A View on the Twilio Investment

Over the past 24 hours the emails, instant messages, and discussion in the Linkedin Telecom API group have been flowing faster than usual as people digest the news of Twilio’s latest $70M round with the usual fawning uncritical tech reporting that passes for journalism from TechCrunch.  And don’t get me started on people who call themselves Telecom Analysts with a degree in botany and no work experience whatsoever in either a telco or supplier.  But back to Twilio, rather than the root cause of the rampant BS in the vacuous echo-chamber of the on-line media.

From a range of discussions in the past 24 hours since the announcement, wrapping up opinions from around the world and many segments of the investor and telecom communities the consensus view appears to be:

  • On why such a big round:
    • They decided this was make or break, raise enough so they would not need to go to the investors again.
    • Their current capitalization table requires any new investor to lay down a significant amount of cash to get a reasonable % of ownership to steer the venture.
    • Clearly Redpoint strongly believes Telecom APIs and Enterprise SaaS will deliver a complete and compelling enterprise offer with a high value exit, and given Twilio’s marketing leadership has placed its bet there.
    • I really like some of Redpoint’s investments, e.g. Sonos and Zendesk, they have a good investment track record. They clearly have a strategy for Twilio to deliver on with this $70M.
  • On the numbers:
    • Valuation estimates range from $130M – $230M pre-money, with $200M – $300M post. At this point the VCs likely own 75%-85% of the business. Now I did receive a couple of $600M valuation estimates, but I’m treating them as outliers, I could be wrong here, remember this is just my opinion based on sensible (non-Facebook) analysis.  Update: GigaOM recently did an article which claims around $500M valuation on possibly a 2013 revenue of $50M (this is not actual revenue just a prediction for this year).  If they go IPO, let’s remember this number to test the accuracy of their predictions.
    • So is this a down round?  It depends where the actual pre-money valuation sat in the range $130M-$230M, likely it was roughly flat.  Update: its an up round if the $500M valuation in GigaOM is accurate.  If only non Bay Area companies could get such valuations.
    • Which means Redpoint could have between 17-28% of the business, which is likely enough control to drive the venture in delivering on the Telecom API / SaaS vision, if that is the exit Redpoint is aiming for.

These are all assumptions with no insider information, so could be completely off, but clearly the level of buzz and BS around Telecom APIs is going to reach a fever pitch similar to what I’ve living through here in NJ with the 17 year brood of cicadas partying in the oak trees around my home!

My concerns with Twilio remains its dependence on the open source software Asterisk, which is great for enterprise applications but does not scale to service provider applications; and its relationship with the Asterisk community upon which it is dependent.  This technology dependence impacts its business model (can not sell software licenses as it does not own the software), so requires Telcos to run on their cloud rather than vice-versa, and the challenge of support at scale as evidenced by their $5k per month support fee.  I’m being fair and balanced in my assessment here, Twilio are the marketing leader by far in this category, and have created this segment as I’ve pointed out on this weblog many times, but technology does matter at scale, it critically matters.  And more broadly, the Telecom API space is getting crowded, fast, so the gap between now and exit for Twilio is not a slam-dunk, there’s much work to be done.

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