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This blog is an extension of our blog on #Twitter Truths: Scanning an S-1 filing in mere 30 minutes

A Case Study of Twitter, Inc.

When a company goes public, it brings a fortune to many. Who are these fortunate ones?

1. The founder(s) and co-founder(s) who have passionately followed just one thought, just one idea and sacrificed everything to fulfill that dream

2. Those who remain committed to the organization: CXO level people such as CEO, CFO, CTO, CSO; employees who have remained with the organization till the time their options vested and became exercisable.

3. Investors (VC or PE or Institutional investors or even individuals) who assumed the risks and stayed invested: Earlier the participation in a funding round, more likely will be the returns. Series A investors will definitely make a higher return than Series F investors provided he / she remains invested. This is not any kind of arbitrage. Just that Series A investor assumed far more risks than a Series F investor due to early entry in to the company.

4. The bankers to the issue, also known as Book Running Lead Managers, earn their fee which typically is a certain %age of funds raised.

5. The lawyers involved in drafting the legal documents related to the IPO

Let’s now look at the IPO of Twitter, Inc. (“Twitter” or the “Company”). We have attempted to demonstrate who all made money and to what extent.

We quote from page no. F – 34 of Amendment No. 2 to S – 1 filing of Twitter, Inc. (“Twitter” or the “Company”):

“…The conversion price is initially defined as the original issue price of $0.001 for Series A convertible preferred stock, $0.11 for Series B convertible preferred stock, $0.35 for Series C convertible preferred stock, $0.72 for Series D convertible preferred stock, $2.67 for Series E convertible preferred stock, $7.63 for Series F convertible preferred stock and $16.09 for Series G convertible preferred stock, subject to adjustments: (a) issuance of common stock as dividends or distributions, and other dividends and distributions; (b) subdivision or combination of outstanding shares of common stock; (c) reclassification, exchange and substitution or (d) reorganization, consolidation and mergers. Additionally, the conversion price of all series of convertible preferred stock is subject to adjustment upon certain sale of shares of common or preferred stock below their then effective conversion price, as well as upon certain sales of rights, options or convertible securities whereupon the price of shares of common stock issuable upon exercise of such rights, options or convertible securities is below their then effective conversion price. As of December 31, 2011 and 2012 and September 30, 2013, each share of preferred stock will convert into common stock on a one to one basis…”

Through a series of desktop based search, we have plotted the original share issue price and the timing of each of the fund raise event in the chart above. Whenever a funding round has been closed over a period of time, the timing of last infusion in that round has been considered.

The stock has never issued a dividend nor it has been through any corporate action such as stock split or bonus issue and hence no adjustment is required while comparing its value over time.

#Shashi Bhushan Financial Modeling

The price has grown at a compounded annual growth rate (“CAGR”) of ~ 400% since the time of Series A funding till the time of IPO. A mind blowing CAGR of 400% over 6 years is a filthy high return to expect.

Needless to say, people would have made money. The table below summarizes what a dollar invested in various rounds of funding would have become at the time of IPO:

#Shashi Bhushan Financial Modeling

For example, we can now calculate how rich each of these investors would have become at the time of IPO:

1. Benchmark Capital Partners paid $7.63 per share for 1.1 million shares during the Series F convertible round between December 2010 and January 2011.

In July 2011, during the Series G convertible round, DST Capital paid about $16 per share for 12 million shares.

The actual process of selling the 70 million shares was handled by the underwriter’s syndicate, headed by Goldman Sachs for an aggregate fees of 3.25% of the fund raised in the IPO.


#Shashi Bhushan Financial Modeling

Now it’s not difficult to estimate the money made by each member of the syndicate if we know the share of each of them in total pie. The investment bankers assumed the risk of selling shares to the public, and they did it with utmost sincerity. Their top institutional clients who participated in the IPO (such as hedge funds, mutual funds, asset managers) all got apportionments of stock at the IPO price.

The Legal advisors / counsel of the deal, Wilson Sonsini Goodrich & Rosati, P.C., which handled the legal side of things for Twitter, owns about 8,000 shares plus a decent fees for all the midnight olil they would have burnt for an IPO of this size.

Besides, the promoters / founders / cofounders / CXOs / other employees holding stocks or options would have been richer overnight by a different magnitude altogether, whether they could encash it or not depends upon if there was a lock in period for them or not.

What about retail investors? When will they make money? Or did they lose money actually?

Please share your thoughts with us. Feel free to start a discussion below to contribute!

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You can download detailed S1 Filings for Twitter from: