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Why Twitter just raised $200m

Twitter just raised $200m. Leading the round is John Doerr of Kleiner Perkins, one of the top partners in one of the top VCs in the top VC ecosystem in the world.

Yet the typical comment in response to "why did they raise that money?" is either a joke ("they want to buy 200'000 Aeron chairs"), or a comment on how Twitter is not making any money and this is a bubble valuation.

Here's another interesting bit of information. 5 hours before this funding announcement, the Twitter blog published another blog post, titled "It's business time". In it, they state:

Today we're launching a revamped version of business.twitter.com - a site that provides the basics on how businesses can use Twitter effectively. We've seen tremendous growth in the creative ways businesses and organizations are leveraging Twitter, and we want to make sure you have access to their great ideas. We'll continue to update the site with fresh use cases, tips, tools, and resources.

The new business site provides information about Twitter features and tools - for example, how to use mobile to communicate with customers (Fast Follow) and how to share content on the web (Tweet Button). Business.twitter.com also has a section about our suite of Promoted Products - Promoted Trends, Promoted Accounts, and Promoted Tweets - and offers a way for businesses to contact us about advertising on Twitter.

Emphasis mine.

In other words, Twitter is launching its advertising offering at last.

Is it a coincidence that this announcement came out on the same day? Every other post on blog.twitter.com is about irrelevant consumer topics like "top tweets of 2010" or "What's your #TwitterTip". I can't possibly believe that this is a coincidence.

Here's what I believe:

I believe John Doerr is no idiot. As Joel Spolsky puts it, "Different VCs have different funds with different models.". Whatever John Doerr and Kleiner Perkins' goals are, they are not the kind of investors to throw $150m into something unless they expect it back, and then some.

I believe Twitter is interested in funding from John Doerr and Kleiner Perkins because the cachet of this investor (who invested in Google and various other mega-hits) will help its inevitable IPO reach stratospheric heights when it chooses to do so in the next few years.

I don't believe that launching its advertising offering is something Twitter would do lightly without any testing. I don't know who they've done it on, or where, or how they hid it, but I think it's a fair assumption that they've tested it, commercially, through and through, before launching it. Yes, that would mean they've been testing promoted tweets without making them obvious.

I believe the funding and the advertising are connected. The investment probably hinged on the same test results as the public launch of the twitter advertising model.

In other words, I believe that Twitter knows exactly how it will make money, and it knows that it will make enough money to IPO.

Update: Some people point out that I didn't actually mention for what use they might raise $200m. The most likely use is to fund even more staff (sales staff?) and an advertising campaign. Perhaps a campaign to tell everyone about sponsored tweets...

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