The huge increase in use of Twitter as a communications tool has spawned a striking number of startups developing applications for Twitter. Several of these new companies are funded by angel investors and a few venture capital firms. As of the middle of 2010, eleven Twitter-related startups had obtained $23,270,000. Twitter itself was formed a few years ago with $55,000,000 of financial backing from angels and VCs in order to break into the spotlight.
Skepticism about the future growth of Twitter seems overwhelmed by the increasing number of tools that modify the micro-blogging system to new uses. One study in 2010 concluded that most Twitter users are inactive and that 90 percent of the content is provided by about 10 percent of the users. But Twitter becomes something different than other social media when new capabilities are added to the service. What seems to matter is not so much what Twitter does but what new companies are doing to Twitter.
The capital markets reflect this position. More Twitter-related companies are being developing within entrepreneurial incubators. A large number of companies that create Twitter-based applications have been acquired—by other Twitter app developers or by Twitter itself. Then there are the eleven companies that raised capital during early 2010. The largest of these is Topsy Labs, which has raised about $15,000,000 to create a search engine based on Twitter. The tool is expected to identify popular links and the influence of each posted link.
Of all the Twitter-related startups obtaining outside funding, each investment round involved deals funded by angel investors, venture capital firms, or angel/VC collaborations. The largest portion of capital was provided by arrangements of angels and VCs working in concert. These were a significantly greater part of the picture than solo angels or VCs working alone.
The venture capital firms seem to be joining more early stage funding deals than is their custom. They are then staying for future rounds. Angel investors, as traditional sources of seed money, appear to attract the attention of VCs. Leadership from angels makes the pool of capital larger when VCs join the party.
Companies that focus on Twitter-specific applications are still receiving investor attention. Despite some criticism of Twitter, there is still highly positive sentiment where it matters—in the market for capital.