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.