DataSift Inc., a startup that makes information from social sites easier to manipulate, wasn’t planning on raising money this year -- until Twitter Inc.’s initial public offering prompted a surge of investor interest.
DataSift said today that it raised $42 million from investors led by Insight Venture Partners. Chief Executive Officer Rob Bailey said more than 20 venture-capital funds reached out to invest after Twitter revealed the size of its data-licensing business, in which the microblogging service sells information on its stream of messages to companies like DataSift that help analyze it for insights and trends. Twitter, which soared 73 percent in its IPO debut last month, made $47.5 million in 2012 through the data-mining business.
“Twitter’s numbers were a validation of what we were doing,” Bailey said. “I could always tell when there was a big bit of Twitter news in the market because we’d have a few VCs calling us.”
DataSift is just one beneficiary of increased interest in social-media companies following Twitter’s IPO. Apple Inc. yesterday confirmed it acquired Topsy Labs Inc., another company that analyzes Twitter data. HootSuite Media Inc., which helps social media users plan their posts and personalize their feeds, said interest from private equity and growth fund investors doubled in the months before and after Twitter’s IPO.
“We’re not in active conversations for funding right now, but we’ll meet up with folks that we may want to be in touch with down the road,” said HootSuite CEO Ryan Holmes, whose company raised $165 million in August, also led by Insight Venture Partners. “They’re looking to understand social marketing and advertising.”
The investor interest contrasts with last year. That was when Joe Fernandez, CEO of social-media startup Klout Inc., said he saw a chill take over the market following the May 2012 IPO of Facebook Inc., the world’s largest social network, which plunged from its $38 IPO price. Facebook only rose above that price this year.
Since Twitter’s IPO, Fernandez said he has found himself in demand with investors. At the Goldman Sachs Technology and Internet Conference last month, he said he took back-to-back meetings with investors for two days.
“Last year it felt like the market was moving away from social media and Facebook was kind of the excuse,” Fernandez said in an interview. “Now with the Twitter IPO, it’s blowing back this way.”
Twitter’s shares rose 1.5 percent to $41.37 at the close in New York, and the stock is up 59 percent from its $26 IPO price. The company is trading at a loftier price-to-sales ratio than Facebook, even though it is unprofitable and faces slowing user growth.
The euphoria ahead of Twitter’s IPO also pushed up valuations of other social-media companies. Pinterest Inc., an online photo bulletin board, was valued at $3.8 billion in an October funding round. NextDoor.com Inc., a social-networking site for neighborhoods, was valued at $500 million the same month.
DataSift pays for access to Twitter’s firehose of data from the interactions of the network’s more than 230 million users. It also gathers data from social networks including Facebook, Yahoo Inc.’s Tumblr and Google Inc.’s YouTube and organizes it so that it can be sold to companies that analyze social media for businesses. Its customers include Dell Inc. and Tableau Software Inc.
The company is anticipating 2014 revenue of more than $25 million, said people with knowledge of the matter, who asked not to be identified because the information is private.
DataSift’s Bailey said he chose Insight, which is also an investor in Twitter, for its experience in social-media companies. DataSift is valuable because it can apply its technology to other kinds of hard-to-manage information, said Jeff Horing, a managing director at Insight.
“There’s no question that there’s a real business underlying these things,” Horing said. “There’s a lot more optimism for what the market can bring and we’ve obviously been believers for a while.”
DataSift’s existing investors Scale Venture Partners, Upfront Ventures, IA Ventures, Northgate Capital, Daher Capital and Cendana Capital also participated in the round.
Bailey declined to comment on the San Francisco-based company’s valuation. DataSift has raised more than $70 million in total.
“The market’s evolved and changed a lot in the last few years and the social data business has gone from experimental to mission critical for companies,” said Bailey, who is working to make DataSift worth $1 billion one day. “Twitter’s IPO could not have come at a better time.”