All of a sudden, I feel like Tech Crunch (3 posts back to back to back on Twitter). Anyway, here is an interview with Twitterville author Shel Israel conducted by WatchMojo.com’s CT Moore.
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WatchMojo NewsletterI am not being sarcastic, but Twitter’s $100M funding round at a $900M pre-money or $1B post-money (hmm… does that detail really matter now) makes a lot of sense.
Twitter’s valuation is a perfect:
- manifestation of market supply and demand and
- reflection of the wanton destruction of old media companies and the fact that digital media has overtaken traditional media for good.
Searching for Hits
Over the past few years,
- MySpace stole Friendster’s thunder (if it could be called that) and was acquired by News Corp. for $580M
- then YouTube stole MySpace’s thunder (by piggybacking on MySpace) and it was acquired by Google for $1.65B
- then Facebook also stole MySpace’s thunder (by now a 60W lightbulb, mind you) and it turned down acquisition offers ranging from $800M to $2.3B, ultimately raising over $500M in capital and valuing itself at $15B courtesy of Bill Gates and Steve Ballmer.
While that valuation seemed crazy and Facebook might not ever sell raise money at that valuation - let alone sell for that amount - the recent crossing of 300M users, revenue figures over $500M per year for 2009 and rumored profitability (albeit brief or accounting-driven) suggests that Facebook did the right thing (yes, I admit it). After all, despite all of the naysayers, it did raise another $200M from Digital Sky Technologies at a $10B valuation.
Yes, $10B is 33% off the $15B MSFT valued it just last year, but that was last year. Last year, $5B was a rounding error, even for MSFT. This year, CBS as a whole is worth $5B (ok, so right now it’s $7.5B). While we’re at it, guess how much CBS was worth last year? Yep, that’s right: $15B. That has more to do with systematic factors in old media than CBS, mind you, but still.
But the main point I want to make is, in hindsight, Facebook has to its credit proved a lot of naysayers wrong - at least if we limit history to the period between 2008 and 2009.
Sure, in 2010, Facebook might hit a wall and it might never generate the kind of returns one expects a $10B-$15B valued company to generate… but that is not their main concern now.
And sure, Facebook might never IPO. But the point is, when someone comes to you with $50M or $100M and is willing to invest at any valuation, I am not sure you can blame anyone for saying “nyet”. Though as a fellow entrepreneur who has yet to succumb to VC money and/or crazy paper valuations, I whole heartedly agree with Bill Gates and Zoho’s Sridhar.
So back to Twitter, regardless of the lack of business model, the demand for the company’s stock far outstrips supply. This is why the company’s raised more and more money regardless of the answer to “how will they make money”.
In fact, I can attest that the main problem I have encountered when pontificating with VCs is specifically being able to paint in very clear and candid terms how our company makes money now and how it will make more of it. And therein lies the reason why Twitter is backing up the truck and looting the bank. The instant Twitter dives into “monetization”, investors will have to put down their bongs and start to value the company on an accounting basis, whereas right now, it’s all finance.
In finance, the formula for Total Return is simply
Return = Income Gain + Capital Gain
Income Gain includes like dividends. No self-respecting web company- including cash-rich Google - pays out dividends.
The Greater Fool Theory
So investors - be it private or public ones - make money on the Capital Gain, which calls for a stock to be worth more tomorrow than it is today. Judging by the sharp rise in capital invested in Twitter in such a short time span, the investors are basically betting that traditional media will continue to shrink, new media will continue to grow… and there will be more investors looking to ride the Twitter train:
A hat tip to Crunch Base for the valuation and funding info.
Twitter is once again following in Facebook’s footsteps and raising a lot of money before focusing on revenue…
To be perfectly fair, if Facebook’s $500M 2009 revenue figure is correct, it might not be that bad of an idea. However, this means Twitter will ultimately have to IPO because with a $1B paper valuation, getting any kind of return in an M&A will be unlikely. Sure, some tech companies like Google, MSFT, Cisco and Apple have a lot of cash on their balance sheets, but with most media buyers being battered and bruised, I am not sure if an M&A is in the stars.
So if an IPO is the long term bet, then it’s fitting to see T. Rowe Price joining Insight Venture Partners to pony up the $100M to Twitter’s war-chest.
T. Rowe Price previously invested in Slide’s $500M round, so I guess this new Twitter investment is either
- proof that they are happy with their Slide investment despite what some of the cynics were saying,
or
- an example of poor diversification in every sense of the word.
Is the success of a startup positively or negatively correlated to the quantity and quality of its advisors?
Dopplr is headquartered in London but owned and operated by Dopplr Ltd. in Helsinki, Finland. The service is based on the idea of “intention broadcasting” where you publish your intention to visit somewhere in the future, thus making happy coincidences in your social network less and less coincidental (and thus happier, more efficient). Where or from whom the original idea came from is lost in the mists of time (perhaps someone can enlighten us in the comments?).
Anyway, the purchase price is said to be between €10 million and €15 million. We first covered Dopplr in 2007 when it closed on seed funding.
Supposedly it has raised just €1.25 million or so in total funding although exact figures were never announced, even though they assembled a stellar groups of backers who have much deeper pockets than that.
Get a load of this: Martin Varsavsky (FON), Joichi Ito, Reid Hoffman (LinkedIn), Saul Klein (TAG), Esther Dyson (Angel), Tyler Brûlé (Meeja), Thomas Glocer (Thomson Reuters) and Lars Hinrichs (Xing). I mean, good grief, most startups would kill and maim to have that kind of board. As good as this purported exit is, clearly these people thought Dopplr would go way, way bigger than a €15m exit.
Read more. Obviously, I think it’s great to have advisors (and angel investors) but sometimes:
- to win those people over you have to agree to things you might not really agree to.
- you end up getting this false sense of hope that these folks will actually help, when more often than not, what you get is great advice, of which 10% is relevant to you or practical.
- realistically, if you need the cash, angels are great… but if you don’t need the cash, raising money from angels is almost harder and more frustrating.
Let me give you a personal anecdote:
I have a number of great informal/unofficial advisors. What I lack however are a lot of media-centric advisors.
There are a few existing media executives that I chat to, some of whom are clients, suppliers, competitors in fact. But when it comes to the traditional angel/advisor role, most of the people I count on as advisors are either general businesspeople, technology guys or entrepreneurs in other fields.
I’ve always wondered why media angels or advisors have proven elusive and I think I know why.
Media-savvy angels (former executives of big media companies basically) have seen first hand what technology did to traditional media, so they are now more apt to invest (be it time or money) in tech startups, and not content, even though we are disrupting traditional media even more profoundly than tech startups are (in some ways).
So despite the fact that we ourselves are a disruptor as a new media company, a lot of the media advisors I would love to have on board retain fairly entrenched mentalities as “old media types” and are drawn to tech plays, which is fine and a motif in my life as the founder of WatchMojo.com.
Dopplr was a social networking site focused on travel. To see how we disrupt the media pillars through video content, check our travel channel here.
