Location, Location, Location: Foursquare Nabs $20 Million in VC Funding at $95 Million Pre-Money Valuation (Plus Blog Posts, of Course!)
After a very long and decidedly strange funding journey, Foursquare has finally officially landed a new round of $20 million in venture funding, with Silicon Valley’s Andreessen Horowitz leading the new investment.
BoomTown reported last week that the new deal, which puts Foursquare at $95 million pre-money valuation, was in the bag.
Interestingly, it is only the second round for the New York-based social location start-up and includes its current investors, Union Square Ventures and O’Reilly AlphaTech Ventures.
Ironically, Andreessen Horowitz had walked away from earlier investment talks because of the excessive hype and indecision around the race to fund Foursquare.
But in an interview this afternoon with me, partner Ben Horowitz said that once Foursquare became firmer in its determination to build the company rather than selling it, his firm was all in.
“Basically, Foursquare made an important decision on the future of their company to build it into a really significant, independent business,” said Horowitz. “It’s a big step and we’re thrilled to back them in doing that.”
Indeed, the wrapping-up of what has been a very convoluted funding process comes after a series of missteps and switchbacks over what’s next for Foursquare, which allows users to “check in” from various places.
Among the twists: Serious but failed acquisition talks with both Facebook and Yahoo (YHOO), as well as a messy beauty pageant of other big VC firms, mostly in Silicon Valley, including Khosla Ventures, Accel Partners and Institutional Venture Partners.
The overhyped interest is because Foursquare and many others like it have seen strong growth and much innovation, although it is not clear yet if that will translate into solid businesses.
Still, Foursquare hit one million users in April and is now approaching 1.8 million, adding about 15,000 users per day. It uses a variety of game techniques and other features, such as the awarding of digital badges, to hold user interest.
And though small, it is trying to work with major brands, most notably Starbucks (SBUX), on a variety of marketing deals.
That requires money, especially given increased competition as everyone girds to race ahead first.
Foursquare’s original $1.35 million funding was raised from Union Square Ventures and O’Reilly AlphaTech Ventures, as well as some well-known angel investors, such as Twitter co-founder Jack Dorsey, Kevin Rose of Digg and Ron Conway.
Foursquare’s current investors also recently gave it a bridge investment.
Thus, Foursquare needed bigger funding, a process that soon became unusually complicated, in part because of indecision by CEO Dennis Crowley and in part because of some very public deal-making.
In fact, that’s what initially scotched very advanced funding talks between Foursquare and Andreessen Horowitz. The high-profile Silicon Valley firm–helmed by Internet icon Marc Andreessen and his longtime business partner, Horowitz–smacked Foursquare hard after those discussions and talks with other firms were leaked to the media.
In an exclusive interview with me in April, Horowitz took the unusual step of talking publicly about VC frustrations that are typical in deals around hot companies.
At the time, Horowitz acted as if he were checking out of Foursquare.
“We withdrew our funding offer to Foursquare and we are out,” he said in an interview with BoomTown then. “This is playing out too much in public and clearly someone has an interesting agenda here, so this is not something we want to participate in.”
At the same time, Horowitz left the door open. “If the process was changed, we still like the company,” he said then. “But since it has been long and undefined, it is prone to manipulation.”
That sentiment obviously changed, said Horowitz.
“A lot of the problems we were worried about were the result of their ambivalence on what to do, and so we were almost a distraction until they could decide,” he said. “Since they got clarity, it has been a very efficient process.”
Horowitz will become a Foursquare board observer and what he characterizes as a “CEO coach” to Crowley.
But he stressed that so far, the leadership of Foursquare was doing very well.
“I think they are clearly best of breed and very far of ahead of everyone else in what is a very complex business to get right,” Horowitz said. “There are definitely competitors large and small, but this company has a lot of experience and data atop a big vision.”
We’ll see, of course! And as hard a time as I have given him, Crowley–who sold his last company, Dodgeball, to Google (GOOG), which ended not so well–is definitely on another roll.
Why Andreessen Horowitz Invested in Foursquare
They say he’s a grinder
fly ass rhyma’
With a CEO’s mind bra’
–Kinfolk Kia Shine
Today we are extremely excited to announce that we are investing in Foursquare, a service that mixes social, locative, and gaming elements to encourage people to explore cities in which they live.
Here are the three reasons we invested.
1. A great Founder/CEO: Dennis Crowley
We prefer founding CEOs. In particular, we think the keeper of the product vision should run the company whenever possible because the toughest and most important decisions in technology companies are always about product strategy.
The only thing better than the CEO being the keeper of the vision is the CEO being the creator of the vision. In Foursquare’s case, Dennis not only created the vision for the company, but for the entire product category. Beyond that, he is very clearly the thought leader in the market. This is not at all surprising as he has been working on the problem for a decade and has highly refined his thinking through that period.
As importantly, Dennis embodies the kind of leadership that I described in Notes on Leadership. He’s the kind of leader that great technical minds will be excited to follow: visionary, righteous, and competent. I am really excited to work with Dennis to help him on his path from being a great leader to a great Chief Executive of an incredibly important company.
2. A killer product
When you look at the numbers, you’ll see that Foursquare is growing faster than Twitter did at this stage. In particular, their growth has been explosive over the past few months–they just hit 1 million users in April and now they’re approaching 1.8 million, adding around 15,000 users per day. It’s easy to see that people absolutely love the product. Less obvious to the competitors and pundits are the reasons why people love the product so much. I often hear people attribute Foursquare’s success entirely to check-ins or other easy-to-understand product features. It reminds me of the early days of Zynga when people thought the secret sauce behind Mafia Wars and Farmville were that those games were web-based.
It turns out Zynga games are wildly successful because Zynga has mastered the art of connecting friends via games–and they work incredibly hard behind the scenes to deliver what at face value looks very easy. How many times have you heard someone say, “I could have built Farmville in a weekend”?
Foursquare is very similar in that a lot of hard work behind the scenes goes into delivering a product that users love. Dennis and team have identified over a dozen different dimensions of the Foursquare product that must interact with each other in precisely optimal ways to achieve user delight. Years and years of research and sweat equity went into cracking the code, and the results are magical.
3. A gigantic market
At a macro level, over 4.6B people have mobile phones and there are 1.7B people on the Internet. Already, over 200M people worldwide have smart phones and that number is headed north fast. Foursquare might not win the entire smart phone market (some people don’t even like to leave their house), but it will capture a huge portion of it because it’s incredibly fun and addicting.
As importantly, we are very excited about Foursquare’s ability to make money in a way where all parties win: users, merchants, venue owners, brand advertisers, and more. In fact, users have been so excited about the product that they’ve actually been signing up local businesses to run promotions for Foursquare’s mayors and active users. This natural enthusiasm is happening even before Foursquare has added specific product features to help businesses run campaigns. As a result, major brands such as The Wall Street Journal, The New York Times, Zagat, Bravo TV, Starbucks, C-SPAN, Marc Jacobs and over 10,000 businesses are currently working with Foursquare to build customer loyalty and drive traffic. Not many companies have their users turn into their sales force, and it’s definitely a good sign that this is happening around Foursquare.
We are excited to be on this journey with our good friends at Foursquare.
We’re just getting started…
It’s been quite the year for foursquare. Last year at this time, Naveen and I–tired of working around my kitchen table–borrowed a desk from our friends at Curbed.com and Hard Candy Shell. Two months later we brought on our first hire (Harry!) and a few weeks after closed on our first round of financing: $1.35m from Union Square Ventures, O’Reilly AlphaTech Ventures and a handful of angels. Back then, our office looked like this.
Fast forward a year: We’re now 27 people strong. We can’t fit any more desks or chairs in our office so we’re borrowing cubes from our neighbors downstairs. We’re about to hit 1.8 million users and we’re seeing Super Swarms happen all over the world (Indonesia, you crazy!). In short, it’s been an amazing year for foursquare. A huge thank you to anyone that’s ever unlocked a Newbie badge!
And with that, we’re excited to announce that we’ve raised another round of capital. Today we closed on a $20m Series B round with Union Square Ventures, O’Reilly AlphaTech Ventures and our newest partner, Andreessen Horowitz. We’re thrilled to have the continued support of our original investors and additional support and expertise from the team at Andreessen Horowitz.
The two big names behind Andreessen Horowitz–Marc Andreessen and Ben Horowitz–are each legends in Silicon Valley. They know better than anyone how to transform startups into successful organizations. As we continue to rapidly expand to take advantage of the opportunities in front of us, Ben and Marc’s expertise in growing companies will be invaluable.
With this new round of financing, our main priority will be to expand our organization to supplement the amazing core team we’ve assembled already (know any great engineers? send them our way!). We’re hoping to build a world-class engineering organization, based primarily in our headquarters in the New York City to help us develop the next generation of mobile + social + local products that will excite our users and provide unique value for local merchants. The new investment capital will also help fund the infrastructure needed to house our team (we’re finally getting a new office!) and support our growing audience of nearly 2m users.
It’s been a crazy year for us and we’re expecting the next 12 months to be even more of an adventure. Look forward to more great product from us soon…we’re really just getting started.
–@dens and the rest of team foursquare