The Twitter IPO is even bigger than you think

February 28, 2013, 2:20 PM UTC

When Twitter eventually goes public, it will be carrying the weight of the entire consumer Internet sector on its shoulders. Several years ago Twitter was one of four privately held consumer Internet companies that helped spark a startup renaissance (or bubble, depending on your viewpoint). The others were Facebook, Groupon, and Zynga. This quartet was indirectly responsible for the creation of online platforms for trading private company stocks. They were the reason that anyone who ever worked at Google suddenly fancied himself a freelance venture capitalist. Their sure-fire success sparked federal legislation to enable ordinary folks to crowdfund the next big thing. But a funny thing happened on the way to the afterparty: Groupon and Zynga both face-planted in the public markets, while Facebook’s IPO was widely characterized as a dud (even though it raised a record $16 billion).

The correction was swift. Venture capitalists began reassessing their hoodie worship, much as they had looked askew at sock puppet pitchmen one decade earlier. Buzzwords like “big data” began to supersede “social media,” while successful public offerings for enterprise software companies like Workday reminded investors there was a brave old world still waiting to be disrupted. A new crop of micro-VCs emerged, but this time they had names like Data Collective and Commerce Ventures. Some early-stage investors even began talking about hardware again.

To be clear, consumer tech companies didn’t suddenly face a vacuum where their venture capitalists used to be. But they had viable competition for dollars and were no longer considered the biggest men on campus. For example, investment bank Rutberg & Co. reports that VC investment in mobile consumer apps fell 23.4% from the first half of 2012 to the second, while VC investment in mobile enterprise apps increased by 28% over the same period. So far in 2013, the trend appears to be continuing. Only two of the 10 largest 2013 venture deals (as of this writing) were consumer-facing, including a big round for Pinterest. And given VC propensity for momentum investing, an overcorrection is almost certain.

This is where Twitter comes back in. It’s the outlier that could reignite private market love for consumer Internet startups, a reminder that the sector can still create Fortune 500 companies. That would help existing companies get additional funding and also encourage the next generation of entrepreneurs to form new ones. To do so, of course, Twitter must not only go public but do so successfully. That means not stumbling during the SEC registration period, pricing at or above its offering range, and then trading higher in the aftermarket. All while maintaining a valuation of at least $10 billion (BlackRock recently bought Twitter shares at a valuation just north of $9 billion).

To be sure, there is plenty of skepticism. Twitter reportedly generated less than half a billion dollars in revenue last year, which means it’s not even close to the size of Groupon or Zynga (let alone Facebook). And there hasn’t been too much organic evolution of the company’s core product. On the other hand, Twitter has paid close attention to the IPO travails of its three predecessors. That’s why it has only two venture capitalists left on its board of directors, having booted the others in exchange for the ability to sell shares. That’s also why it has been very stingy with employee stock sales, preempting a fast-cash culture that some Twitter insiders believe was destructive at Facebook.

At this time last year few folks were too concerned about what had happened to Groupon and Zynga; they still had Facebook in queue. Today’s environment is much different, of course, thus imposing on Twitter a giant responsibility it never really asked for. The consumer Internet sector will survive with or without a successful Twitter listing. Thriving is another matter entirely.

–Subscribe to Dan Primack’s daily newsletter at

This story is from the March 18, 2013 issue of Fortune.