Does Twitter deserve $7 billion valuation?

You already heard about Internet companies Zynga Inc. and Groupon Inc. filing to raise mega-bucks from public issuance of shares. Twitter is also looking to raise lot of cash. Only its strategy is different. According to sources, the microblogging site has now entered a new round of talks with private financiers with hope of raising hundreds of millions of dollars in a deal that could potentially value Twitter at around $7 billion.

This new round of talks come seven months after Twitter had raised $200 million in a financing arrangement that valued the company at $3.7 billion. That deal led by venture-capital firm Kleiner Perkins Caufield & Byers. It is clear that Twitter is taking advantage of the soaring price tags of many other companies in the social networking space to drive up its own valuation.

Twitter desperately needs to raise large sums of money quickly in order to have the time for building a sustainable ad driven business model. The company is much more lean as compared to some of its peers. Its employee count stands at around 500, and the executive ranks are pretty thin.

The company has recently announced that from the middle of 2011, the number of tweets had per day had reached 200 million mark. The smartphone revolution had only helped the company in expanding its base. Yet, despite its success with users, Twitter continues to be an evolving business model, so it makes sense for it to stay private till it figures out the best ways of garnering revenues.

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