Foursquare’s New $41M Round Helps It Delay Tricky Questions About Its Valuation

Foursquare, the social, location-based check-in app that has been pivoting into becoming a more of platform for local search, has finally closed a new round of funding. Foursquare tells TechCrunch that it is $41 million, led by Silver Lake Partners in the form of a multi-year loan from the Silver Lake Waterman growth debt fund; and convertible debt from existing investors Andreessen Horowitz, Union Square Ventures, O’Reilly AlphaTech Ventures, and Spark Capital. It takes the total raised in the company to an eye-watering $112.4 million.

(Update: Earlier I’d described this as a Series D, but as this is based on debt and not new shares I’ve changed the wording. Separately, CEO Dennis Crowley has now posted an announcement on the Foursquare blog, which also includes updated usage numbers: 33 million users, 3.5 billion check-ins and 1.3 million businesses using the service. Fred Wilson also blogs about the deal and the virtues of late-stage convertible debt.)

The news was first reported by BusinessWeek, and puts to rest speculation that has been swirling for over a year about how the company needed to raise money to avoid running out of cash; and questions over whether it would be able to do so because of lingering skepticism about its business model.

Despite its size and reach — Foursquare’s user base at the end of 2012 was 30 million; and it powers location information in some 40,000 apps — the company reportedly pulled in only about $2 million of revenue last year. Meanwhile, its last raise in 2011 valued the company at $600 million.

Earlier this year, we reported that a D-Round that would have involved equity was potentially being done at a $700 million valuation, but that investors were hesitating because of worries of a too-high valuation. When I was researching a story on the company in March, I was assured by one reliable source that this latest round — the one announced today — would not be a down-round, with a valuation lower than $600 million it had in 2011. By opting for what BusinessWeek reports as a loan-and-debt deal with no immediate equity (the debt has the option of converting to equity in the future), that puts off the question of valuation for a while yet.

And it also somewhat puts off the question of whether Foursquare is an acquisition target.

In the meantime, CEO and founder Dennis Crowley and his team have been working hard to continue building up the business, both to create actual revenue streams, and also to counterbalance the fact that many have checked out of making check-ins. In February, Dennis Crowley told me Foursquare was seeing 5 million check-ins per day, but that’s also what the company said a year ago.

In addition to major app updates that put search front and center, and deals like the one with credit card companies American Express, MasterCard and Visa for member discounts for check-ins, Foursquare has been working hard to build bridges with handset makers, carriers and other content providers that could potentially result in commercial licensing deals.

Crowley’s trip to the Mobile World Congress in Barcelona, spanning just a few days, saw him take in at least 30 meetings in that timeframe. Working with the old-school world of telecoms, though, is a long-term and long-odds game; this was not Crowley’s first year at the event.

Indeed, Crowley tells BusinessWeek that this round is about buying time for the company to play those long-odds out. “This allows us to get closer to being able to prove that there’s a real business here,” he said.

One area that looks like it will be getting more attention is advertising and marketing — specifically opening its platform to merchants to pay Foursquare to market themselves there. This is still a nascent part of the service — BusinessWeek points out that Foursquare “allows” only 50 large advertisers currently to buy ads. Some of the $41 million will be getting invested in a way to widen that pool, starting with bumping its sales staff up from 10 now to 40 by this summer.

“The biggest challenge is to take revenue-generating products that we launched in Q3 last year and take them out to the market,” Crowley told me in February. “The businesses using these are mostly national retailers [the 50 mentioned by BusinessWeek]. But we’ve got over 1 million merchants who have claimed their businesses on Foursquare, running specials and doing other things. What we want to do is take these tools used by the 50-100 national retailers and make them accessible to our 1 million merchants. Then you’ve got something really powerful.” These tools currently do not integrate with other point-of-sale systems, so that’s another area where the company might need to make some investments, too.

One thing we might expect is more of a Google-style approach to search marketing.

“If you look at what we’re doing in terms of harvesting intent from users, we have millions searching for things, and we’re helping them find places,” Crowley told me. “It doesn’t look that different from what google has done with AdWords. If you search for ‘Hawaiian vacation,’ Google shows you websites to get you there. And ‘Italian tasting menu’ will bring you a list of venues on Foursquare.”

BusinessWeek notes that by the end of the year, checking in at a particular location will get ads served relevant to that place — such as a brand of orange juice when you are at the supermarket. This could turn even more people off from checking in, though, unless there is a reward at the end of it.