Twitter Now Valued at $3.7 Billion

And it receives $200 million in new funding

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On Wednesday, Twitter announced that it will receive $200 million in funding financed by venture capital firm Kleiner Perkins Caufield & Byers and existing investors. The deal puts the value of the social-networking site at $3.7 billion, above the $1.7 billion April valuation of Groupon (this was before Google tried to buy it for $6 billion) but still far below the $45 billion estimated value of Facebook. The site, through its official blog, also announced two new members to Twitter's board of directors: Mike McCue, CEO of the app Flipboard, and DoubleClick CEO David Rosenblatt. Although the infusion of funds signals the growth of a company and increased ability to maintain its servers (without the "endless fail whales"), reporters aren't certain about it's overarching business strategy:

  • Twitter Is Essentially Declaring It's Not For Sale, writes Kara Swisher at All Things Digital, who was the first to report the announcement. "A big slug of cash will surely help the start-up's expansion efforts and essentially declares it is not for sale to bigger companies such as Google (quite yet, that is)," Swisher notes. The firm Kleiner Perkins had been "pushing hard" to fund the social networking site, "beating out Russia's DST Global." Past investors of the company include names such as Benchmark Capital, Union Square Ventures and Spark Capital.
  • The More Money It Raises, the More Pressure It Has To Show a Profit, figures Austin Carr at Fast Company. With so many new accounts being opened, the site has been drowning in its "fail whales," indicating that the servers have been drowned in traffic. But while this new infusion of capital is necessary, the company "can't ride the heels of funding rounds forever--nor be valued in the billions--if it can't prove a steady revenue stream," Carr observes. "Leaked financial documents show Twitter projects revenues of $150 million in 2010 and $1.54 billion by 2013. Will Twitter reach these goals?" And a lighter question: "Since an estimated 3% of all Twitter traffic is Justin Bieber-related tweets, how much of this $200 million is going toward Bieber fan upkeep?"
  • Why Mike McCue Joined Twitter's Board of Directors  Pascal-Emmanuel Gobry at Business Insider summarizes the insights that tech blogger Robert Scoble shares about his conversation with Mike McCue and offers up his own rationale why Twitter signed on the founder of the iPad app Flipboard to it's board of directors. "To sum it up, it's all about media, and therefore advertising ... Focusing on its media assets might help Twitter establish itself firmly in the mainstream, which it is struggling to do, and attract more brand advertising," Gobry writes. Scoble's background with Flipboard helps because, "in a sense, Twitter and Flipboard are doing the same thing, albeit in very different ways: aggregating a bunch of online and social media and trying to invent a new advertising model around it." Another natural reason why McCue was chosen may also be because he's been "involved for over a decade with Twitter's latest investor, Kleiner Perkins, which doesn't have a seat on the board."
  • This Is About Kleiner Perkins Regaining Its Cachet as an investor in "hot" tech properties, notes Om Malik at Giga Om. "There was a time when white-shoe venture capital firm Kleiner Perkins Caufield & Byers was the first money in hot new start-ups that defined categories," finds Malik, citing the firm's involvement with Netscape, Amazon, Google and @Home Networks. Now the "best" it can do is pay a "massive" premium to snatch up four to five percent of Twitter. "KPCB is taking a sharp hairpin turn at a high speed as it tries to shift its investment momentum away from clean tech to Internet and digital media investments," observes the writer. He, too, notes that Twitter can use the funds, as "it hasn't quite figured out where its sales (and profits) are going to come from."
  • Is This Just the Latest Sign of Another Tech Bubble?  Patricio Robles, a tech reporter at Econsultancy, hedges on that question. "In my opinion, we do have a bubble, but it's not like the .com bubble that formed in the late 1990s. That bubble was fueled by premature and unrealistic expectations about what the internet was capable of at the time, and which business models would win out," Robles writes. Yes, some investors are "probably overpaying" for their investments, but many still recognize "the importance of the trends that have powered the rise of the Twitters, Groupons and Facebooks of the world." And on Twitter's latest valuation? It may have "a steep hill to climb to create a business model," but "there can be no doubt that the type of communications platform it has built is impacting the way consumers and brands interact online."

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