LOS ANGELES--Twitter didn't rake in $100 million because it was about to run out of money, investor and board member Bijan Sabet of Spark Capital said in a panel at the 140 Conference on Tuesday morning.
There was still money left over, Sabet explained, from what the company had raised from Benchmark Capital and Institutional Venture Partners in February, which followed Twitter's Series C round in the spring of 2008. Twitter, according to Sabet, raised the money from Insight Venture Partners and T. Rowe Price last month because it wanted to grow up: hire new people, launch new products, strike partnerships, and the like. Contrary to Twitter's reputation for "fail whale" errors, Sabet insisted that the money wasn't needed for an emergency server shopping spree or anything. (Some may disagree.)
"The expectation when you raise a lot of money, it's a statement that you want to build a company, an independent company," Sabet said when moderator Robert Scoble asked him what he thought of the fact that Twitter has not yet put forth a long-term business model. "We didn't need the money...it was a very purposeful kind of commitment to try to make a company."
A billion-dollar valuation is pretty nice to have, too.
A correction was made at 2:13 p.m. PT: a source with knowledge of the deal confirmed that Twitter's April 2008 and February 2009 rounds of funding are considered to be separate rounds.
MOUNTAIN VIEW, Calif.--Among the tech industry's up-and-coming, ad-supported business models appear to be out of fashion. Or at least that appears to be the trend among the companies that just graduated from the annual Boulder, Colo.-based incubator program TechStars. Representatives from some of those start-ups convened for an "Investor Day" at a Microsoft-owned auditorium here on Wednesday morning.
Founded by venture capitalists David Cohen and Brad Feld three years ago, TechStars accepts a total of 20 participants in both Boulder and Boston for a summer of development, seminars with industry veterans, and a small amount of seed funding. Thirteen of those 20 companies were advanced enough to earn spots at Wednesday's Investor Day, in which they offered short presentations to more than 100 members of the venture capital community who are actively interested in making early-stage investments.
And not a single one was offering a strictly advertising-supported business model, something that would've been pretty unthinkable not so long ago.
"(These companies) are the future of the entrepreneurial ecosystem as it evolves," Feld said to the audience midway through the morning. "We think these are all very fundable companies. In fact, most of the companies that you're seeing today are either well down the path of closing financing, or have closed financing, but for many of them there's still room."
Unlike the TechCrunch50 start-up pitch event earlier this month, none of these companies were actually launching out of a total stealth mode. Some had already experienced a sort of PR blitz--travelogue site Everlater generated some buzz when people were using it to map their plans for airline JetBlue's "All You Can Jet" promotion, and unofficial Twitter app store OneForty experienced the usual tech-blog mayhem earlier this week when it launched in private alpha and set off a flurry among the early-adopter crowd as people scrambled for invites.
But like TechCrunch50's array of start-ups, most of the TechStars lineup had productivity on the brain. Gaming and entertainment companies were limited to TakeComics, which aims to bring an iTunes-inspired business model to the digitization of comic books, and AccelGolf, a decidedly hardcore set of mobile and Web-based applications for avid golfers.
Business-focused applications were far more commonplace. Retel Technologies has built security-camera software enhanced with data and analytics, NextBigSound tabulates bands and musicians' popularity on social-media and music sites to roll up into a product sold to industry professionals; SendGrid offers e-mail marketing services to businesses at a variety of price points; and HaveMyShift, built by a former Starbucks barista, offers an exchange for hourly employees at major chain stores to swap and pick up shifts.
The companies were a mixed bag, and so were the entrepreneurs behind them: many fell into the young-entrepreneur stereotype of puppy-faced young men who could use a haircut along with that seed funding, but others strayed from the norm. OneForty's Laura Fitton is already a respected Twitter consultant; Raj Aggarwal, CEO of mobile data start-up Localytics, is an Apple veteran who had helped construct the original business model for the iPhone; and the founders of mobile contact management company Sensobi professed to earlier entrepreneurial experience in the chocolate industry.
Of the entire lineup, Everlater--founded by two childhood friends who had quit their Wall Street jobs to found the company--offered the closest thing to the typical ad-supported consumer model that was so ubiquitous in Web 2.0's heyday a few years ago, and even still, the founders plan to sell customized scrapbook and postcard products as well as offer branded packages to travel companies hoping to get their name out there.
A few other TechStars presenters said they hoped to use a free, ad-supported model as an entry point for the subscription services where they plan to make more significant money: video-based language learning system LangoLab, for example, hopes to strike deals with online video hubs like Hulu and then charge for access to lessons based around that "premium" content, and open-source forum software Vanilla charges for the hosted version of its product.
Granted, these business models still have their pratfalls: namely, the fact that they actually have to find individuals or companies who are willing to pay, something that often requires the formation of a solid marketing or sales department before profits can start to roll in. That was why many of them said they were looking to close early-stage funding rounds soon.
But those solicitations for funding were not lofty. Almost all of the TechStars presentations provided a target amount that they were seeking for their angel or Series A rounds (a few had closed rounds already), and the vast majority were south of $1 million--far south, in some cases.
Twitter just closed a massive funding round that reportedly has given it a billion-dollar valuation. Meanwhile, co-founder and chairman Jack Dorsey is making investments of his own: he's one of the undisclosed angel investors in geolocation start-up Foursquare, quite a few sources have told CNET News.
News of the New York-based Foursquare's venture round, led by Union Square Ventures, leaked earlier this month via an SEC filing. A source with knowledge of the deal's terms said that about $200,000 of that $1.35 million in funding was taken up by the angel investors, including Dorsey, but that there are quite a few hats in the ring so none of them has a particularly huge stake in the company.
Foursquare's executives have chosen to keep the names on the list quiet.
Twitter and Foursquare already have an investor in common: Union Square Ventures, which participated in Twitter's Series A and B rounds but sat out on the most recent one. AllThingD's Peter Kafka speculates that a $100 million funding round may have been out of the question for Union Square, which specializes in early-stage investments.
Jack Dorsey, meanwhile, was Twitter's inaugural CEO, but stepped down in favor of fellow co-founder Evan Williams, a more seasoned tech industry veteran, about a year ago. Dorsey remains an important face of the company even as he works on his next company, reportedly a mobile payment gadget start-up code-named "Squirrel."
A source with knowledge of New York's start-up scene says that Squirrel's real name will actually be "Square." No relation to Foursquare. We think. (Dorsey wasn't immediately available for comment.)
Side note: Squirrel, or Square, or whatever its final name is, may be headquartered in New York rather than the Bay Area. That may have been what set into motion some erroneous rumors this month that Twitter itself would be relocating to New York. Twitter's definitely hunting for new office space to house its rapidly growing workforce, we hear, but it's staying in its home city of San Francisco.
But back to Foursquare. What's interesting is that Twitter's application program interface (API) will soon expand to include geolocation data, something that could potentially make it compete with the core business of Foursquare--a tiny start-up that was basically built from the ashes of ill-fated Google acquisition Dodgeball and launched this year at the South by Southwest Interactive Festival. Dorsey's investment is obviously personal, not on behalf of Twitter, but now he's got a stake in both companies' success.
UPDATE at 8:26 a.m. PT: This post was updated to clarify that the name of Dorsey's new start-up may be "Square."
UPDATE at 12:16 p.m. PT: Business Insider reports that veteran angel investor Ron Conway is also one of Foursquare's numerous individual investors.
Seriously, how much is Facebook worth? It's been an enigma in tech gossip for years now, as the social-networking company grows bigger and bigger and yet remains privately held. And some of Facebook's most rapid growth has taken place in the midst of a stormy economic climate that could batter any company's balance sheet. So here's a rundown of what tech blogs, news outlets, investors, and Valley gadflies have said thus far about just how much Facebook is worth.
Are all these numbers accurate? In a word, no. Some of them were rumors (albeit decently strong ones, as we've omitted some of the more ridiculous ones), and others refer to Facebook's preferred-stock valuation, which as we learned during its legal tiff with onetime rival ConnectU, that isn't necessarily anywhere close to the company's paper valuation.
One thing that's interesting: Take a look at the trajectory. Facebook's perceived valuation keeps climbing and climbing and climbing right up to its $240 million investment by Microsoft. Then, once the hype dies down (and the market starts to sputter) it tanks. It's not until, perhaps not coincidentally, the departure of chief financial officer Gideon Yu and the stronger likelihood of a new investment round that Facebook's valuation starts to climb again.
What's next? Digital Sky Technologies' investment in Facebook assumed a preferred-stock valuation of $10 billion, and employee stock trades have started at about a $6.5 billion valuation. It's not yet clear how much more the company's worth will fluctuate before, at long last, founder and CEO Mark Zuckerberg and his team decide to take it public. That is, of course, assuming that actually happens.
| Playing the Facebook valuation game Everyone's constantly talking about how much Facebook is worth. But how much has that number changed over the past few years? A lot, it turns out. Here's our cheat sheet.
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| Few thousand | February 2004: Backed by a few thousand dollars from its co-founders, Facebook goes live as a small, minimalist social-networking site limited to Harvard undergraduates. |
| $10 million | June 2004: PayPal co-founder Peter Thiel becomes Facebook's first outside investor. He invests $500,000 into the 4-month-old social network, which has by now taken its home base of Harvard and a scattering of other elite colleges by storm. Later that year, there are shaky rumors that Friendster--still a major player in U.S. social networking at the time--offered $10 million for Facebook and was turned down. |
| $100 million | April 2005: Facebook raises a $12.7 million Series A round of funding from Accel Partners. Rumors peg its valuation at about $100 million. |
| $750 million | March 2006: BusinessWeek reports that Facebook turned down a $750 million acquisition offer and was shopping itself to potential buyers at closer to $2 billion. |
| $525 million | April 2006: Facebook raises its Series B round of funding to the tune of $25 million. The round is led by Greylock Partners, with contributions from Meritech Capital Partners, and prior investors Accel Partners and Peter Thiel. The company's pre-money valuation is reported to be $525 million. |
| $1 billion | September 2006: Rumors--which are later confirmed--start to swirl that Yahoo has offered to acquire Facebook for as much as $1 billion. |
| $8 billion | December 2006: Early Facebook investor Peter Thiel, who fueled the small social network with $500,000 in June 2004, tells Bloomberg that he believes the company is worth as much as $8 billion but says it is not for sale. |
| $15 billion | October 2007: Microsoft invests $240 million in Facebook at a $15 billion valuation. Although it's not really made clear at the time, the company later clarifies that this investment was in preferred stock and that therefore $15 billion is not the company's actual valuation. |
| $3.75 billion | June 2008: Previously redacted court documents from ConnectU v. Facebook, the trial in which the creators of a onetime rival social network at Harvard sued Facebook CEO Mark Zuckerberg--claiming he stole their code and business plan--reveal that at this time, Facebook valued itself at $3.75 billion. |
| $4 billion | August 2008: Reports surface that Facebook, with early employees growing restless about stock options that they thought they could've cashed out by now, is about to launch a program to permit the sale of some vested shares. The internal valuation is said to be $4 billion. By the end of October, rumors start to spread that chief financial officer Gideon Yu was spotted in Dubai, supposedly to drum up interest from new overseas investors. |
| $3 billion | March 2009: Months later, the Silicon Valley rumor mill still won't stop talking about employees' private sales of Facebook stock--and apparently, the numbers aren't too pretty. The figures tossed around indicate that the stock is trading at a valuation well south of $3 billion. Later in March, Facebook CFO Gideon Yu leaves the company. Persistent rumors hint that he was unable to secure new funding for the company. |
| $2 billion | April 2009: TechCrunch reports that Facebook received a term sheet from potential investors with a valuation of $2 billion and turned it down. |
| $4 billion | April 2009: On the same day, VentureBeat reports that Facebook was on the verge of accepting new funding at a $4 billion valuation, but that Zuckerberg said no. |
| $8 billion | May 2009: The latest rumor is that Facebook turned down yet another term sheet--this one for a $200 million investment at an $8 billion valuation. |
| $10 billion | May 2009: Later in the month, Facebook finally gets that long-rumored cash. The company receives an investment of $200 million from the Russian firm Digital Sky Technologies at a $10 billion preferred-stock valuation. Also included: a plan to buy back a limited amount of vested employee stock. |
| $6.5 billion | July 2009: Digital Sky Technologies begins its buyback of up to $100 million in Facebook employee shares. Each share of common stock is selling for $14.77, which assumes a valuation of $6.5 billion for the company. |
| Source: CNET News research | |
Facebook employees and investors can now sell some of their stock to Digital Sky Technologies, the Russian investment firm that infused $200 million into the social network this spring.
Part of the deal at the time of the investment would be that Digital Sky Technologies would buy back up to $100 million in common stock from shareholders whose shares have vested.
Now, Digital Sky Technologies is purchasing stock at $14.77 per share, which assumes a valuation of about $6.5 billion for Facebook, according to Brad Stone of The New York Times, who first reported the news. That's lower than the $10 billion valuation at which DST originally invested, as well as the $15 billion at which Microsoft invested $240 million in the fall of 2007. But those two figures are considered to be preferred-stock valuations, not paper valuations.
But $6.5 billion is still a higher valuation than a few months ago. Before DST's investment brought some order to Facebook's internal stock trading, an employee at a firm that brokers privately-traded stock told CNET News that some Facebook employees, frustrated that they had not yet had a chance to cash out stock through an acquisition or an initial public offering, were looking to unload stock at a valuation well under $3 billion.
That sort of trading was difficult for Facebook to control. With the DST investment, employee stock sales became more official and easily regulated.
"While individuals must make their own decisions about participating in this program, I'm pleased that the price DST is offering is much greater than the price originally considered last fall," Facebook founder and CEO Mark Zuckerberg said in a statement. "This is recognition of Facebook's growth and progress towards making the world more open and connected."
On the flip side, the relatively low valuation may mean that Facebook employees will be more reluctant to sell to DST. Some may prefer to hold out for the possibility of an acquisition at a higher valuation, or wait until Facebook goes public--something that always seems to be just off the horizon.
Facebook's valuation has been one of the most talked-about numbers in Silicon Valley, especially as the company (reportedly) toys with the idea of an IPO. There were rumors that Zuckerberg had rejected funding that would value the company at $4 billion, shortly after legal documents from the ConnectU vs. Facebook trial revealed that the company then valued itself at $3.7 billion.
And Facebook can look forward to be even more front-and-center in the gossip industry's crosshairs: the alleged tell-all about the social network's origins, Ben Mezrich's "The Accidental Billionaires," hits stores on Tuesday.
Facebook board member Marc Andreessen, who just launched a new venture fund, said in an interview with Reuters (published Monday) that he expects the company's revenue to be in excess of $500 million in 2009, and that in five years it'll be well into the billions.
"Generally speaking, people who are selling their stock in Facebook now are making a mistake," he told Reuters regarding the fact that since an initial public offering is still a ways off, Facebook is permitting some employee stock sales to Digital Sky Technologies, the Russian firm that invested $200 million in the site in May. Andreessen himself is not a personal investor in Facebook, and said that "I probably could have if I had tried hard but I didn't."
If Facebook worked the ad-sales front a bit harder, Andreessen added in the interview, revenue could already be over a billion.
But Facebook has never taken kindly to traditional display advertisements, choosing instead to experiment with "engagement ads" integrated into the social-networking experience--a product it may potentially extend into Facebook Connect's participating sites, which now number over 10,000.
Additionally, Facebook has been working toward an alternative revenue stream with its "credits" system, a virtual currency that for now is restricted to the company's in-house "Gifts" application. Sometime in the not-so-distant future, the Facebook currency system will be made available to developers using the social network's API, which could produce a significant new source of revenue for Facebook as it takes a cut of transactions.
Andreessen--the Netscape founder and Silicon Valley mainstay whose current projects include social-network builder Ning--has been on Facebook's board for just over a year. He joined at the personal request of CEO Mark Zuckerberg, who said at the time that "Marc is an industry leader, and we're fortunate to have him join our board."
Memo to Twitter: If you're really going to be making money with sponsored direct messages, as a New York Times article hints, please make sure it doesn't get annoying.
Twitter investor Todd Chaffee of Institutional Venture Partners told the Times that "e-commerce, including links to products and turnkey payment mechanisms, is a likely revenue stream for Twitter." That's not too surprising. Some companies have touted real success with Twitter-only deals: electronics manufacturer Dell, for example, says it's racked up a few million in sales. Airlines JetBlue and Southwest sometimes advertise special fares on Twitter. It's pretty logical that Twitter would want a slice of this; the catch for the company's team would be how to charge for this sort of thing without taking away features that are already offered for free.
The bigger challenge, however, is not making it annoying. The other day I posted to Twitter about difficulties with my iPhone. I appreciated getting responses from people who were able to inform me that all I had to do to keep my iPhone from skipping songs was to turn off the "shake to shuffle" feature that's new in the iPhone 3.0 software, but I'm not sure if I would want quasi-unsolicited offers from tech support outlets or the like popping up as direct messages in my Twitter feed. Twitter would have to tread very carefully if it plans to be this intrusive--many people receive direct messages as SMS, for example.
Now, there's reason to take the whole thing with a grain of salt, because "sponsored messages" are just the latest potential Twitter business model we've heard about from people affiliated with the service. Last we heard, Twitter was going to be offering some kind of analytics or customer relations management suite for businesses that want to use it more effectively. There have been whispers about search ads, too.
So maybe, when it comes to business plans, Twitter is pretty much throwing ideas at the wall and seeing what sticks. Especially since Twitter co-founder and CEO Evan Williams left a comment on a Business Insider post about Chaffee's remarks that make the whole thing seem much less likely.
"To be clear: Todd is a Twitter investor and a very smart and helpful guy," Williams wrote. "However, he is not actually on Twitter's board and, in this article, he's brainstorming on his own. These are not in the least bit concrete plans of the company."
But if we want to turn to the "juicy gossip" side of things, consider this: Twitter's executives have been very laissez-faire about allowing the users to shape the service before determining the best way to make money off it. Seems like its investors might not be in the same camp.
There are over 50,000 applications built on Facebook's platform, but the company isn't stopping there. It's continuing to support budding developers with its second annual FBFund app funding competition, with the first 25 of 50 finalists announced Monday. The rest will be announced soon.
The batch of finalists was announced in a post on the Facebook developer blog by Dave McClure of the Founders Fund, the longtime Facebook investor that has provided financial backing for the seed fund. McClure will also be running FBFund's inaugural incubator program this summer.
What's different from when Facebook first announced the seed fund is that in addition to Facebook Platform apps, the finalists also include sites that use the Facebook Connect login product and apps built using the new Facebook Connect for the iPhone. In total, there are 13 Connect sites, eight Platform apps, and four iPhone apps.
The decisions were made with the help of a "Developer Council" consisting of prominent members of the app development and investment space.
The winners, who will be announced soon, will receive up to a $100,000 investment as well as an invitation to participate in the incubator program in Facebook's hometown of Palo Alto, Calif., which starts in mid-June. Last year's FBFund developers stood a chance at winning up to $225,000 (in the form of grants rather than investments), but the incubator program is new for 2009.
Finalists include odd-job seeker RunMyErrand, iPhone photography game Paparazzi, and runners' networking and route-tracking site RunThere. A full list of the first 25 is here.
NEW YORK--The crowds at the Web 2.0 Expo seem to have one clear consensus on what they think of this week's Wall Street meltdown: things are bad, but it's no time to panic.
Of course, they're all pretty relieved that the tech industry can't be blamed for this economic meltdown.
"This is a very good time to start up a company," investor David Rose of the New York Angels firm said in a panel called Starting Up in Silicon Alley. "Despite the calamities that are going on outside, the world is not coming to an end."
The current financial crisis is less than a week old, after all, so the outcome is less than certain. Most of the conference crowd chose to be cautiously optimistic.
The Jacob Javits Convention Center is only a few blocks from Wall Street. Yet at the Web 2.0 Expo, it was mostly business as usual: marketing, monetization, branding, social advertising, and a Microsoft-sponsored party on Wednesday night where the centerpiece was an ice sculpture that dispensed vodka shots.
Standing at his company's booth on Thursday afternoon, one representative of a Web-based nonprofit organization shook his head with disapproval. "Not enough people are talking about it," he said. We all know what "it" is.
In fairness, it's a stretch to say everyone was twittering while Wall Street burned. The underlying attitude at the Web 2.0 Expo was one of sober acceptance, realizing that conducting business in 2008 is more difficult than it was in 2006.
I'm very worried," said Majid Abai, CEO of the community software start-up Pringo. "When the economy is down, investment in technology is down."
There's reason to be concerned: financial-services companies are often cutting-edge technology buyers, and the mess on Wall Street makes it unlikely that big brokerage houses (at least the ones still standing) will be spending on anything nonessential anytime soon.
... Read moreSex. Money. Incriminating instant messages. From the news that's been pouring in recently, you'd think Wikipedia founder Jimmy Wales were the tech industry's own Client No. 9.
In a series of embarrassing peccadilloes that were originally relegated to gossip blogs like Valleywag, Wales' failed relationship with former Fox News commentator Rachel Marsden took center stage when Marsden "leaked" some of their online chats to the Web and made quite the public display of auctioning some of his clothes on eBay. The usual blog storm followed: photos of other women with whom Wales had reportedly been involved, hints that he may have acted inappropriately in editing Wikipedia entries to scrub details of the scandal, and what have you.
But with all eyes on the Wikipedia founder, other allegations have come into play, and they don't have anything to do with sex. First, there were reports that Wales misused foundation funds; now his ties with a high-profile Silicon Valley venture capitalist are calling into question Wikipedia's nonprofit aims. The New York Times notes a $500,000 donation to the Wikimedia Foundation, Wikipedia's parent organization, on behalf of Elevation Partners' Roger McNamee, with another $500,000 in the works. (Elevation Partners is the venture firm that counts U2 front man Bono as one of its founding partners.)
Considering McNamee's status in the Valley, it's easy to speculate that these massive donations could constitute an investment rather than a donation. That's bound to raise more prominent eyebrows than a trashy sex scandal. McNamee told the Times, "I am a Wikipedia volunteer--I help with strategy, fundraising and business development--it has nothing to do with Elevation Partners. And no one should be confused about that."
A representative from the Wikimedia Foundation told CNET News.com that it has not released an official statement addressing the speculation about McNamee's involvement. But Wikimedia Foundation chair Florence Nibart-Devouard said to the Times that she was "not comfortable with the concept" of the nonprofit accepting massive funds from donors best-known as capital investors, and the article went on to say that the foundation's board has passed a measure requiring approval for all donations that total over 2 percent of Wikimedia's revenues.
But despite the shift of "Jimbogate" concerns from personal to professional indiscretions, the musky tinge of sex-scandal still hangs over it. The latest, per Valleywag, involves a tipster who implied that Wales had a tryst in Amsterdam with Wikimedia Foundation executive director Sue Gardner, who has remained one of his staunchest supporters throughout the controversy. It appears to be thoroughly unsubstantiated at this point, but the Valleywag blogger hinted that camera phone photos existed.
Even juicier, the tipster just had to bring Amsterdam, home to what's arguably the world's most famous red-light district as well as notoriously lax regulations on some substances that are frowned upon in the U.S., into the equation. It's all starting to read like the script of a made-for-TNT movie.
Eliot Spitzer, this Silicon Valley dirt might be one-upping you.
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