Can An Angel turn $25K into $10 Million at the Twitter IPO?

Once a company has raised hundreds of millions of dollars at record prices the role of the early stage investors is often overlooked. So would it be with Twitter, except for the fine work of journalists such as Peter Delevett of the San Jose Mercury News and Nick Bilton of the NY Times, who combine their memories with excellent research and fine reporting skills.

In June 2007, Evan Williams was looking for investors for a quirky Internet communications service called Twitter that he had co-founded and funded.

He had already signed up a number of well-known Silicon Valley financiers, but he also dashed off a note to his friend Dick Costolo, who had just sold his company to Google, asking if he would like to put in $25,000 or $100,000. 

“I’m on the $25k bus,” Mr. Costolo replied three minutes after receiving the e-mail. “Thanks Ev, this will be a lot of fun.”

Mr. Costolo, who is now the chief executive of Twitter, is one of a handful of individual investors who stand to reap the rewards of a potential initial public offering of stock in the social network. Although many details are still unclear — most of all the offering price of Twitter’s stock. Mr. Costolo’s initial investment is probably worth more than $10 million, with additional shares he has received as an executive worth many millions more, according to people knowledgeable about the company’s finances.

In  July 2007  Twitter, then 16 months old, raised $5 million from Charles River Ventures, Union Square Ventures and angels including Ron Conway, Chris Sacca, Marc Andreessen and Dick Costolo.

In  May 2008  Twitter ups the ante with $15 million. Union Square ponies up again, as do Amazon CEO Jeff Bezos and Digg Founder Kevin Rose, among others.

Later rounds were primarily institutional. In December 2011, the Saudi prince Alwaleed bin Talal invested $300 million in Twitter. The company was valued at $8.4 billion at the time. 

Additional Angels may own Twitter stock as a result of Twitter’s purchase of TweetDeck for $40 million in May, 2011.

TweetDeck was originally developed by Iain Dodsworth, and launched on July 4, 2008.  Dodsworth received his initial $300,000 seed funding a year later from The Accelerator Group, Howard Lindzon, Taavet Hinrikus, Gerry Campbell, Roger Ehrenberg, betaworks, Brian Pokorny, and Bill Tai. The company raised a Series A round of funding with many of these same investors, and Ron Conway, Danny Rimer, and the SV Angel group.

Some investors  have cashed out early. In hindsight, some have expressed regrets. But “in our case, we are early-stage people, and we had had a remarkable run,” said one early investor who sold millions of dollars of stock in 2011, when a Russian investment firm was buying.

But some investors held on. “For me personally, this is a once-in-a-decade or once-in-a-career kind of investment,” said Bijan Sabet, a partner at Boston's Spark Capital, one of the earliest investors in Twitter. 

The New York Times reports: “Mr. Williams, who provided crucial early financing for Twitter and remains its largest shareholder, will almost certainly become a billionaire. The venture investor Chris Sacca and at least two venture capital firms, Union Square Ventures and Spark Capital, will also most likely end up with stakes exceeding $1 billion each, according to an analysis of financial documents and interviews with people who know about Twitter’s finances. Others could make tens of millions or even hundreds of millions of dollars.” 


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The Next Silicon Valley is Probably Going to be….Silicon Valley, says CB Insights

“With the exception of New York, major venture hubs have shown little progress in dethroning Silicon Valley as the place for tech VC. Massachusetts and Texas are losing ground while everyone else is flat,” according to CB Insights, a New York based database firm. 

As the legendary Larry Bird once said to the other NBA players in the 3-point shot competition: you guys are all shooting for second place.  You know that, don’t you?

From CB Insights: “Silicon Valley has long dominated the spotlight for promoting and financing the growth of emerging tech companies. And so when you’re the 800 lb gorilla in an area, there will be others who aspire to knock you off of your perch. And so we see lots of breathless proclamations from other cities and regions that they are the “next Silicon Valley”. Chicago threw its hats in the ring during Groupon-mania but it is not the Silicon Valley as the data shows. And a quick Googling of the term “the next Silicon Valley” shows Seattle, Los Angeles, Bangalore, Tel Aviv and even the Brooklyn tech triangle (yes – really) have all thrown their hat into the ring thinking they could be contenders.

“But if we look at the data, we can answer if there has been any shift from Silicon Valley to other markets in reality or if this is all just talk. Specifically, we’re going to look at a few other venture hubs namely SoCal (LA & San Diego), Colorado, Massachusetts, New York, Texas and Washington.”

Has Silicon Valley seen a decline in tech sector deal activity over time? Not the case. Tech sector deal levels in H1 2013 topped those of H1 2012 by 10% and H1 2011 by nearly 21%, respectively. On a year-over-year basis, Silicon Valley tech deal activity has grown 19%.

And while Silicon Valley’s VC funding to tech companies saw a notable dip between Q3’12 and Q4’12, it has since picked up going back to historical levels. Year over year funding has actually increased 3% and dollars are trending upward over the past two quarters.

But with the exception of  New York, geographic markets from SoCal to Texas have had a difficult time in growing their share of venture-backed tech businesses. 

In the race for second place, CB Insights recognizes the following winners, placeholders, and losers.

Winner: New York

New York’s share of tech deals has grown steadily over the past three years and has stayed near 20% for each of the past three quarters. This has been spurred by a few things. Many of NY’s largest venture-backed exits have taken place since 2010 so it’s a region with some momentum. At the same time, a strong core of investors has emerged to back New York-based cos. For example, Spark Capital and Union Square Ventures, both top-tier firms, have co-invested in NY-based Kitchensurfing, Skillshare and Tumblr among others and continue to be active in the market.

Static: SoCal

While tech funding and deals in the region has grown 8% and 18% on a year-over-year basis, SoCal has little to show in terms of overall growth or decline by share of deals and dollars versus other geographic markets.

Static: Colorado

Colorado’s share of tech deal and dollars has remained very flat since Q2’10.

Static: Washington

Washington’s share of tech deals has hit over 5% in just four of the past 13 quarters, while funding share drifted above 5% just twice (with a high of 7%).

Loser: Massachusetts

While Mass. has taken the #2 spot in VC funding across all sectors in four of the past five quarters, its share of tech deals versus the given geographic markets has fallen over time and hit below 10% in each of the past two quarters. Funding share in Mass. is more mixed, but average and median deal share has trended at 9% since Q2’10. 

Paul Graham of Y Combinator recently called out Boston investors, writing about Dropbox. “Because the best investors are much smarter than the rest, and the best startup ideas look initially like bad ideas, it’s not uncommon for a startup to be rejected by all the VCs except the best ones. That’s what happened to Dropbox. Y Combinator started in Boston, and for the first 3 years we ran alternating batches in Boston and Silicon Valley. Because Boston investors were so few and so timid, we used to ship Boston batches out for a second Demo Day in Silicon Valley. Dropbox was part of a Boston batch, which means all those Boston investors got the first look at Dropbox, and none of them closed the deal. Yet another backup and syncing thing, they all thought. A couple weeks later, Dropbox raised a series A round from Sequoia.”

Loser: Texas

While deal share has slowly trended downward in Texas (only 4 more tech deals were completed in the state year over year, funding share has seen a steeper decline. Between Q4’11 and Q1’12, funding share fell 600 basis points and then another 400 basis points the following quarter. Since then, funding share to the Texas tech market has remained at or near historical lows.

Angel investors should recognize that the analysis above is based primarily on Venture Capital (not Angel) funding and that angel group results, as shown in the GUST reports, may differ significantly. But the current CB Insights report, available here, is based on substantial data as expressed in a fine series of graphs.

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Mobile Is Eating The World says Benedict Evans

“Benedict Evans is quickly becoming my favorite Internet analyst,” writes Master Blogger Fred Wilson of Union Square Ventures in NYC. “I follow his blog and twitter religiously.” Based on this slide presentation, we might elevate Evans to similar status in our angel community.

 You can find the complete presentation posted on slideshare:

2013 05 BEA - ’Mobile is eating the World’ from Benedict Evans

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