No Profit, No Problem. Twitter Raises $50 Million.

Posted Feb 16, 2009

The service that makes you blog at less than 140 characters and has built an ecosystem around it has raised additional funding.  This round of funding is at over $50 million and is part of the third round.

This round of funding was put together by Benchmark Capital and Institutional Venture Partners.  Considering Twitter’s 900% growth in a year, it is no surprise that these two venture capital firms wanted to be a part of it.  Twitter wasn’t exactly planning on receiving additional investment since they still have money left over from previous rounds of funding.  There could be a lot of money made for the VC companies if Twitter receives an acquisition offer for what they are currently being valuated at.

Facebook already reportedly threw a $500 million offer in their direction in the form of cash and stock, but Twitter decided to walk away.  It may have been a good move since Facebook’s stock value has been fluctuating quite a bit between the internal numbers and the valuation that Microsoft based their investment on.

From a traction stand point, investing in Twitter makes sense.  But many people are raising their eye brows based on the fact that Twitter does not have a revenue model.  Many companies are starting to realize that just having advertising may not cut it in terms of a business strategy.  I believe that if Twitter can ride through the recession they may not necessarily need a revenue plan. Why do I say this?

Here is a one word example: YouTube.  Remember the time before YouTube got acquired for $1.6 billion?  YouTube barely had any profit and was also being closely watched by major TV companies in terms of litigation.  When Google bought out YouTube, Viacom quickly slapped them with a $1 billion copyright infringement lawsuit.  Google still has trouble dealing with the monetization of YouTube.  Google already knew this would be an issue at the time of the acquisition, but that did not stop them.

Now Google owns the number one video site in the world and has a hell of a marketing tool at their disposal.  Google used YouTube to inform people about the Chrome web browser.  Google Chrome gained quite a bit of market share for being a brand new browser.

This could be the same case with Twitter minus the litigation.  Twitter is a major marketing tool that any bigger company could make tremendous use of.  An investment in Twitter was probably the best that a VC could make right about now, despite the lack of a revenue model.  No profit, no problem.