Penny auction site MadBid secures £4m funding from Atomico Ventures

MadBid, a fast growing “pay-to-bid” auction site has secured £4 million in a Series A funding from Atomico Ventures. Launched in 2008, MadBid is one of a number of pay-to-bid auction sites which have appeared in the last couple of years, with Swoopo among them. CEO Juha Koski says the Atomico investment will be spent on technology and expanding in Europe. Mattias Ljungman of Atomico has joined the board.

MadBid is claiming 1 million users since launch and says customers are attracted by brand products with the possibility of saving of 80% on the RRP of an item. That drives people to bid of course and so the site makes its money off the customers who are not successful, not unlike a casino.

In fact some gambling experts such as Professor Mark Griffiths of Nottingham Trent University, have called “penny auctions” similar to lotteries and called for similar regulation. However The Gambling Commission has not ruled on the matter and Koski insists that penny auctions are a “game of skill”. MadBid says in its defense that many penny auction sites are registered abroad in countries such as Malta and do not deliver on what they promise.

How does it work? The sites auction new items, often for a fraction of their retail price, and bidders pay up to £1.50 for each bid. Unlike eBay, where you can bid for free, users have to pay between 40 pence and £1.50 to place a bid. Bids automatically rise by 1p at a time, and some people make repeated bids. The last person to bid gets the item, for however much it is worth after what can be hours of monitoring.

That model is a license to print money.

MadBid says it generated over £2.5million in the first year of operation and it’s sold over £5million worth of products and 80,000 auctions have been won. Turnover is projected to reach over £20 million by the end of 2012.

Atomico founder Niklas Zennström, best known as a cofounder of Skype, says MadBid “allows the most skillful to get amazing bargains” and it had gained a lot of traction “in a short period of time.”

The site has has 22 employees and is based in the UK.