500Friends Raises $4.5M Series A For Its Social Loyalty Platform

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500Friends, the social loyalty solution for e-commerce retailers, is announcing it has completed a $4.5 million Series A round led by Crosslink Capital, with participation from Intel Capital as well as company CEO (and angel investor) Justin Yoshimura.

Founded in 2010, and launched in summer 2011, YC-backed 500Friends’ LoyaltyPlus service allows merchants to reward their loyal customers who are tweeting about their purchases, posting to Facebook, referring friends, writing reviews, signing up for rewards programs, and more, all through a white label offering that can be integrated onto the retailer’s own site, on either web or mobile.

As a part of the new funding, Eric Chin, General Partner with Crosslink Capital, joins 500friends’ Board of Directors.

23-year old Yoshimura, a high school dropout, is the youngest founder that Crosslink and Intel have ever backed. A serial entrepreneur, he’s successfully launched and sold two other companies, an eBay for cellphones called CellsWholesale.com and a Yahoo Answers for medical questions, AskMedicalDoctor. Well, at least he’s gotten better with startup names since then.

Yoshimura still fondly recalls growing the lemonade stand he launched at age 12 to 25 locations by age 15. And when his first startup did $1 million in revenue one month while he was in high school, he dropped out, upsetting his parents, who then forced him to move out of the house.

He’s been an entrepreneur ever since.

So yes, an interesting background, but also a relevant one for building a product aimed to help online retailers.

“There are companies like Buddy Media that help you manage your fanpage,” Yoshimura explains, “but if you’re an e-commerce retailer, how do you see ROI for loyalty? How does social fit into the picture?” There was no platform for social loyalty out there, he explains, which is why he started 500Friends.

“You can think of it as a loyalty program for all a person’s digital activities,” Yoshimura says in describing the service. “A typical loyalty program – for example, American Airlines, which gives you miles for flying – is obviously effective for engaging your top customer base. But especially in today’s social day and age, people show their loyalty in different ways.”

“What that means is someone can make three purchases, write a review and refer a friend, and those other actions can be just as valuable or even more valuable than the original purchase that took place. It would be silly for a retailer to be leaving all that on the table.”

The 500Friends LoyaltyPlus system therefore allows retailers to track, reward and recognize customers for doing anything they do on the Internet – posting status updates, writing reviews, checking-in, referring friends…anything. What gets rewarded is up to the retailer.

Current customers using the service include L’Oreal, Hotels.com, US AutoParts, Shoebuy.com, Armani, Scentiments, PetfoodDirect.com and others. Since its summer launch, 500Friends has signed up 50 customers. And the businesses are seeing good levels of customer engagement and ROI, says Yoshimura. 26-40% of the retailers’ customer base are being engaged through 500Friends, and the retailers’ ROI is 10-20 times what they pay 500Friends in the first year.

Yoshimura, who’s also an angel investor in startups like Hipmunk, Zencoder, Torbit and others, says that’s why he decided to throw in on this round, too.

“The reason why I invested personally in the round is because of the significant traction we’re getting in the marketplace combined with the amazing results we’ve delivered for our partners,” he says. “The common theme in every company I invest in is a good team, market need, and market traction….with 500Friends, everything you would want to see is really there.”

Although 500Friends says it’s too early to talk about its own revenue figures, the company says it has been growing at a “fast pace” month-over-month and has been doubling its every revenue every quarter.

As for the funding, besides “throwing a launch party in Vegas, where $3 million will be spent on either red or black,” jokes Yoshimura, the company will spend half of the new investment on sales, marketing and client services and the other half on R&D.

In the future, 500Friends says it will continue to build out its social functionality and better connect the dots between other incentives. In layman’s terms, this means things like more fan page tools, better analytics, integrations with Pinterest and other social sites, and more. Further down the road, the company is planning on launching a publisher platform and platform for financial institutions.

And one final note on the financial details: PEHUB reported this morning that 500Friends raised $5.9M in Series A financing, but the company clarified that the total amount raised was $4.5M – the other amount stems from promissory notes that were converted from the Series A.