Nearly three weeks ago, a little (blue) bird told us that Twitter had confidentially filed for an IPO.
The 140-character announcement came mere days after the company broadcasted its acquisition of the Silicon Valley mobile advertising startup MoPub for an estimated $350 million.
Since January 2013, the social media giant has not only opened its East Coast headquarters in Cambridge, but has also nabbed three startups born and bred in Boston: TV social analytics company Bluefin Labs, mobile crash reporting startup Crashlytics and local discovery app Spindle. Further, a chunk of Twitter’s $1.16 billion in financing came from notable Boston investors Spark Capital and Charles River Ventures.
Now, with rumors that Twitter will go public before Thanksgiving, in what will be the largest tech offering in U.S. history, we have to wonder: What will the social media giant’s IPO mean for Boston’s startup ecosystem?
For Investors:
Before word got out in May that Twitter was eying Boston for its second flagship office, the innovation community primarily understood the city’s tie to Twitter through two venture firms and their respective partners: George Zachary of Charles River Ventures and Bijan Sabet of Spark Capital, both of whom were responsible for leading their firm’s investment in Twitter.
Charles River Ventures provided $250,000 of the initial $5 million Series A for one percent of the company, according to the Boston Business Journal. In a recent on-air interview conducted by Bloomberg, Zachary made it known that CRV still possessed one percent of Twitter.
Spark Capital participated in Twitter’s $15 million Series B round a year later, and continued to invest in the company’s $35 million Series C and $100 million Series D rounds.
If Twitter’s $16 billion valuation holds up, CRV will reel in a 640x return of $160 million; however, it is important to note that the high multiple is due to the small size of CRV’s investment. Why CRV failed to stay involved in the following rounds is unknown.
"We can't comment now because of SEC IPO gun jumping rules," Zachary told the Boston Business Journal.
But the partners of Spark and CRV are not the only people poised to profit from Twitter’s public offering. Once Twitter’s valuation went public, companies acquired by Twitter over the year saw a 50 percent increase in their respective valuations. As a result, Twitter’s 100 or so Boston-based employees (with stock options), will be making even more off of Twitter’s IPO.
Crashlytics sold to Twitter in January for a little over $100 million, with a mix of stock and cash, making the acquisition Twitter’s second largest to date after MoPub. Since January Twitter's valuation has increased by 50 percent–making Crashlytics' stock options that much more valuable. That deal can now be valued at around $150 million. Not bad.
Twitter snatched up Spindle last June in what can be summed up as an aqui-hire with no terms disclosed. Post-acquisition, the Spindle app was shut down and the team moved to San Francisco to be closer to Twitter’s social search engineering team. Whoever is left of Spindle employees is likely to see a nice raise–unless, of course, the deal was all cash.
Bluefin Labs, which sold in February, got the worst (although getting better) deal among the three Boston acquisitions. Twitter bought off Bluefin for $80 million–all stock, and then let go a third of the staff. Whoever is left of Bluefin's team will most definitely see their bank accounts get bigger. That deal can now be estimated at around $120 million.
Yet perhaps more significant than the payouts in the wake of Twitter's IPO announcement is the potential for CRV and Spark to foster future relationships between Twitter and local up-and-comers in the social and analytics space.
While Spark’s Sabet has been known to connect young companies in such a way in the past, ŕ la Spindle, the proximity of Twitter’s offices, and its future flood of revenue post-IPO, could mean more partnerships with, and acquisitions of, companies in Boston’s burgeoning big data sector.
The more Twitter refines its analytics, the more Boston’s business community has to benefit, Atlas Venture Partner Chris Lynch told BostInno over email:
From a data management/analytics point of view, I think the transient nature of Twitter will make load, store and analyzing the data in any actionable timeframe more difficult than Facebook. I also think the success of these firms in monetizing customer data will drive a wave of innovation in the computation and analytic marketplace...this will be led in Boston by firms like DataXu. We could make a case for the emergence of the new stack, which will be part of Boston's big data renaissance. SQRRL, Hadapt, and Nutonian will lead this wave!
For Startups & Companies:
West Coast companies moving to Boston and acquiring local companies are more than testaments to the city’s talent; the opening of "cousin companies," like Twitter's own Boston branch, translates into a cadre of opportunities for local entrepreneurs. Employees from startups like the trio acquired by Twitter this summer are able to get a taste of the “West Coast startup experience,” Pat Kinsel, former CEO of Twitter’s recently acquired Spindle and current entrepreneur in residence at Polaris Partners, told BostInno.
“I just think it’s great for there to be a set of people who are going to make some money, get this experience and build these relationships on the West Coast,” shared Kinsel. “The employees who work for these companies are now going to have experience at Twitter, and it’s going to pay dividends for years to come, beyond the financial windfall that some people might make.”
Yet, it’s worth wondering how Bluefin Labs, Crashlytics and Spindle would have fared if they hadn’t been acquired by Twitter. West Coast tycoons moving into the Boston area most likely means more early acquisitions of the startups coming out of the city’s schools and incubators. But does this potentially limit the growth of early stage startups, preventing Boston from creating its own Twitter-sized business?
“I think [Twitter moving to Boston] enables more small acquisitions," posited Kinsel. "But we need more companies to reach their own escape velocity and be anchor companies. I also don’t think this is a trend that precludes companies from becoming tremendously successful in their own right. One of the requirements and aspects of a healthy startup ecosystem is the ability to exit ... and Twitter and Facebook being here increase the chances to exit.”
Laura Fitton of HubSpot, founder of former Twitter app store oneforty and co-writer of "Twitter for Dummies" felt similarly positive about Twitter’s recent Boston-area acquisitions, and the potential opportunities that lie ahead for the city’s startups. As she shared via email:
Startups who feel extremely confident they have a chance to grow into a giant company usually turn down numerous acquisition offers. These are some very smart entrepreneurs in these deals, and [in my humble opinion], you sell your company when you feel it can be a part of something much bigger than it could be as a standalone.
We can read anything into any news, if we really want to. Nobody external can stop our companies from growing into area anchors. Those limits are self-imposed and consistent with the persistent handwringing over the topic. Local [mergers and acquisitions] set us up for more serial entrepreneurs, more visibility/exposure to other startup hotbeds, and perhaps most importantly, more angel investment from a younger set of angels as founders reinvest their proceeds in the area.
Perhaps, as Fitton aptly points out, the problem lies in startups' self-limitation; maybe companies’ own perceived disadvantages present the largest obstacles to scale. But with Twitter's public offering on the way, Boston's innovation environment is in an ideal position to capitalize on its raw talent from local universities and proximity to key stakeholders and company investors. Twitter is now becoming a part of something much bigger–Boston’s business ecosystem–and the whole will surely be greater than the sum of its parts.
