Foursquare Raises $41 Million to Not End Up Like Groupon

By Devon Glenn 

Since 2009, Foursquare has redesigned everything about its local search service except its revenue strategy while competitors like Groupon and LivingSocial have raced ahead. But there is a method to this company’s madness.

Bloomberg reports that Foursquare has raised $41 million in debt financing rather than shares to give Foursquare time to expand before investors start demanding a profit.

From the article:

With Groupon’s stock price down 69 percent from its November 2011 initial public offering, [CEO Dennis] Crowley says his slow-growth approach has been vindicated. “We’ve looked at the way other companies have grown very, very aggressively with products that seem to be working but are not the ones that end up changing the landscape,” he says.

Foursquare’s small team of 10 salespeople currently sells ads to only 50 out of more than 1 million merchants. According to Bloomberg’s source, the company brought in around $2 million in revenue in 2012.

Groupon, by comparison, has thousands of salespeople all over the world. The company also advertises its services both online and on television, which is something that Foursquare has not tried yet.

Instead, Foursquare has focused on improving the functionality of its mobile apps. Its latest redesign displays the search bar prominently on the home screen, which also shows crowd-sourced recommendations on a map that are targeted to the user’s current location.

This change alone should make search advertising more appealing to marketers, but the company also plans to use the additional funds to expand its sales team to 40 people and to open its advertising platform to all of its merchants.

The funding, some of which is convertible debt that could later be exchanged for shares, comes from Silver Lake Partners, a private equity fund, and venture capital firms Andreessen Horowitz, Union Square Ventures, O’Reilly AlphaTech Ventures, and Spark Capital.

As for Foursquare’s competition, LivingSocial raised $110 million in February from its existing investors; Groupon, which fired co-founder and CEO Andrew Mason in response to tumbling stock prices, is working on smoothing out its deals model while expanding its goods marketplace.