Start-ups shouldn’t compromise their offerings in a bid to satisfy high-profile investors, an expert says, after a Saudi Arabian prince invested $301 million into social networking giant Twitter.
Martin Nally, founder of hranywhere, says getting involved with high-profile investors “can’t hurt if you manage it well” and the terms of the deal are clearly understood by both parties.
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“If you sell a majority, you lose that opportunity [to maintain control]. If you want to maintain a controlling interest, maintain a controlling interest – it’s as simple as that,” Nally says.
Nally’s comments come on the back of reports that Saudi billionaire Prince Alwaleed bin Talal and his investment company are investing a combined $301 million into Twitter.
It’s believed Alwaleed’s joint investment, with his Kingdom Holding Company, will give them a “strategic stake” in the micro-blogging site, after months of negotiations.
According to the prince, the deal represents an interest “in promising, high-growth businesses with a global impact”. However, it’s unclear how much of Twitter the prince will control.
This isn’t Alwaleed’s first major investment. The prince owns 95% of KHC, which has major stakes in Citigroup, Apple and Rupert Murdoch’s News Corporation.
Twitter, based in San Francisco, has more than 100 million active users who post an average of 250 million tweets a day.
“We believe that social media will fundamentally change the media industry landscape in the coming years,” KHC’s Ahmed Halawani said in a statement.
“Twitter will capture and monetise this positive trend.”
Twitter has confirmed the investment but has declined to provide further details. Earlier this year, it raised $US400 million from venture capitalists and other investors.
Research firm eMarketer estimates Twitter will generate close to $US140 million in advertising revenue this year, and $US260 million in 2012.
In September, Twitter chief executive Dick Costolo said cash cushion will allow the company to control its own destiny and avoid selling its stock through an IPO – at least for now.
According to Nally, all start-ups need to have a growth plan or an exit strategy, which means becoming less owner-centric and more attractive to investors.
“You want to attract a visionary… [But] with investors, they will have expectations and you have to deliver,” he says.
Nally says while it’s important to meet investors’ expectations, you don’t have to sell out to keep them happy. On the contrary, the more desirable your product, the more power you maintain.
“If you’ve got a highly consumable item, which can then be accelerated and blown out in terms of revenues and profitability, of course you will be attractive to investors,” Nally says.
“It’s about creating attractiveness and desirability for your product… You have to have something that is attractive in terms of its potential but it has to be solid.”
“Really, that’s what start-ups are all about.”