Twitter Raises $20 M? That's News, Why?

Twitter has raised between $15 m and $20 m according to Cnet. Twitter's next round of cash has been a subject of much blogging and speculation and scrambling around trying to get the scoop. I haven't been doing any of that, frankly. Because "scoops" are only interesting when they're surprising and Twitter raising a fat round of venture capital is in no way surprising.

Four reasons follow on the jump.

1. As I've reported in the video below:

and in this column and ad nauseum, anyone who remotely has a good Web business is bulking up on cash. Six Apart essentially did it with the sale of LiveJournal. Slide has done it. Ning has done it. Facebook has done it. Federated Media has done it. Glam has done it. Do I need to go on? Digg will do it or get bought. (video exhibit B, below)

Far too many companies did not do it in 2000 thinking this whole downturn was a temporary phenomenon, then 9/11 hit and anyone who hadn't bulked up was completely screwed. No one wants to do that again and there's so much money sloshing around between VC firms and Wall Street institutions even marginally good companies can still get amazing terms.

2. If you read between the lines Evan Williams has essentially previewed this deal. (see video exhibit C, below)

3. Given it makes sense for Twitter to raise money, there's the question of whether it can. Of course it can. Anyone even bringing up that the lack of business model may be a problem has no basic understanding of how Silicon Valley and the venture system works right now. As is written about to death in my book, venture capitalists largely missed out on the  most lucrative stakes of all Web 2.0 successes. They were afraid, and the companies were afraid of them post-1990s. Companies were so lean they could bootstrap themselves, only raising money when they were worth enough that the so-called "early stage" rounds bought VCs far less equity than in the past. Enter Twitter which is the last interesting, innovative company to come out of the early 2000s Web 2.0 fertile crescent. Wake up VCs! You missed MySpace, you've missed Facebook, you've missed Ning, you've missed Slide. OMG! Twitter is actually raising venture capital??? WHERE DO I SIGN THE CHECK!?

4. Twitter is on the verge of potentially going mainstream in a big way. Last stop before outrageous valuation! There is no business model. And Twitter is so beautifully simple that is a huge problem for the company. But it's not a right now problem. Facebook and Slide haven't hammered out their business models yet either and look at their valuations. At any price, a stake in Twitter-- not to mention a chance to cozy up to a true Web visionary in Evan Williams-- is a steal.

So now that I've wasted a long post telling you why....yeah, nothing to see here. Move along.

Comments

[jb]

"on the verge of going mainstream"? Like delicious was? Or maybe bloglines? Either the concept will go nowhere, or someone bigger will do it better.

[jeneane]

ev, the hair.

[Jared M. Spool]

I'm still missing the exit strategy here. Acquisition seems to be the only real out for these investors, but what does a prospective purchaser actually get? A lot of expense and no revenue stream.

Maybe eBay is looking for another company to write-off in 2 years?

[Robert Seidman]

Seemingly Yahoo, AOL and Microsoft could build this functionality leveraging their messaging services and instantly have a huge scale advantage (user base-wise) over Twitter.

I'm guessing the only reason they haven't is the knowledge that historically ads on communications products are kinda "eh".

But, a couple of more stories about people Twittering their way out of jail and who knows, Ebay may feel compelled!

[sarah lacy]

@jared: i agree with you. there does need to be an exit strategy. but the point is that particular worry is premature when you are a venture capital firm (ie "risk" capital) looking to invest in this early of a stage. 90% of the biggest exits in VC history had no clear business model (google included!), no clear exit. VCs who invest with that in mind perform poorly because they don't fund break out businesses. that's why it's a home run business. 3/4 of VC startups outright fail. that doesn't mean they should have never been tried though. that's the nature of the asset class. it's not a public market investment or a bond investment.

[Zenophon Abraham]

Hey Sarah,

I'm not sure Twitter's ability to raise money is the perfect barometer of its potential success as a revenue generating business, so much as it's worth as a company to flip. I think some of the posters here are missing the point in that Twitter's future rests in it's growth as a social media tool for business, but it has to catch on with a mainstream audience.

[Andrew Goodman]

I'm surprised @ @jared's raising Skype as an example here. All that value impairment writedown stuff obscures the fact that Skype is doing amazingly well today. Companies light on revenue have been valued in the billions - I suppose on the premise that the revenue will eventually follow. Skype has over 300 million users and is gaining ubiquity. It at least has some revenue. :) I have no idea what Twitter's going to do, frankly. :)

[Jimmy]

So that's why they fired two guys at twitter last week.

[sarah lacy]

@jimmy: actually the best startups fire people constantly, particularly as they have scaling problems and growing pains, which twitter is. doesn't mean they're not worth money. do you have any idea how many people come and go from facebook? and most people would say they're the most highly valued private company in the valley right now. that's part of a CEOs job at a startup-- to make tough decisions like those fast. it sounds weird i know, but it's frequently a sign of *good* management. thanks for the comment!

[SutroStyle]

It's not the companies that loaded on cash in 1999 that survived 2001, it's the companies that figured out how to make money by 2002 (including google and ebay and craigslist with no vc funding).

Too many people in the Valley now play games, like high school students play model UN: they role- play business women, founders, VCs. This bs will get sorted out by 2010. My prediction that Twitter and delicious will be long forgotten.

[Peintros]

With this third round of funding it gives twitter a market value of $60 million, but its still far off the $150 million target that twitter wanted to achieve.

Moreover, there are still questions about the economic model adopted by twitter. Time will tell...

Peintros

http://web-ebiz.blogspot.com