JPMorgan Fund Seeks Minority Stake in Twitter

JPMorgan Chase’s new fund aimed at investing in social media companies is seeking to buy a minority stake in Twitter that could value the service at close to $4.5 billion, people briefed on the matter said Sunday.

For the $1.22 billion JPMorgan fund, Twitter appears to be its beachhead in the highly popular social media sector, much as Goldman Sachs established its presence in the category by raising $1.5 billion to invest in Facebook, an amount that included $1 billion collected from wealthy private individuals outside the United States.

It is not clear whether the fund, known as the J.P. Morgan Digital Growth Fund, will invest directly in Twitter, or buy current investors’ stakes with the company’s consent, these people said. They cautioned that talks were continuing and might not lead to a deal. These people spoke on the condition of anonymity because the talks were intended to be private.

Investments by the fund are also expected to extend to other sectors of social media, a broad and rapidly expanding group of companies like the gaming giant Zynga and providers of group coupons like LivingSocial. JPMorgan plans to invest in companies with established business models and steady revenue before they go public in widely anticipated stock sales.

Spokesmen for JPMorgan and Twitter declined to comment on Sunday.

Twitter is widely regarded as one of the darlings of the new generation of Internet companies, and its popularity has grown rapidly since it was founded in 2006. The service, which allows users to broadcast messages of up to 140 characters, has been praised for helping facilitate the protests in Egypt and elsewhere in the Middle East. On Sunday night alone, the service played host to thousands of users who commented on the Oscars in real time.

The potential investment by the JPMorgan fund, which is being run out of the firm’s asset management unit and which company executives have been reluctant to discuss, signals a rapid rise in Twitter’s worth.

Two months ago, the Internet company raised $200 million from a group of investors led by Kleiner Perkins Caufield & Byers, which valued the company at $3.7 billion. That round of investments was itself a sharp rise from the $1 billion valuation assigned to Twitter in a fund-raising round in September 2009.

Trading of Twitter shares on SharesPost, a secondary market, value the company at about $4.3 billion.

Twitter is seeking to prove that it can create a durable and profitable business from its more than 175 million users.

So far, Twitter is in the early phases of developing its moneymaking platform. It introduced its first ads last April, including special messages known as “promoted tweets.” That service has attracted brands like Coca-Cola and Nike. The company’s advertising revenue could swell to $150 million this year, according to eMarketer, an Internet analysis company.

The company has also added two seasoned Silicon Valley executives as board members. And in October, it promoted Dick Costolo to chief executive from chief operating officer, succeeding a co-founder, Evan Williams, in a move that placed a more experienced manager atop the company.

The company has grown to more than 300 employees and is continuing to expand.

The Digital Growth Fund follows in the footsteps of Goldman’s Facebook fund, which gave that site a valuation of about $50 billion. Facebook is currently valued at about $52.3 billion on SharesPost, though recent trades in its shares suggest a valuation of nearly $84 billion.
 So far, the JPMorgan fund has raised about $1.22 billion from wealthy outside investors, much higher than the $500 million to $750 million that the investment pool was initially expected to raise, according to a regulatory filing made on Friday.

The minimum investment is set at about $250,000, according to the filing. JPMorgan expects to collect about $13 million in commissions.

The fund consists only of money from outside investors, and will not use any of JPMorgan’s own capital.

News of the JPMorgan fund’s plans was first reported on Sunday by The Financial Times.

Claire Cain Miller contributed reporting.