Much less money is changing hands in the current dotcom boom than in the last one. That is good. But the sale of equity in Twitter is a sign that valuations are no less heroic – and that cash will soon be wasted on a vast scale.
The new round of fundraising – $200m of cash, valuing the whole company at a putative $3.7bn – bolstered Twitter’s status as internet darling. The site has spent the past year trying to figure out how to convert trying to turn the large and rapidly growing userbase of its free microblogging service (tweeting in 140 character snippets) into a substantial revenue-generating business. It will now have venture capitalist John Doerr – who backed both Google and Amazon early on – on the investor roster.
Yet Twitter is still not profitable. One way to justify such a valuation might be the chance of a takeover battle. But Mr Doerr’s involvement surely reduces the likelihood of an approach in the near term from Google, one of the companies most often linked with Twitter. As a Google director, he will have been privy to any board-level discussions on potential takeover targets.