Eighteen months ago, it looked like the location wars were over. Foursquare had just closed a $20 million Series B round and rivals like Gowalla, Loopt and Brightkite weren’t having the same buzz or traction. Meanwhile, Christian Wiklund’s company Skout was down to a skeleton crew of three people after burning much of the $4.6 million it had raised since being founded in 2007.
“We were close to going under. We had no traction,” Wiklund said. “But we were really stubborn and there was no way we were going to let that happen.”
A first-time entrepreneur, Wiklund and his co-founder Niklas Lindstrom put their heads down. Around that time, they changed the app to focus on a new demographic: young people who wanted to meet strangers and singles who wanted to flirt.
It hit a nerve and Skout’s new app came at a very lucky time in the market. It hadn’t yet become brutally expensive to climb the charts in the app store, so Skout was early enough to secure a top 25 place in the social networking category that persists even now.
After that, it saw “tens of millions” of downloads and the company shared some notable engagement stats. The app supports about 300 million messages per month. The average users checks in eight to nine times every day and spends an average of 45 minutes chatting, exchanging gifts and posting photos. When I used it over the weekend, I had more than a dozen messages within a few hours. Wiklund won’t say how many monthly or daily active users it has though.
And surprise, surprise. It’s signing up about 1 million users per month. That is the same pace at which Skout’s onetime rival Foursquare is growing.
On the revenue side, the company crossed over into profitability for four to five months of the past year. Its earnings have been enough to support a headcount of 50 including contractors, up from those dark days when Skout just had three people. It’s now intentionally dipping back into the red so it can focus on growth though.
So on the back of this turnaround, Skout is raising $22 million in a round led by Andreessen Horowitz. ”This is one of the very few VC firms in the world that we would want to work with,” said Wiklund.
Andreessen Horowitz is betting on Skout as a play in the mobile dating space, an area that is only just starting to be cracked, though are other mobile dating apps out there from sites like OKCupid, Flirtomatic and Badoo. Both Wiklund and the firm stress that this is “scaling” money.
“Everyone from Loopt to Whrrl was trying to dig for gold in the local-and-mobile space,” said Scott Weiss, a general partner at Andreessen Horowitz who co-founded IronPort Systems. “But the Skout guys did exactly that by finding the product-market fit in flirting and dating.”
He said that Skout and Foursquare are now differentiated enough from each other that there’s no conflict of interest for Andreessen to invest in both.
Weiss added, “Niklas and Christian are incredibly capable, smart entrepreneurs who have a lot of big ideas about how to crack this code.”
The interesting thing about Skout is that it monetizes differently from other apps in the social networking category. While other mobile apps like Instagram, Pinterest or Tumblr will probably rely on advertising, Skout has a healthy revenue stream from in-app purchases. Users can pay for points to send virtual gifts, see who is viewing their profile and send “wink bombs.”
“This type of gifting isn’t that dissimilar to what all the avatar communities have been experimenting with,” Weiss said. “It’s about going on with a persona and getting other people’s attention.”
That makes Skout’s revenue mix a little more like FarmVille, and a little less like Match.com. There’s also a paid app that users can download if they want to avoid ads. That said, Wiklund envisions a business that will rely on local advertising too.
One other thing that Skout did to nail the model was put a heavy emphasis on community management. The company bans more than 40,000 devices a month to make sure that new users feel comfortable. ”It needs to be a safe, clean healthy network,” Wiklund said. “I’m sure you remember how ChatRoulette scarred some people.”
With the funding, Skout plans to find a new office that will hold 120 people. Even now, it’s still about staying heads down.
“We have taken the humble approach. We haven’t even really celebrated,” Wiklund said. “It’s still sinking in. But once you take the money, you better deliver. Why take the dilution otherwise?”