I thought VC money was funding to build your idea before you had enough revenue from your users. Twitter is built, has millions of users and still need funding to continue? When is the honeymoon over?

Apparently never for the chosen few.

The reason to take sell equity in your company for capital is that you believe that your company requires that captial (usually to expand capacity or acquire resources), and that equity is the cheapest way to get that capital.

That's almost certainly true of Twitter right now.

Anytime you raise capital by selling shares of your company, you're doing so because you believe with that money you can make your existing shares worth more, in some reasonable amount of time.

With this infusion of cash they can now expand much quicker and, in turn, increase the overall value of the company. The goal when taking VC/investor money is to either raise your remaining shares' value by more than the money taken (even better: more than you would have increased it without the capital), take some cash for yourself, or some mixture of both.

It works both ways. The folks buying the shares believe that Twitter can put that money to good use, thus increasing the value of the shares they've purchased.

While it's easy to hate Twitter because their idea is so simple, yet profound, and because you personally aren't involved with them, they have a lot of options ahead of them and their growth is phenomenal.

Finally, it's easy to criticize when you're not putting your own money on the line. VC's, if they want to stay in the business, need to put their money where their mouth is. They wouldn't invest such huge amounts at a high valuations unless they thought it was worthwhile. They likely demanded details on plans for profitability, and/or know a lot more about what's going on than you (or any of us) do.

You can't really rely on VC money forever, at some point someone will actually want a business model.

IMHO I'd be really surprised if anyone buys twitter, but who knows. If someone does, it'll probably be another VC backed site with no business model either.

You understand that with a 250M valuation, the sale is going to have to be at 500M minimum. What "VC backed site with no business model either" is going to be able to afford that?

Don't know where do you get that understanding from. Google's current market cap is 112B, its total revenue (2008) is 21B. It used to be that price/sale ratio is 10 for startups, which means they need 25M revenue to be valued at 250M. Even if P/S is massively compressed these days, they still only need about 50M to worth that valuation. 50M sale for twitter given the usage is definitely feasible.

Good point, idk facebook? :/

The real time reporting of news is a very interesting thing, as well as their real time search results. There are multiple ways a company like Google could use that.

There is also the communication aspect, etc. that lots of companies would be interested in (i.e. communicating with users for web companies).

If you don't see business models for Twitter, you're not thinking hard enough. There are plenty of ways for them to make money.

Well, look at youtube, bleeding money until the buy-out. The VCs investing there did fine iirc.

Sometimes losing money and gaining marketshare is a valid strategy, but you have to be reasonably sure you have a winner and you have to have a pretty good idea that you will be bought out.

I wonder how much equity the founders have now.

About 15% less than they had before this round.

But still enough to get rich...again.

just goes to show, that its much easier raising cash when you don't need it

When you're spending money like there is no tomorrow and you still have to really find your business model I don't think that qualifies as being in a state where you don't need external cash. Twitter needs it worse than a junkie needs a fix, without external money flowing in they would probably not last another 6 months.

Twitter is growing significantly and will continue to grow in order to reach mainstream usage, but that requires expanding their infrastructure and hiring more employees - hard to do without additional funding.

BREAKING: Twitter files to become a bank holding company, in line to receive TARP funds. MORE TO COME /siren

Just when I thought it couldn't become any more ludicrous...

Have they gone to plaid?

What are they going to spend this money on?

My guess is that they aren't, by and large. This is a recession-insurance round, to make sure they have all the runway they need even if things get so fucked that their first shots at revenue generation don't take.

Fair enough... But what have they spent any money on thus far? They have a small team and a bunch of servers. I'm having trouble placing the need for this amount of money plus the other rounds.

To follow up... According to their crunchbase page they have raised $55M. Their website says they have 33 employees (more then I thought).

For all the comments about twitter being a money burning machine, you have to admit they are in many ways "upstream of revenue" (http://www.paulgraham.com/good.html - second paragraph under examples). They have a lot of users. That's only half the equation, but it's one more half than most companies have.

second that. I personally don't even 'get' twitter but I'm happy they got their investment and I'm sure that if they play their cards wisely they'll do just fine.

Everybody that is second guessing them here should go and prove that they can do a better job, for now the twitter folk are doing a better job than 99% of anybody bitching about them. You wished you were in the possession of even a small share of that money burning machine. They've been very selective about the rate at which they dillute which is showing quite a bit of restraint, they've already rebuffed several buy out offers so it looks like they know what they're doing and they are playing their cards very close to their chest.

Watch and learn.

So it's somewhere between $7-35 per active user?

Is Twitter actually just money burning machine?

No! It also allows you to tell the world what you're doing - in 140 characters or less..

Twitter is in the news a lot. At the Davos summit it seemed to be the only positive story in the entire world (twitter being used by legit journalists). It just works for a whole lot of folks. I suspect the new investors current opinion is that they just got the best deal of 09.

Twitter's blog entry on this news:

http://blog.twitter.com/2009/02/opportunity-knocks.html

This twitter business is a joke. Over-hyped much?