500friends Raises $5M To Bring Its Online Loyalty Programs To Physical Stores

500friends, a Y Combinator-incubated startup that helps retailers manage their customer loyalty programs, is announcing that it has raised $5 million in Series B funding.

The round was led by existing investor Intel Capital and new investor Fung Capital. Previous backer Crosslink Capital also participated. (Intel’s Carey Lai and Fung’s Michael Hsieh are both joining the 500friends board.) The company also raised $2 million in debt — co-founder and CEO Justin Yoshimura told me that 500friends is unusually credit-worthy for a startup thanks to its recurring revenue.

500friends offers a program called LoyaltyPlus, which allows stores to interact with customers through things like rewards, sharing widgets, and user-generated content. One of the key features, as Yoshimura outlined for me last year, is the ability to divide customers into different segments and estimate their likely lifetime value based on those groups. So retailers can offer deals and special service to the customers most likely to be valuable.

Retailers using LoyaltyPlus include Build.com, Ice.com, Jewelry Television, and Shoebuy.com. 500friends says those customers are reporting increases in repeat purchase rates that are as high as 60 percent.

The next step, according to Yoshimura, is “omni-channel support.” In other words, the company is working to bring similar capabilities to physical stores. Co-founder Hong Hu said that 500friends will allow stores to offer loyalty programs via their customers’ mobile phones, and to add location-based capabilities like alerting people as they walk past the store that they’re in a certain tier of the loyalty program.

Yoshimura said that the company’s online loyalty programs see customer adoption rates between 22 and 35 percent. That number will probably be lower in physical stores, but he argued that, unlike existing loyalty and rewards programs, 500friends can help those retailers reach people who aren’t regular customers already. It also helps them understand who their customers are. More broadly, he pitched LoyaltyPlus as a way for retailers to stay competitive.

“I keep telling them, ‘Listen, do you really think you’re going to out-discount Amazon?” Yoshimura said.

500friends has now raised a total of $12 million.