Beyond that, can we please move beyond this inane whining aboout "but Twitter doesn't even have revenue, or even a plan to generate revenue". If you don't think Twitter has a revenue plan then you're an idiot. And they certainly don't have a need to announce to anybody what that plan is until they execute it.

Several months ago I mentioned in a post to Fred Wilson that I wished I could do an arb trade between Twitter & Facebook: Long 40 shares of Twitter (at it’s then valuation of $250K) and short 1 share of Facebook (at it’s then valuation of $10 Billion). That would make it a balanced $10B against $10B. That trade is only going to get better in Twitter's favor – count on it.

The key to the fundamentals is the Liquidation Preference. Google it if you don't know the term. Basically, on exit investor gets their money out plus interest before the entrepreneurs do. That's reasonable. The team has not built a business worth $1bn, they are only saying (with some credibility) that they can do that.

Lets say interest on Liquidation Preference is 10% and the exit is 1 year away and this round was for $50m. The investor get $55m back ($50m + 10%) as long as Twitter exits for more than $55m (pretty safe bet).

Disclosure: I have NO inside info on this deal, no idea what the Liquidation Preference interest rate actually is on this deal. But I would be very, very surprised to find there is none and it will be somewhere around 10%. IOW, that was for illustration.

So with downside covered, everybody can focus on upside. This is where optics matter. With this deal, the entrepreneurs can say to any acquirors a) the negotiations start at $1bn, clearly cannot be lower than that and b) we have plenty of runway, if you don't do this deal now the price will only be higher later.

In this case, the optics are critical. Twitter ideally exits before revenue, when revenue potential is infinite. As soon as there is actual revenue three bad things happen:

1. acquirors say "lets wait and see how this pans out"

2. costs go up - you have paying customers who demand real service

3. revenue targets may go south - hockey stick exponential growth is hard enough on a free service (kudos to Twitter for doing that brilliantly) but way, way, way harder when money changes hands. Somebody sending real money to Twitter (not investment money) is friction, it is no longer a frictionless flywheel.

Twitter does have enough cash now to exit on a revenue plan and last out the sit on the fence acquirers. So, any which way, this looks like a smart deal. It is not "evil", this is all business between consenting adults. What would be evil would be selling stock to "widows and orphans" in the public market who a) don't have Preference and b) don't have the means to evaluate risk on a deal like this. That was bubble 1.0 and it won't happen again. This is different fundamentally even if the optics may look similar.

And yet that model is supporting a microeconomy of other companies, some of which are doing quite well on the back of what Twitter provides (Salesforce.com, RightNow, Radian6 to name but 3).

I've said all along that Twitter could do much worse than keep the service free to use through their site, but charge for use of the API. That way they'd not discourage use too badly, but ensure they're making something from those guys successfully selling product on the back of their platform.

I'd even pay a small fee for access to TweetDeck (and they could always offer an ad funded version for those who won't).

Ian Hendry
CEO, WeCanDo.BIZ
http://www.wecando.biz

These days, E.V. has the heightened confidence of a Hollywood stuntman and the delusional persona of a desperate housewife person. He and his cohorts turned down Facebook's $500 million acquisition offer, then plotted in secret to be the "pulse of the planet;" recently, they researched the Twitter's platform potential, then disclosed the company's $1 billion dollar valuation at a recent all hands meeting.

Dana, what's going on?!

Do you think Twitter the 25-pound chimp really want to tango with Facebook... an 800-lbs gorilla? If so, who would promote that lopsided death match? Vincent K. McMahon of WWE?

Twitter's state of affairs seem bizarre to me.

Perhaps E.V. has some insider information to which we spectators are not privy. Duh! Of course he does!

Oh, well.. I better ReTweet your Weblog entry before the death match begins.

With everything else on the web becoming real time, where will twitter stand. PSHB and RSSCloud are two services that will challenge Twitter's real time edge shortly, and they are wide open for development.

Mind share doesn't put money into the pockets of investors. Though it helps the story. But how long will the buzz will continue in Twitter's favor? Twitter as cool as it is still has to prove it's worth by showing it can generate something called revenue.

Oh yeah, there's still the issues of scalability and up-time!

The truth is that twitter has this mind disease through and through. Their full feed is unaffordable, for example -- as if tweets about what someone's cat did are worth money.

Earth has this funny property of pulling back to it all these high flyers and making them land with a thud or even a splat. It's called gravity, which of course only works in real life and not the lala land inhabited by the likes of twitter's CEO and his funders. Time will tell.