Twitter CFO hones IPO haggle skills in hangar with Ballmer

SAN FRANCISCO — Months after becoming Twitter Inc.’s finance chief, Mike Gupta is talking to banks about handling the company’s initial public offering, a sign that the most anticipated stock-market debut since Facebook Inc. is getting closer – and that Gupta will play a key role in it.

The microblogging website has held preliminary talks with securities firms about an offering, two people with direct knowledge of the process said. Twitter is awaiting third-quarter financial results before deciding whether to file the IPO paperwork with regulators this year or next, said people who asked not to be identified because the plans are confidential.

Gupta, who joined Twitter last year, would accompany Chief Executive Officer Dick Costolo during an eventual cross-country pre-IPO road-show, explaining the company’s business to potential investors. The former Yahoo Inc. finance executive will draw on an ability to communicate intricate ideas simply as he seeks to outline how the online-advertising business – set to reach $1 billion in sales next year – can sustain long-term growth, said Peter Fenton, a partner at Benchmark Capital.

“A lot of people are trying to understand, ‘How does this thing work? How does it make money?,’” said Fenton, a Twitter director whose venture capital firm is an early backer of the company. “He has a layman’s ability to simplify and express it in a way that’s not overly complicated.”

An alumni of the University of Chicago Graduate School of Business, Gupta, 42, has climbed the ranks of Silicon Valley companies over the past decade, becoming a trusted lieutenant to Yahoo co-founders David Filo and Jerry Yang. Gupta huddled with the pair as they haggled in an airplane hangar with Microsoft CEO Steve Ballmer in 2008 over the software maker’s proposed $44.6 billion takeover. He later helped hammer out Yahoo’s search pact with Microsoft and investment in Alibaba Group Holding Ltd.

Gupta also helped take Zynga Inc. public in 2011, leading the negotiations for an 11th-hour $1 billion line of credit from banks including Morgan Stanley and Goldman Sachs Group Inc.

“He was instrumental during our earnings calls and during our roadshow” meetings to pitch investors, John Schappert, Zynga’s former operating chief, said in an interview. “He would do a great job of playing the other side and thinking through all the intricacies.”

His deals haven’t all ended well. Yahoo shares plummeted in the months after it rebuffed Microsoft’s offer and the companies’ search pact fell short of sales projections in the past year. Zynga’s market value has plunged 70 percent since the company’s IPO as fewer users play its games on Facebook.

Yahoo’s holding in China’s Alibaba, by contrast, has proved lucrative. It gives the Web portal a stake in the future of the world’s biggest Internet market, and the sale of part of the investment last year gave Yahoo CEO Marissa Mayer cash she could return to shareholders and use for acquisitions.

Gupta will need to prove to investors and analysts that Twitter deserves a rich valuation. The company was valued last month at about $10.5 billion by GSV Capital Corp, one of its investors, up 5 percent from a May estimate. Twitter will grow advertising revenue to $950 million in 2014, an increase of 63 percent from $582.8 million this year, according to a EMarketer Inc. estimate.

“The revenues are not really defined,” said Santosh Rao, a senior analyst at Greencrest Capital Management in New York. “People want to know, when you start going on the roadshow, where is the next incremental dollar coming from?”

To help gear up for an IPO, Gupta has been building a team of finance pros. He hired Cynthia Gaylor, a former Morgan Stanley managing director with 17 years in investment banking, in May. Twitter recently posted an opening on LinkedIn Corp.’s website seeking a financial-reporting manager whose duties will include preparing financial statements “when we are ready to go public.” USA Today earlier reported on the job listing.

Born and raised in New York City, Gupta got his start in investment banking in the 1990s at Merrill Lynch. In 2003, he joined Yahoo, where he held roles in finance and corporate development, quickly earning the trust of top brass.

At a secret meeting in an Oregon airplane hangar in April 2008, Gupta was the only Yahoo executive alongside Yang and Filo to discuss the Web portal’s possible sale to Microsoft. The trio met in person with Microsoft CEO Ballmer and his deputy, Charlie Songhurst, according to two people with knowledge of the matter.

Karen Wickre, a spokeswoman for San Francisco-based Twitter, declined to make Gupta available for an interview or comment on IPO plans. Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, declined to comment.

Although Yahoo rebuffed Microsoft’s bid, the negotiations eventually led to a search partnership, which Gupta helped clinch alongside former Yahoo CEO Carol Bartz. The finance executive also accompanied Yang on trips to China to secure Yahoo’s backing in Alibaba, an investment that has appreciated as the Asian e-commerce giant nears its own IPO.

Soon after Gupta was poached by Zynga in June 2011, he set about working with bankers to draft the gamemaker’s IPO prospectus, according to David Wehner, the former Zynga CFO who now works at Facebook.

Zynga also took advantage of bankers’ eagerness to earn fees from the deal by securing a $1 billion line of credit from its IPO underwriters, including Morgan Stanley and Goldman Sachs while negotiating with them on terms, an initiative led by Gupta, according to Wehner.

“It’s a good time to do it,” Wehner said in an interview. “There are a lot of fees being paid out, so banks are more favorable.”

The borrowing power instilled confidence in IPO investors and gave Zynga the ability to buy gaming upstarts.

The tactic of securing credit on the eve of an IPO, relatively unusual before Zynga went public, was later copied by Facebook. Gupta may also repeat it in his new role, said Guru Gowrappan, a technology veteran who worked with him at Yahoo and Zynga.

“I wouldn’t be surprised if he does the same thing for Twitter,” Gowrappan said in an interview.

Twitter made its play for Gupta after an executive shuffle over the past few years. Costolo, who became CEO in 2010, promoted Ali Rowghani, who joined Twitter as CFO, to COO last year. Vijaya Gadde, a former lawyer for Wilson Sonsini Goodrich &Rosati, was promoted to general counsel on Aug. 30 to replace Alexander Macgillivray.

Gupta’s low-key manner complement the duo in charge at Twitter, said Fenton, who, along with fellow director Peter Currie recommended the finance executive to Costolo.

“There is a consistent style in that leadership team of humility as opposed to being arrogant or braggadocios,” Fenton said.

Gupta will also need to heed the lessons of Facebook, which lost more than half its value in the six months after its May 2012 IPO on concerns it wasn’t making enough sales from ads on mobile devices. There’s a good chance Twitter will avoid that fate because most of its sales are projected to come from smartphones and tablets in 2014, which investors interpret as a promising sign, said Clark Fredricksen, vice president at EMarketer.

“The company is well prepared for the mobile future,” he said.

Twitter’s informal talks with potential IPO bankers were previously reported by the New York Post.

Gupta’s experience earlier in his career as an auditor at KPMG will also help Twitter in its preparations to go public, according to Vlado Herman, Yelp Inc.’s former CFO, who helped the reviews site go public last year. There, he developed skills both in auditing as well as finance, Herman said.

“A lot of times when you hire a CFO they are either a controller track, or the audit track,” Herman, who is now CFO at software-tools provider GitHub Inc., said in an interview. “Mike has both, which is really cool. As you’re thinking through the IPO, accounting becomes a really big aspect of going public. Having that is pretty potent.”

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