As far back as November last year, Digital Sky Technologies founder Yuri Milner was dropping valley-sized hints about investing in Twitter. Speaking at the Web 2.0 conference in San Francisco, Milner said Twitter was one of 25-30 firms that would fit DST's investment strategy, which is to support international companies in the social internet space with valuations of at least $1bn.
Photo by Wayne_Parrack on Flickr. Some rights reserved
At the time, he wouldn't directly comment on whether the two were negotiating a deal, but after months of speculation Twitter last night confirmed that DST has invested. A brief mention in a blog post didn't mention the valuation or the investment amount, but AllThingsD confirmed previous reports that DST invested $800m at a valuation of $8bn. $400m of that investment will be allocated to current investors and employees, who want to see a cash return ahead of an initial public offering that still is likely to be at least 18 months away.
From the official Twitter blog: "We've come very far in a short time. Now we have an opportunity to expand Twitter's reach with a significant round of funding led by the venture firm DST Global, with the participation of several of our existing investors. We will use these resources to aggressively innovate, hire more great people and invest in international expansion."
Note that very interestingly, Twitter's post also mentioned that while 150,000 external services connected to Twitter this time last year, that has now risen to more than 1m services. We assume that means services that use Twitter IDs as a login, as well as full-blown apps, like TweetDeck and those faintly amusing 'when did I join Twitter?" diversions that require a one-time log in. The post added that Twitter now processes 200m tweets a day, and employs 600 staff.
Total investment in Twitter: $1.16bn
DST's investment is hot on the heels of another $200m last December from Kleiner Perkins Caulfield & Byers, Benchmark and Union Square - that valued Twitter at $3.7bn. By revenue multiples, the DST investment is extremely generous, valuing a firm with estimated annual revenues of only $200m at $8bn.
It brings Twitter's total investment to just over $1.16bn in four years.
Photo by akk_rus on Flickr. Some rights reserved
DST has become increasingly influential in the tech space, though Milner himself is something of an enigma; despite a small number of investments, they have all been for extremely large sums.
Also at Web 2.0, Milner said that 80% of DST's investments are made through secondary markets, such as SecondMarket and SharesPost, which have become increasingly popular for employees of firms like Facebook, for example, who want to release some value from their shares and don't want to wait for the company to float.
DST reportedly invested $300m in Facebook and the biggest chunk of a $180m-round in Zynga in 2009, $4m in online gaming firm Nival in 2010 and $40m in Airbnb this year.
Milner bluntly avoided saying anything interesting at all when Mike Arrington at TechCrunch tried interviewing him in January, though in a 2009 interview he did comment on why DST appears to jump into vast investment projects at valuations that make other venture firms blanch.
"We have a very unique perspective on social networking monetisation that other investors don't necessarily see," said Milner. "We have seen how social networks are monetised in our part of the world. We do our maths and come out with numbers that we feel comfortable with going forward. We don't really value [businesses] on the basis of 2009 but the longer-term curve based on our experience."
Promoted tweets go live
Chief executive Dick Costolo has been tightening Twitter's business for several months trying to increase revenues. Initially that meant restricting third party developers so that Twitter could claim control of any potentially revenue-making services, but the service has also been expanding the services that allow brands to formally advertise.
A few days ago, to supplement the existing 'promoted accounts' and 'promoted trends', Twitter added 'promoted tweets' to the mix. Much along the lines of sponsored links in Google search results, promoted accounts charge brands for a premium spot on the 'who to follow' box, promoted trends put a hashtag at the top of the trends box and, you've guessed it, promoted tweets put highlighted tweets at or near the top of users' streams.
Launch partners include Starbucks, XBox and Virgin America, though crucially users will only see promoted tweets if they are already following that brand and they will only appear once.
Milner aside, there is no consensus on whether the tech market is witnessing the next bubble. A recent survey by accounting firm BDO found that 75% of investment bankers think multi-billion tech valuations are over-inflated, while more specialist investors seem to think the scale and commercial foundations of the biggest mobile and social firms is proof enough of viable businesses.
"Take a look at the underlying business performance of any of these companies and it would suggest that we're not in a bubble - Facebook, Zynga, LinkedIn, Twitter - in revenues and profits it's unprecedented," Kleiner-Perkins partner Chi-Hua Chien told Andrew Keen on TechCrunch. He goes on to explain how Web 1.0 took physical services and reinterpreted them online, and that Web 2.0 will 'socialise' every vertical market.
Perhaps the parameters for valuing companies need redefining for this new era to include an 'optimism' factor, based on user numbers and ideas that sound like they might be able to make money one day. Either that, or California (and Moscow) are trying to out-posture each other and have hopelessly poured money into companies that they will never see again.
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Source: http://www.guardian.co.uk/technology/pda/2011/aug/02/twitter-facebook
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