Today The Financial Times reported in a paywalled article that Twitter is brokering a deal for investment firm BlackRock to buy up to $80 million of stock from early Twitter employees at a $9 billion valuation. By giving employees liquidity, Twitter may not need to rush to an IPO the way Facebook did to satisfy veteran talent.
The $9 billion valuation means Twitter’s worth has increased just 10 percent since it raised funding in 2011. However, it’s lower than the $10 billion to $11 billion valuation Twitter agreed to for two smaller secondary sales done in 2012. If enough employees accept the tender offer to hit the $80 million limit, BlackRock will own just less than 1 percent of Twitter.
BlackRock’s fund will give some long-time Twitter team members their first chance to trade their equity for cash. Dan Primack reports that only a small number of employees, possibly around a dozen, are getting the chance to sell. Whether the sale would relieve IPO pressure depends on who those employees are. If they’re critical team members, their departure in search of liquidity could strike a serious blow to Twitter. If they’re simply early employees who don’t contribute much any more, their retention or exit would have less influence on Twitter’s IPO schedule.
Going beyond the facts from the Financial Times’ report, there are several benefits to Twitter providing a liquidity release valve for employees sitting on tons of stock. First, it’s sure to make these employees happier. Some of them could be worth tens of millions of dollars on paper, but have much less money in the bank. The ability to sell some stock means they could upgrade their lifestyle to be more in-line with their worth. Giving them this option could keep great employees from leaving the company.
Second, depending on Twitter’s internal regulations regarding independent sales on secondary markets, the offering to BlackRock could keep employees from tipping Twitter over the 500 shareholder limit that triggers the need to file for an initial public offering.
Without offerings like this one to BlackRock, the only way to get employees liquidity is to IPO. That hasn’t necessarily been productive for companies like Facebook, Zynga, and Groupon who got chewed up by the public market.
Many suspected that after eight years as a private company, some early Facebook employees were considering ditching jobs at the social network to escape regulation on secondary sales and gain some cash. By going public before its mobile advertising business had proven itself, Facebook withered intense speculation that shift of its user base to mobile could sink the business. $FB shares plummeted to as low as $17.73 in September from its $38 IPO price in May, though it’s recovered somewhat to $31.54 since then.
Seeing Facebook trip over its IPO, Twitter CEO Dick Costolo may have wanted to instead adopt a strategy similar to Pinterest. As we reported this week, Pinterest recently sold $30 million in stock to SV Angel. In this case it was early investors, not employees, that got liquidity. Still, it was likely done to keep investors happy and delay the distraction of considering an IPO.
If the deal goes through, it could allow Twitter to avoid Wall Street until advertising business really gets rolling. Costolo would then have fewer employees clamoring for an IPO, allowing him to continue building Twitter’s business privately until it’s ready for the public spotlight.