
Twitter lands $800 million venture capital deal, breaking record - johns
http://www.mercurynews.com/wiretap/ci_18596988
======
parfe
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.

~~~
chucknthem
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".

~~~
tomkarlo
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."

------
cletus
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>

~~~
bigohms
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.

------
dmazin
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.

~~~
tomjen3
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.

~~~
ig1
Groupon has 4000 sales people...

~~~
carbonica
And Groupon is losing money hand-over-fist.

~~~
dmazin
Exactly, when you say "bleeding money" I think "Groupon." Such a
disappointment.

~~~
jamesteow
With yesterday's news that Google acquired Dealmap, it may get worse.

------
nextparadigms
Why are valuations being the ones praised instead of profits or even revenue
nowadays?

~~~
forensic
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.

~~~
niklasl
"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.

------
aresant
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...](http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=775&Itemid=317)

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.

------
argus
Keep it moving people.. there's no bubble here...

------
ericd
Wow, the remaining 400 mill is a 200k salary * 500 people * 4 years. Is
Twitter past 500 employees?

~~~
sschueller
What do all these people do? I can't see twitter needing 600+ people.

~~~
idoh
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.

~~~
rdl
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.

------
SeoxyS
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...](http://blogs.wsj.com/venturecapital/2011/01/10/has-a-company-ever-
raised-like-1-billion-in-venture-financing/)

Looks like Twitter did definitely not break the record here. Remember Groupon?

~~~
horatiumocian
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.

------
satyajit
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!

~~~
asmithmd1
If the president mentions it at a news conference as a way to reach
Congresspeople I would say it is pretty mainstream

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drpancake
"the 2-year-old startup" -- nice bit of background research there.

~~~
drpancake
In hindsight my comment isn't quite so pithy now that the article has been
edited

~~~
jsavimbi
But one has to remember that it's really been two years since it took off.
Looking back, I had a grand total of two tweets from 3/07 to 3/09.

~~~
mikle
Does that mean that I'm only 10 years old, since I barely remember anything
before I was 14?

------
ThomPete
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.

~~~
doctoboggan
What do you mean by google betting against it's own customers?

~~~
ThomPete
I mean google getting into all sorts of business areas that have used google
to build a business. Latest with travel.

------
mmahemoff
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)>

~~~
cbs
_Twitter is not exactly mainstream_

You're joking, right?

~~~
chadgeidel
Twitter is most definitely mainstream. When Presidential candidates and major
news orgs are using your service, I think we can assume it's "mainstream".

~~~
mmahemoff
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.

~~~
pnathan
Uh... the President took questions on twitter like two weeks ago.

If that's not mainstream, I have _no_ clue what is.

~~~
mmahemoff
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.

------
wensing
$8 billion valuation ...

 _That's 40 times the $200 million in yearly revenues that equity research
firm Hudson Square recently estimated Twitter takes in._

~~~
dereg
That ratio, in isolation, is totally useless.

~~~
paganel
> That ratio, in isolation, is totally useless.

Yes, because this time is different.

~~~
dereg
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?

~~~
paganel
> 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.

~~~
dereg
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.

------
nhangen
Wow, though I love Twitter, the thought of trying to 5-10x 800 million scares
the hell out of me.

------
Nate75Sanders
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?

~~~
trjordan
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.

