Show me Numbers

I had some discussion this morning on Twitter about what level of ownership the founders are likely to still have after the company’s latest round of VC funding. I thought I would do a bit of digging and see if I could estimate it.

Note: If anyone is aware of any funding rounds not included below, have specific information on any of the assumptions made or can spot flaws in my calculations please feel free to highlight them in the comments.

First round – July 2007

This is the trickiest element as I don’t think terms of this deal were ever disclosed. Techcrunch reported at the time an estimate of $1-$5m of funding raised. It was later reported that the deal size was net funding after costs of $4.8m. The unknown factor though is what level of equity Union Square Ventures (the first VC) received in return for this investment.

In the absence of any firm figure for this dilution we need to make an estimate. This was obviously a pretty early stage investment at a relatively significant ($5m) level so one could expect the dilution to be fairly significant. We also know from the Second Round (see below) that almost a year later Twitter was valued pre investment at $80m. So balancing these factors lets assume a pre investment valuation for the first round of $20m which would mean that ownership post First Round would have been:

Founders – 80 per cent
VC – 20 per cent

This estimate is highly material to the rest of the calculations as it sets the initial level of founder ownership that all other rounds will then dilute. In the conclusion below I indicate the impact of different assumptions for this round to the current level of ownership.

Second Round – May 2008

Investment size was reported this time at $15m with a pre investment valuation of $80m. Post investment this gives revised ownership of:

Founders – 67.4 per cent
First Round VC – 16.8 per cent
Second Round VC – 15.8 per cent

Third Round – February 2009

Investment reported at $35m with a valuation of $250m though it is not clear if this is pre or post investment. If we assume pre this gives the following ownership post investment:

Founders – 59.1 per cent
First Round VC – 14.8 per cent
Second Round VCs – 13.9 per cent
Third Round VCs – 12.3 per cent

Fourth Round – September 2009

Investment size reported at $100m with a valuation of $1bn. Again not stated whether pre or post so lets assume pre gives the following ownership post investment:

Founders – 53.7 per cent
First Round VC – 13.4 per cent
Second Round VCs – 12.6 per cent
Third Round VCs – 11.2 per cent
Fourth Round VCs – 9.1 per cent

Fifth and latest round – December 2010

Investment reported at $200m at a valuation of $3.7bn. Again not stated whether pre or post so lets assume pre gives the following current ownership estimate:

Founders – 51.0 per cent
First Round VC – 12.7 per cent
Second Round VCs – 11.9 per cent
Third Round VCs – 10.6 per cent
Fourth Round VCs – 8.6 per cent
Fifth Round VCs – 5.1 per cent

Conclusion

This analysis would estimate the Twitter Founders ownership at 51 per cent with a valuation approaching $2bn.

If you vary the First round dilution assumption you get the following alternative estimates for the current level:

NB It is also worth noting that if the valuations for rounds 3, 4 and 5 were all post investment valuations this would lead to an additional dilution in all the ownership percentage figures of approximately 3.25 per cent i.e. 51 per cent would fall to 49 per cent. The valuation figures would also all fall by approximately 8 per cent as the post investment current valuation would be $3.7bn not $3.9bn ($3.7bn valuation + $200m investment).

I’ve been rather busy lately moving house, hence the lack of posts and even a reduction in my Twitter activity. To get back in the swing of things a quick post about TweetReach. 

Stephen Waddington highlighted this tool to me at the North East CIPR Awards on Friday (congrats to all the winners by the way).  It is pretty straightforward to use.  Put in a term, a url or hashtag and it calculates the following three measures:

Reach – the number of different people who follow people who have talked about the search in some way.

Exposure – how many times someone could have seen a particular reference to the topic e.g. if 4 people have tweeted it who all have a follower in common then that follower will have been exposed to it 4 times but will only count as 1 in the reach figures.

Impressions – the total number of occasions to see (effectively the sum of the “Exposure” figures for everyone “Reach”ed)

Note that the Reach figure measures the number of different people. Assuming this is the case (and I have no practical way of checking this) then this is good stuff as it ensures that duplication in networks is taken care of. It also tells you what proportion of the relevant tweets were retweets or @replies.

So a very good tool in theory for understanding the extent and likely penetration of a conversation. However unfortunately the bad news is that it is limited to the last 50 tweets, unless you pay TweetReach $20 and even then it is limited by Twitter’s API to the last seven days or 1,500 tweets. The seven day limitation also means that you MUST carry out the analysis close to the time of the relevant conversation as you can’t go back historically. These factors weaken its role as a measurement tool significantly unfortunately IMHO.

Perhaps now that Google are indexing our tweets the tool could be expanded?

I was reviewing the stats relating to my last post about the performance of Social Media Releases earlier today. Apart from being very pleasantly surprised to have nearly reached 1000 unique views (making this easily my most visited post to date!) I also found that the number one source of traffic was “direct”.

This means traffic that has been referred to the urls directly and not from another online source. Now unless anyone is able to remember a url with 141 characters, which I am guessing is unlikely, then I assume all of these visits must have come from people visiting the post from emails that include a hyperlink.

The breakdown of unique visits and their sources is as follows:

Twitter also counts for almost a third of the visits, which isn’t surprising given that the post has been tweeted 128 times to date (thank you to everyone who RT’d).

But the fact that almost half of all visits were direct demonstrates the power that email still has as a tool for sharing information with your community. Glad we didn’t forget to mention it in our video (2:25) on how news spreads online

I have just got back from a few days at the annual Communication Directors’ Forum. At the event I got to speak to many key communications professionals from some of the UK’s most well known brands. The common questions that I was asked were about how the online world was changing and why all the fuss about Twitter? 

Apart from the obvious celebrity focus, Twitter’s success, in my view, is down to a number of factors, the three primary ones being:

- speed,
- permission;
- and relevance. 

It is these three characteristics that I see as being key to the further development of online communications in the future.

Speed 

When the Internet first appeared speed of communications was a key area everyone focussed on. We were all now “surfing the information superhighway”. No more relying on snail mail or faxes, a message could be sent by email or online messenger within minutes. With the advent of blogs and low cost publishing platforms this ability to communicate at speed was then increased in reach with individuals being able to tell their stories to a much wider audience, again within minutes. 

Now Twitter has taken the reach of blogs and increased the speed to another level.  News can be written in the time it takes to write 140 characters and passed from person to person via “retweeting” in a matter of a couple of seconds. This means news travels at a much greater speed than even blogs can achieve.

Permission 

In a “traditional” social networking environment, like Facebook for instance, there needs to be two sided permission. I have to want to be your friend and you have to want to be mine for communication to occur. So I have two choices – to be, or not to be, your friend. 

In Twitter’s case if you start to follow me I have three choices. I can say no and block you. I can say yes and follow you back. Both basically the same options as with social networking. But I also have a third option. I can let you follow me, but not follow you back. This allows people who want to know more about a person and what they have to say to listen in without the person you are following having to follow you back. This partially explains the growth in celebrity tweeters. This gives huge amounts of flexibility in the nature of the relationships that participants in the Twitter community can enjoy. 

Relevance 

This is crucial in any form of communication as it is only through being relevant to someone that you can ever achieve any form of influence. 

The permission choices above allow participants to also have much greater control over the relevance of the information and relationships they have. If I decide that someone I have been following is irrelevant to me I can just stop following them. If I see that someone is talking about a topic that is relevant to me, e.g. a search in Twitter for my company name, I can choose to start following them and listen to what they say and finally I can potentially start a conversation with them about that topic if they want to talk back to me. 

But again the other participants also have all of these choices so we are all able to decide who is relevant to us. It is this choice, our own personal relevance filter, which makes for a more efficient dialogue. 

What do others think? What characteristic/s of Twitter do others think explain its adoption?

The title of this post is a comment I made in my presentation at 3i and have used a few times since. (I suspect I heard or read this somewhere once so if anyone knows the who, what and when please tell me so I can attribute).

I was reminded of the quote when reading last week about Eric Schmidt’s comments regarding Twitter and the concept of Twitter as a search engine. Drew Benvie is also carrying out a Twitter search experiment which has resulted in some discussion today. Those with more knowledge of these things than I will probably be able to point out many other reasons but IMHO Google’s success in search was based on five (probably pretty obvious) key factors:

- a simple interface
- low time to get started
- quick
- relevant results
- high coverage of topics

So how does Twitter compare? The table below is my (basic) attempt to summarise a comparison of the two against these five factors. I have added the last two to highlight the key differences as I see it between the basis for the responses. 

Conclusions?

For those active members of the Twitter community (like @drewb for example) I think that:

- the potential for increased trust due to the basis of response being real people and;
- for the same reason (potentially) increased relevance of the “results”

are likely to mean that they use Twitter more frequently to answer some of the questions they would have directed towards Google in the past.

However I suspect that these early adopters are the sort of internet sophisticates that already use a wider variety of means to find information – Social bookmarking, Blog searches etc.

For those occasional Twitter users, and those outside of the community altogether, Twitter has a way to go before it will be a significant search competitor to Google in market share terms for the key reason of time investment. 

So for the majority of the world’s 1.5bn internet users I suspect that the ease of getting an answer from Google will continue their hegemony of the search market for the foreseeable future – however long that is these days!