Sept. 26 (Bloomberg) -- Twitter Inc., the social-networking site used by everyone from Oprah Winfrey to British royalty, received venture financing that values the company at about $1 billion, according to a person familiar with the matter.
Twitter received $100 million in the deal, according to two people who wanted to remain anonymous because terms of the agreement are private. Twitter announced the investment on its blog, without citing an amount. The investors included T. Rowe Price Group Inc., Insight Venture Partners, Spark Capital, Institutional Venture Partners and Benchmark Capital.
Given a $100 million equity investment, a $1 billion valuation would mean that investors acquired a 10 percent stake, said John Taylor, vice president of research at the Arlington, Virginia-based National Venture Capital Association. Twitter and the people familiar with the deal didn’t say how investors arrived at the $1 billion. Setting the value of a company involves assumptions about how investors will earn a return, possibly through an initial public offering or acquisition.
The company could use its latest investment for acquisitions and product development, said Charlene Li, an analyst with Altimeter Group LLC in San Mateo, California. Twitter could be preparing for a possible IPO, instead of being bought by a larger company, she said. Twitter has yet to report any significant revenue.
In Search of Revenue
“It’s interesting to see, almost 10 years since we had the first Internet bubble, that we’ve now got billion-dollar valuations on companies that haven’t defined how they’re going to monetize their traffic,” said David Garrity, principal at GVA Research LLC in New York. “It would be nice to see how the company is going to, one, generate revenues, and two, generate profits.”
A $1 billion valuation would make Twitter about the size of bookseller Barnes & Noble Inc. and about twice the size of online travel agent Orbitz Worldwide Inc.
Twitter had more than $50 million in funding from earlier investment rounds. The company, founded in 2006, now is preparing a revenue plan. It intends to add services for businesses that will generate sales in the fourth quarter, co- founder Biz Stone said this month.
The products might include an “analytics dashboard” that would help companies monitor Tweets about their business, or verified corporate accounts on Twitter, he said. The San Francisco-based company also is leaving the door open for advertising, Twitter said on its blog this month.
User Growth
Twitter attracted 25 million users in August, compared with 2.2 million a year earlier, according to Nielsen Co. in New York. The site, embraced by celebrities such as Britney Spears and Ashton Kutcher, lets people post messages of up to 140 characters.
“Where you have audiences, you will make money,” said Ellen Siminoff, a former Yahoo! Inc. executive who last year co- founded education Web site Shmoop University Inc. in Mountain View, California.
T. Rowe Price’s involvement in the deal suggests that Twitter may be a safer bet than it appears, said Alan Patricof, managing director of Greycroft Partners LP, a venture-capital firm in New York.
“It’s hard to argue with the growth they’ve had in the number of users,” Patricof said. “This company is unbounded at the moment. No one knows what it’s going to do.”
Venture Slump
The latest investment round comes in a slow period for the venture-capital industry. Venture investments declined 51 percent last quarter to $3.7 billion from a year earlier, according to PricewaterhouseCoopers LLP and the National Venture Capital Association.
Venture capitalists have put fewer dollars into early-stage startups and invested most of it in their existing portfolio companies to keep them afloat while the IPO and acquisitions markets remain blocked.
Twitter, founded by Chief Executive Officer Evan Williams with partners Jack Dorsey and Stone, rejected an offer to be acquired by Facebook Inc. last year, Todd Chaffee, general partner at Institutional Venture Partners, said in an interview earlier this year.
Twitter’s investors plan to retain it as an independent media company, he said.
“They could still be acquired by somebody, but when you get into valuations at that level, acquisitions get harder and harder,” Altimeter’s Li said.
By Brian Womack and Joseph Galante
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