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Twitter's much-hyped $100 million round of financing closed Friday, cementing the company's (illiquid) value at $1 billion, though Twitter itself would not confirm the amount. T. Rowe Price and Insight Venture Partners participated in the deal, as expected, which is believed to be a precursor to an eventual liquidity event -- such as an IPO or acquisition.
In a way, it feels like 1999, where you have investors rushing to invest in high-profile companies, despite the absence of revenue models. Yet, Twitter may not be as bad off as the traditional folks think, especially if the goal is an acquisition. The company does say that it's pursuing revenue via corporate accounts. But, it's been saying this for a while, and we haven't seen anything yet. Also, it's leaving open the possibility of running ads on the site, though this wouldn't happen within the next three months.
If Twitter's investors sell the company to an acquirer, the absence or infancy of a revenue plan may not be an issue, especially if Twitter's routing of traffic can feed revenue in other parts of the acquiring company. Essentially, Twitter may not make its new owner money, but it can help the new owner to make money in other parts of the company. That could work ... with the right buyer.
The IPO case is tougher, of course. If you're selling to the public, you need revenue. And you need profits and cash and growth and a strategy and all kinds of other stuff that Twitter doesn't seem to have. It probably won't anytime soon.
Most agree that the acquisition exit strategy is more likely, with established internet media companies such as Google (NASDAQ: GOOG), Yahoo! (NASDAQ: YHOO), and Time Warner's (NYSE: TWX) AOL considered likely suitors.
The upside that the latest investors see in Twitter -- along with what must be hopes for a liquidity event -- is not shared universally. Early backer Union Square Ventures took a pass on this one.
In its previous round of funding, Twitter was valued at $250 million.
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