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Twitter Valuation Revealed
Twitter has decided that now is definitely not a good time to think about the horrific realities of making money. Instead, they have opted for raising another $50m of venture capital, giving it another year or two to contemplate monetisation strategy and how they intend to realise their potential valuation – which incidentally is now up from $250m at last round to $1 billion.
So what are these investors actually investing in? Twitter currently has no obvious business model, no tangible revenue stream and many people are speculating as to the companies’ plans. According to co-founder Biz Stone Twitter currently keeps the lights on with interest and gently sipping on the some $30m apparently left clinking about in their piggy bank. Great work if you can get it.
But this is where the Twitter execs may be smarter than people give them credit for. Let’s look briefly at some of the biggest acquisitions in recent years by big web business. YouTube, Facebook and Hotmail way back in 1998 were ALL pre-revenue and sold as such for a good reason. The Facebook philosophy adhered to the attitude of ‘if we build it, they will come (and so will the money...’. Ultimately, the long-term success of each of these examples relies on their ability to create a valuable and ‘sticky’ service for users. With the decline of TV, print media sales and traditional forms of advertising, marketers desperately need Facebook and Twitter to reach out to their audiences.
Investors and VC’s acquire technology start-ups pre-revenue, opting to create a valuation based on projections and optimistic estimates on what could be made. Once the revenue streams are activated, this valuation-on-fabrication becomes removed and what the business is actually worth becomes clear. It’s hard to sell a business based on potential when many of the available avenues are closed or already in operation. In essence, if Twitter try to monetise the service and it fails, this will dramatically reduce any potential valuation.
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