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Twitter Starts Innovative Share Auction, Valuation Soars

Twitter Valuation is going up by leaps and bounds. In December 2010 Venture Capital Fund Kleiner Perkins Caufield & Byers, bought a stake of $200 million in the internet micro blogging service Twitter at a valuation of $3.7 billion. Today, 4 months later it is more than double at $7.7 billion as per a recent Reuters report on Twitter’s stock auction.

The December disinvestment and subsequent private equity deals at Facebook and Groupon started of a steady consolidation of Twitter shares by early investor Chris Sacca. His company Lowercase Capital has been over the years investing small amounts usually around $ 500K in dozens of small tech companies like Twitter, the location based social network company Gowalla, the photo sharing site Daily Booth and Swipely a site where you can swap and share your purchases.

The 35 year old ex Google employee and lawyer turned angle investor Mr. Sacca who was an early investor in Twitter and several other Silicon Valley startups, sensed opportunity to cash on his close links with the social media tech startups. He was reportedly backed by a big money pool of over a billion dollars from Wall Street investment banker J.P. Morgan Chase. The fund bought off other early investors like Mr. Evan Williams, a co-founder and Union square Ventures reportedly last week, channeling $400 million of investment to buy 9% stake in Twitter and raising the valuation to$4.5 billion.

However even before the deal could close, Twitter gauging tremendous investor interest decided to put in place a system that was more transparent than a cozy deal arrangement with few privileged investors of Wall Street Banks . Opting for a open web based share auction system, it could define its own game plan as well as maintain its own independence, instead of unwittingly playing into the hands of the brokers, dealers and the big banks.

The Twitter auction involving 35,000 shares of Twitter’s series B preferred stock was oversubscribed and auctioned at $34.50 per share by Sharespost, the auctioneer. The auction raised the valuation of a total of 223.7 million listed shares of the social media blogging service to an awesome $7.7 billion. Considering that this was the first major open auction by an auction website not by any Banking major for disinvestment, this opened out a broad range of possibilities for other small tech companies who want to stay away from the Wall Street majors and still raise capital.

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