Foursquare has just closed one of the most secretive rounds of venture capital TechCrunch has seen.
The company is raising $50 million, and all of it will go towards building out the company, no secondary sales here. The valuation had been rumored to be as high as $1 billion, but our sources say it settled out at $550 million pre-money, $600 million post.
Part of that is because the round was mostly done by insiders. Leading it was Andreessen Horowitz, still the only major Valley firm invested in the company. Ben Horowitz did the deal and is remaining a board observer only. Union Square Ventures, OATV also reupped in this round and Spark Capital came in as a new investor, but not the lead. Bijan Sabet is joining as a board observer as well. The money will be used to build out the merchant platform, the San Francisco office and fuel international expansion, said founder Dennis Crowley in an interview.
Foursquare’s ten million users are impressive for a mobile app, but small compared to numbers other major social networks. Its revenues are scant. Some firms said they shied away from the deal, because they felt monetization was only more unclear now. With the local space on fire, Foursquare’s target advertisers are already beset with sales people from Yelp, Living Social, Groupon, Google and others calling on them. There’s going to be a level of retailer fatigue, and business-wise Foursquare is late to the party.
Crowley emphasized that Foursquare has a very different value proposition from competitors and is focused on not only rewarding loyal patrons but tracking how their referrals snake through the social graph offering different kinds of rewards to new customers, repeat customers, referred customers and of course the mayors in a way that only Foursquare can. The company is still working on the merchant platform and will get aggressive on selling through direct sales and partnerships once they feel it’s perfect, Crowley said. “We know what it’s going to be, we just haven’t flipped the switch on it yet,” he said.
A $600 million valuation is a big but not unreasonable step-up from Foursquare’s last round which was priced at $120 million. That’s still rich, but that’s the market. Plus, from the venture firm’s perspective, a heady valuation only matters so much. Only slightly more than $20 million has been invested so far in the company, and any investor will have a liquidation preference, meaning they get paid first in the event of an acquisition. So a $50 million deal at any price wouldn’t lose money unless Foursquare winds up being worth less than $70 million.
One of the most remarkable things about this round was how deadly quiet Foursquare was able to keep the news. A few of the big Valley firms like Kleiner Perkins and Benchmark weren’t in the bidding for competitive reasons and very few others were invited to take a look at it. Few of Foursquare’s angel investors were even briefed about it. “Loose Tweets sink companies,” Crowley said. “The series B played out very publicly and it was hard for the company, so we came up with a better process this time.”
We have heard the company might be working on an additional round to cash out some early investors, to be closed at a later date. Crowley didn’t have a comment on that, other than to emphasize all of this round is going towards building the company and the door is open to future secondary deals if it’s the right thing for investors and the company.