July 21, 2011

Twitter Close To $800 Million In Funding

Microblogging network Twitter is close to completing an $800 million funding deal valuing the company at about $8 billion, according to All Things Digital.

The round of funding is expected to be completed within the next several weeks and is comprised of two parts: a $400 million investment in Twitter and $400 million to cash out investors and employees, according to the site.

The new valuation would be more than double the network's valuation when it last raised cash in December. It was then valued at $3.7 billion after a $200 million fundraising deal led by Kleiner Perkins.

Along with basic funding needs, the funding deal is largely being done this way to give those with stakes in Twitter an ability to monetize their privately held common stock and also to do this selling in a more organized fashion.

That is especially important since the company is not likely to go public for at least a year. And, while it could also be sold to a larger company such as Google, that is not in the company's immediate future.

The first part of the deal, reported on by the New York Times last week, will be a $400 investment for preferred shares by new and existing shareholders. Once the latest investments are complete, Twitter's total cash haul since being founded five years ago will be $760 million.

Key new investors are expected to be Russian investing firm DST Global, which has also invested in Facebook, Zynga and Groupon; and digital growth fund JP Morgan, and perhaps others.

Twitter's current investors include Benchmark Capital, Union Square Ventures, Spark Capital and several others. The latest round of funding is important for Twitter and will pressure the company's management, including CEO Dick Costolo, to gear up the business and start bringing in more revenue and profits.

Twitter is currently working to build revenue, primarily through advertising.

It began offering advertising on its services in April 2010, and is expected to generate around $150 million in ad revenue this year, according to estimates from research firm eMarketer.

Costolo on Tuesday called secondary markets a "distraction."

Costolo, speaking at a conference in Aspen, Colorado, said he expects private companies will increasingly enact policies to restrict the trading of their shares on those unregulated exchanges.

Twitter is still struggling with developing a lucrative business model, and its executives have presented a number of possibilities, such as promoted tweets, largely based on advertising.

The company reportedly has $200 million in annual revenue from its efforts, which is small compared to other Web 2.0 startups.


On the Net: