Twitter Pads Its Piggy Bank

The tweeters are atwitter about a new round of funding for the popular Twitter microblogging service — even though the company has yet to reveal how it plans to begin making money.

The company closed on a $35 million financing round with venture capital firms Benchmark and Institutional Venture Partners (IVP), and including new funding from existing investors. Benchmark executive Peter Fenton is joining the Twitter board as part of the deal.

“This illustrates that great companies are still getting funding,” Gina Bauman, director of marketing at IVP, told InternetNews.com, who confirmed the amount of this round’s financing. Earlier reports had pegged the figure in the $20 million range on the basis of a $250 million valuation.

The news comes as dozens of Silicon Valley startups are shuttering doors or cashing out at rock-bottom prices due to economic challenges. For Twitter, the infusion is an especially large vote of confidence given that it’s yet to reveal plans to generate revenue at the same time that venture capitalist investments are becoming far more choosy. The reported that VCs invested $5.54 billion in U.S. startups during fourth quarter. The figure is a 27 percent drop from previous quarter.

Twitter co-founder Biz Stone attributed attractiveness to exploding usage. He said active usership has increased 900 percent during the past year, while the site Twitter has only 29 employees.

“Our strong growth attracted interest and we decided to accept a unique opportunity to make Twitter even stronger with a very attractive offer,” Stone wrote in a blog post today.

And while Stone didn’t disclose how many users the service has, Hitwise, an Internet traffic monitoring firm, reported last month that Twitter traffic eclipsed that of Digg, the popular social bookmarking site.

Pure traffic figures — which put Twitter.com at No. 84 on Hitwise’s list of computer- and Internet-related Web sites — don’t tell the whole story, Stone added.

“Even though our Web traffic is amazing, we see twice that traffic to the APIs,” he said. “Interacting with Twitter over SMS is also getting more popular every day.”

Company spokespeople did not respond to requests for additional comment by press time.

Money matters

Despite the windfall, Stone said his company hadn’t even been actively seeking funding, since it still had money in the bank from earlier investment rounds.

Last June, Twitter added two new investors, Amazon.com’s Jeff Bezos and Spark Capital’s Bijan Sabet, on top of existing investments from Union Square Ventures and Tokyo-based Digital Garage, which partners with Twitter in Japan.

[cob:Special_Report]Bauman and Stone also did not go into specifics of how the company plans to spend the new funding. Stone said only that Twitter plans to boost staffing levels and accelerate growth — and especially, a source of income.

“We are now positioned extremely well to further enable the robust ecosystem sprouting up around Twitter, and yes, to begin building revenue-generating products,” Stone wrote, alluding to the fact that the site has not yet made a penny in revenue.

Last December, at a tech event, co-founder Evan Williams reiterated the company’s intention to focus on developing a revenue stream in 2009, with revenue generation starting in the first quarter.

It’s not clear whether those plans are still on track, but Twitter’s quest may now be somewhat easier given the old saying: It takes money to make money.