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Summary:

There was a time when venture capital firm Kleiner Perkins Caufield & Byers, was the first money in hot, new start-ups. These days, it seems the best KPCB can do is edge its way into hot start-ups at a massive premium like with the funding for Twitter.

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There was a time when white-shoe venture capital firm Kleiner Perkins Caufield & Byers, was the first money in hot new start-ups that defined categories. These days, it seems the best the Sandhill Road firm can do is can try to edge its way into hot Internet start-ups at a massive premium. A good case in point is the recent funding for Twitter. KPCB is leading a $200 million investment round for Twitter which values the fast-growing social information platform at a whopping $3.7 billion. At that price, assuming some, if not all previous investors participated in the round, KPCB got between 4 and 5 percent of Twitter.

Now maybe KPCB’s lead partner John Doerr will have to pull out a comment from the archives. He famously said that “I have seldom paid so much for so little of a company,” when referring to KPCB’s early investment in Google. And that was at a time when KPCB was an actual Internet kingmaker.

This isn’t the first time the firm has paid up for a piece of a hot start-up. Even though the firm talks up its Zynga connection, it had to spend big to crash that party. The firm also recently launched a $250 million sFund (Social Fund), a way for them to regain a footing in the fast-shifting social and digital media industry.

This is in sharp contrast to the days when it backed Sun Microsystems, Genetech, Compaq, Netscape, Amazon, Google and @Home Networks: companies that defined not just their categories, but also spawned entire industries. The new social revolution has passed that mantle of über investor onto Fred Wilson’s New York-based Union Square Ventures (Twitter, Etsy, Foursquare) and Accel Partners (whose investments include Facebook and Groupon).

As an investor, one needs to be early in spotting trends, especially in the Internet arena, where things morph at lightening speed. Talking about the third wave in 2010 is sort of like suddenly discovering Lady Gaga today.  But KPCB doesn’t have much choice. As we wrote earlier, KPCB is taking a sharp hairpin turn at a high speed as it tries to shift its investment momentum away from clean-tech to Internet and digital media investments. Hiring Mary Meeker was the right move, and now with the Twitter investment, is the fund betting it will regain its cachet?

Nevertheless, for Twitter, this money is going to come in handy, especially as it tries to expand its footprint and take on a much larger role. The San Francisco-based company is growing at a great clip, but it needs to spend on scaling its business and at the same time solve the quandary of a business model. It hasn’t quite figured out where its sales (and profits) are going to come from.

Yesterday, Erick Schonfeld pointed out that Twitter might be seeing slower growth in the U.S., which isn’t a good sign, considering U.S. (and Europe) continue to be the only monetizable Internet markets. Twitter, as I wrote earlier, is going to see significant growth in emerging Internet economies like India, Brazil and Indonesia in the coming years, which aren’t quite monetizable for U.S.-based companies.

Nevertheless, as long as there are folks looking to spend wildly to hang with the cool kids, Twitter’s trio of CEO Dick Costolo and co-founders Evan Williams and Biz Stone don’t have much to worry about.

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  1. Is this a done deal or a groupon like rumor.

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  2. twitter announced on their website :-)

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  3. Isn’t it crazy for KPCB to be paying $150M just for a 4% stake in Twitter ?

    It doesn’t make sense for someone like KPCB to be paying that much just to get into the hot startup….

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  4. ….”Twitter, as I wrote earlier, is going to see significant growth in emerging Internet economies like India, Brazil and Indonesia in the coming years”

    I disagree. There will be new offerings and/or local technology flavors in each of these respective countries. I still struggle to find the time to pull up my Twitter account anytime during the day.
    The valuation is completely insane. Facebook apparently is looking to do $2b in revenues this year and Groupon is in the hundreds of millions in revenue and only getting stronger. For Twitter to be valued at 60% of Groupon (Google premium price) is absurd.
    Nevertheless, hope the Twitter employees are cashing out a piece of their holdings…

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  5. KPCB is accelerating to get back in the game with both early (eg. Flipboard) and late (eg. Twitter) stage deals.

    Flipboard makes use of Twitter streams and so having McCue on BoD makes sense and so does Rosenblatt for ad monetization (see Twitter blog announcement about business.twitter at http://blog.twitter.com/2010/12/its-business-time.html)

    Assume FB IPO’s in 2012 then Twitter won’t be far behind. The ducks are being lined up.

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  6. [...] the edits? Maybe someone at Twitter felt a blog post about getting $200 million in funding at a $3.7-billion valuation (although those numbers are still only a rumor) from a venerable Silicon Valley name like Kleiner [...]

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  7. [...] content. Flipboard — whose CEO, Mike McCue, just joined the Twitter board of directors after the social network’s recent funding round — is also working directly with certain media companies to present their content in a custom [...]

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  8. Om , did KPCB get a board seat?

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    1. No they didn’t!

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      1. Om this is very interesting to see VC’s like John Doer investing without a board seat. wonder why twitter guys did not think John Doer was a better Board member than the two independents they got on the Board Recently?

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  9. Doerr is close with the President sitting again this past week and in that context the Twitter investment makes sense. KP is paying huge just to capture imagination –to stay on tips of tongues long enough to get a few pieces of shit in which they have invested much more to IPO before IPOs are no longer possible at least in U.S. dollars.

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  10. [...] or through private investment funds and financing rounds such as the one Twitter recently closed, which valued the company at almost $4 billion. There have been no moon-shot public IPOs that flamed out within days or weeks, no Pets.com or [...]

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