The FT reports some disturbing news for lovers of free information everywhere: JP Morgan's Digital Growth Fund is rumored to be in talks to acquire 10% of Twitter for $450 million, or a $4.5 billion valuation (for a service which we have yet to get confirmation is generating any more than token revenue whatsoever). "It is not clear if the JPMorgan fund will make a direct investment or buy out existing investors and shareholders with Twitter’s approval. But the fund does not intend to buy shares on the secondary market, the people said. The deal has not closed." For those unfamiliar with the DGF, it is merely JPM's way to copycat Goldman into "allowing" its high net worth clients to put their money into the latest tech bubble frenzy. "JPMorgan’s Digital Growth Fund was established this month to give rich clients exposure to fast-growing private tech companies, and follows a similar effort by Goldman Sachs to invest in Facebook. The fund has raised $1.22bn to date, according to a filing with the Securities and Exchange Commission. But it plans to raise $1.3bn in total, and will have a maximum of 480 investors, say the people. JPMorgan expects to earn commission of at least $13m from the fund." And since none of these company are quite public, and all of them supposedly trade on a shadow secondary market, the frenzy for which bank can open up the tech bubble market to most high net worth investors, a race for now headed by Goldman with its Facebook investment, has certainly marked the tech top. One thing that is certain is that those who mostly enjoy using twitter as a free information conduit will now aggressively seek to find a replacement that is not backed, and thus at the mercy, of the Fed's favorite bank.
More from the FT:
Besides the Twitter stake, JPMorgan hopes to invest another third of the fund in one other private web company – possibly games maker Zynga or telephony provider Skype.
The final third of the fund will be allocated among six other companies, they said – possibly to include coupons site LivingSocial, or Gilt, the flash-sales site. Twitter will be the fund’s focus. The company has 253m unique users per month, up 85 per cent from a year ago, according to venture capital firm Kleiner Perkins Caufield & Byers.
Internet market research firm eMarketer expects revenues to reach $150m this year.
Kleiner Perkins invested $200m in Twitter in December at a $3.7bn valuation. The JPMorgan valuation of $4.5bn would mark a swift rise in value, and could aggravate concern about of a new tech bubble.
Facebook is now worth up to $70bn on the secondary market, a price considered too rich for the JPMorgan fund, said people familiar with the plans. JPMorgan, Twitter, Skype, Gilt and LivingSocial all declined to comment.
And to think that just over a decade ago AOL (and Friendster, and MySpace) was "the bomb" and nobody could possibly think of anything that could dethrone the now completely irrelevant company...