investor's
cost of capital. I doubt the seed investors would look at such a sale
positively.

That is a grossly oversimplified version of what can happen (I have no idea
what the terms of the real investment are - I'm just making up a for-
instance). But the larger point is that you are correct, when you are dealing
with preferred stock and other complicated securities, the implied valuation
is a bit of a joke. You have to look at the value of all of the various
tranches of securities, each of which is impacted by the others.

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jamiequint
This is only true if the shares sold in this round participating preferred and
earlier investors were not entitled to money back in such a sale, I doubt
either is the case here.

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damoncali
The larger point is that 4th grade percentage math is inadequate to value
preferred stock. Change the example to one you like if you find mine too
simplistic.

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gabaix
Why is Twitter so slow to find a good business model, while Facebook is
profitable?

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benofsky
Twitter's data set is incredibly valuable; Twitter won't make money from ads,
they will make money from analyses of their data [1]. Developing
infrastructure and software that can analyse the sheer quantity of data
Twitter generates takes time — and money. But, when they finally crack it they
will be extremely profitable. It's much easier for Twitter to do this opposed
to Facebook (who I would say is also interested in doing this) because of
Twitter's public by default culture (/policies).

[1] If evidence is needed: they just bought BackType; They're starting to lock
down and sell their APIs rather than give it away for free as they realise the
data's immense value.

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LargeWu
I'm curious to know what kind of data Twitter has that is that valuable. Just
because you have a lot of data doesn't mean it's that valuable.

I used to analyze direct marketing campaigns for a major big-box retailer.
They had literally billions of rows of transactional data that they could tie
to specific customers, and despite attempting to harness the power of that
data, most of their direct marketing campaigns didn't even move the needle.

So, whenever I hear "But, when they finally crack it they will be extremely
profitable", I can't help but thinking this is nothing but a bunch of
handwaving. I'm sure everybody at Twitter is real smart and they're working
hard on this problem, but until they start bringing in some real money, I'll
remain skeptical.

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benofsky
Just as an example from my own experiences: I was able to predict the winner
of the XFactor within 1% of the final vote, two hours prior to the final [1].
I've also written an algorithm that can with 80% accuracy detect a news story
will come out of a group of tweets. There is a lot that can be done with this
data.

[1]
[http://www.irishtimes.com/newspaper/ireland/2010/0115/122426...](http://www.irishtimes.com/newspaper/ireland/2010/0115/1224262376459.html)

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Hisoka
They said the valuation of Twitter doubled from last year to this.... does
anyone know if the shares in SecondMarket increased by the same % as well? If
not.. then why not? They don't want "normal people" to get rich? Just the
insiders?

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corin_
That's roughly how it's meant to work pre-IPO. Until they're a public company
they're only supposed to care about the investors they chose ("the insiders").

