Dan Primack

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Notes on the VC deal heard 'round the Twitterverse

December 15, 2010: 4:33 PM ET

Twitter today confirmed weeks of rumors about new venture capital funding, acknowledging that it has raised $200 million at around a $3.7 billion valuation.

Kara Swisher was first with the news, adding that the micro-blogging giant has added Mike McCue (FlipBoard) and David Rosenblatt (ex-Doubleclick) to its board of directors.

In a blog post titled "Stocking Stuffer", Twitter CEO Dick Costolo wrote:

Growth is fun. In the past 12 months, Twitter users sent an astonishing 25 billion Tweets and we added more than 100 million new registered accounts. In that time, our team has grown from 130 people to more than 350 today....

We also closed a significant new round of funding, with new investor Kleiner Perkins Caulfield Byers leading the round. KPCB brings to Twitter a track record of helping build great companies, ranging from Amazon to Zynga (get it? A to Z? See how we did that?), and a team with expertise in Internet, mobile and social platforms. The additional resources and expertise will be extremely helpful as Twitter continues to grow as a company and business.

Some quick notes:

1. This may prove to be a good investment for Kleiner Perkins, but this deal isn't primarily about ROI. It's about brand recognition among the Web 2.0 crowd, who had begun to view KP as an older firm living on past laurels. Or, even worse, as a firm that felt that prospective Internet riches had been surpassed by prospective cleantech riches. Now, with Twitter and Zynga in its portfolio, Kleiner believes it will again be part of the conversation.

2. Kleiner didn't actually propose the highest valuation, according to a source familiar with the situation.

3. That source adds that none of the $200 million will be used to provide liquidity to existing shareholders. All past VC backers participated, with the exception of Union Square Ventures (which had bailed on an earlier round also, due to fund size restrictions). That means that Kleiner was joined by firms like Benchmark Capital, Institutional Venture Partners, Insight Venture Partners and Spark Capital.

4. Speaking of liquidity issues: A higher valuation obviously raises all employee options, but Twitter remains one of the few companies that makes it relatively difficult for employees to trade paper on the secondary market. I've heard in the past that it is concerned about new employees joining up only to cash out once they get stock. Seems Twitter management believes such a thing has happened more than once at Facebook, to its detriment.

5. This is the second-largest VC funding round of 2010, according to Thomson Reuters. It ranks right behind Better Place ($300 million), and in front of BrightSource Energy ($150 million).

6. I'm told that the $3.7 billion valuation was post-money (i.e., what company is valued at with the new cash in hand).

7. Back to Kleiner: A bit amazed that it doesn't take a board seat with a reported $150 million on the line (wonder if that means it's held at least a first close on that $750m-targeted Digital Growth Fund). Is Mike McCue its non-official proxy (given KP's investment in FlipBoard)? Isn't this the sort of thing it hired Mary Meeker for? Was Bing Gordon unavailable too? Or how about John Doerr, who led the firm's charge on this deal (maybe explained away by conflict with his role on Google board)? Moreover, why would Twitter take a lower valuation from KP, only to not have KP at the table?

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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