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Twitter, the popular microblogging service that has become a favorite social media marketing tool, has signed a term sheet to raise more venture capital money at a $250m valuation. That's according to a report published this weekend by TechCrunch.

Thus far, Twitter has raised approximately $20 million in funding. The dollar amount of the latest round is not yet known.

Twitter's ability to raise capital at such a significant valuation in this economy and as venture capitalists tighten their belts is a testament to its popularity and potential, although TechCrunch's Michael Arrington did note that Twitter was rejected by several firms who were approached.

As you may recall, the company turned down an acquisition offer from Facebook that was worth $500m in the social network's stock, assuming a valuation of $15bn, which Twitter management and investors apparently refused to buy into.

The good news is that the latest funding gives Twitter a lot of cash on hand as its rapid growth continues and it figures out a way to turn that growth into revenue.

And revenue is key. Twitter recently hired a director of mobile business development, a sign that it wants to implement a business model sooner than later now that the economic situation has changed.

Developing a viable business would help reassure Twitter's users that it's going to be around for the long haul. Many have expressed a willingness to pay for the service, which seems to be a rarity these days.

From value-added features to corporate accounts designed for marketers, Twitter has more monetization possibilities available to it than perhaps any other social media startup.

But it also has some challenges. One: living up to a $250m valuation, since investors will want to see a decent multiple of that on an eventual exit. As such, it appears that Twitter probably priced itself out of an acquisition anytime soon.

But that's a ways away. As I see it, Twitter's biggest immediate challenge is offering a suite of paid services that's useful to power users, marketers and corporations and that contains features not already available from third parties. From Tweetdeck to Bit.ly, it seems that every feature some of Twitter's most attractive potential customers could ever ask for is already available (some at no cost). Twitter will need to find a way to deal with this.

In any case, it doesn't hurt that the company will have more money in the bank and more time to figure out how to build a viable business without rushing into hasty, desperate decisions. That's a luxury most startups don't have today.

Patricio Robles

Published 26 January, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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