
Foursquare raises $41 million Series D round - jmtame
http://techcrunch.com/2013/04/11/foursquares-new-series-d-round-of-41m-helps-it-delay-tricky-questions-about-its-valuation/
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justin_vanw
Reading the press on this, there is one thing that is glaringly absent: any
numbers around growth. They quote a bunch of numbers that are sums of things
since inception of the company: how many checkins total, how many businesses
'using foursquare' (they don't define what 'using foursquare' means, which
implies it's something trivial and misleading).

The title of the press release is "Continuing Foursquare’s Growth"! Growth is
obviously what they want to make you think is happening, unfortunately they
have no growth to show.

[http://www.google.com/trends/explore#q=foursquare%2C%20pinte...](http://www.google.com/trends/explore#q=foursquare%2C%20pinterest&cmpt=q)

Foursquare has no growth since 2011 and no way to generate significant
revenue. If the numbers they quote on the press release are true, they would
have so much cash rolling in that they would laugh at the idea of raising more
money. The press release is intentionally misleading; this company is dying.

~~~
patrickambron
You might be right. I don't really know people who use foursquare, and it's
use cases from a consumer standpoint are really limited to people who live in
cities (forget middle america)

That said, this round does make a lot of sense for investors and management.
If they didn't raise a round they would have run out of cash. That's over 5
years and $100M down the drain _today_. Rather than write the entire thing
off, they're giving the company another 2 years to create _something_ worth
more than bankruptcy. There is still a lot to bet on. I'm not sure where
they'll concentrate, but there is something valuable in being the location
based layer of the internet, or being in a position to make cities more
searchable on the go.

Notice it's a debt round (w no valuation). They aren't trying to value the
company higher, they're just trying to keep it alive as cheaply as possible

~~~
justin_vanw
I get that, but I think this is an example of a desperate move. In order to
have any value left for the founders and employees, the company will have to
sell for some huge valuation that they are almost certainly not going to get.

I'm not questioning the decision on the Foursquare side anyway, although they
are clearly avoiding releasing any data that would give people an
understanding of the current state of the company. I question the decision on
the part of the investors. This is a lot of money to put in, and for what? The
best case might be a 2x-3x return, but in my opinion the median return on this
is $0, all the money spent and virtually no value in the end.

I would imagine it's very hard for the management of FourSquare to let go
emotionally, especially after hopes ran high in 2009/2010 and they had huge
growth. It's clear that that growth has ended, and that they are now in a
period of declining use. Combine that with an inability to monazite the
existing user base and I see absolutely no hope of success.

I suppose they could pivot the company, but why would they do that? It would
make far more sense to leave FourSquare and build a new company that didn't
have all of FourSquare's baggage and dilution from investments in the old
model.

------
bluetidepro
I'm honestly quite surprised they got that much, seeing as they haven't really
had any "huge" innovation or evolution since their original product. They have
definitely improved some UI/UX on the app, but nothing ground breaking, to me.
Don't get me wrong, I'm a fan of Foursquare but they are getting harder to
"keep loving" when they simply can't seem to hit their full potential.

I only use the service now if a location has a check-in special of some sorts.
And to get those specials, you need more adaption from local businesses and I
think that is where they are failing. I live in a big city, and I think I
maybe see one new business a MONTH (at most) that actually utilizes
Foursquare, and majority of the time it's just a big chain type store. They
need to get a team together to pitch to the smaller indie type shops to get
them on board to get users interested again. I'm also in the midwest, so maybe
they are better in bigger coast cities?

EDIT ( _additional thoughts_ ): I think they also won the hearts of their
original users with the app "game-ification" which was incredible (at the
time), but I think they need more than that now-a-days. It seems like _every_
new app has "badges", "awards", etc. While it's good that Foursquare was one
of the originals by doing that in a social setting, it's irrelevant now
because so many businesses are doing it better than them. Just because you
created the first wheel, doesn't automatically make you the best, and I think
they are forgetting that and not thinking outside of the box of how to make
their app more social and connect users like it originally had.

~~~
tmarthal
It really has turned into a great local discovery platform via their personal
recommendations. As an anecdote, I am not from San Francisco, and visited the
bay area in February. I checked into my hotel, 4sq knew that I had travelled
over a 100 miles and most likely 'classified' me as a tourist. I checked into
the Yerba Buena Gardens, the "people usually go to this burger place
afterwards."; was a great place to eat.

I went up to the wharf, and checked in. With no ideas that there are sealions
in the area, 4sq said that I should go check them out. So I walked over to
Pier 39. They suggested Market Square, etc etc.

I know it is just a singular experience, and my local Los Angeles usage has
definitely declined, but everytime that I travel I definitely use it to
discover what there is to do. From "real" people in my same cohort.

~~~
ondrae
My trip to Bogotá was 10x better experience because of FourSquare. GMaps was
totally wrong, Yelp didn't exist, tourist guides are all cookie cutter.
FourSquare had all these amazing recommendations, most of which came from
people I follow. Great service.

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nothxbro
I have no idea how they managed to pull that off since foursquare has so
little usage today. If I look back a year or more ago, I had tons of friends
using foursquare. Now? None.

I am guessing the loan from silver lake makes up 80% of the round and gives
them top preference on a liquidity event as well as a 3-5x preference and
maybe even monthly interest payments.

As for the convertible debt, I would guess it is likely that comes with a
major, major discount on the next financing. That would also means that unless
foursquare can completely turn its ass around, it would be super unattractive
for any new investor to come in. So it goes without saying that the
convertible would also have a short fuse of 48 months or less, which would
convert at a some crazy low valuation if they did not raise another round.

If I was in charge over there, I would be thinking very heavily about what is
best for my shareholders to get value and that would almost certainly be some
form of a exit. However its not known if any suitors would be interested in
foursquare at this point.

~~~
ry0ohki
I wonder if this sentiment is similar to the "no one uses Hotmail" type
comments I hear from tech people. It seems like lots of people still use it
based on the number I check-ins I see. It may not be quite as trendy these
days but it's definitely gone mainstream.

~~~
Pent
Anecdotally, myself and several friends use Foursquare fanatically. Though
I've been waiting forever for Foursquare to do something more with the service
itself.

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pshin45
It always bothered me whenever Groupon and Living Social were referred to as
"social commerce" companies. Buying coupons is _not_ a social activity (i.e.
by sharing you're basically announcing to the world that you are a cheapskate
who won't pay full price).

On the other hand, with their recent iOS upgrade, Foursquare may be in
position to become the first true "(offline) social commerce" company. I've
used their "Explore" function in the past and had a good experience - There's
something comforting about the fact that I'm going to a bar or restaurant
that's been "vetted" by one of my friends.

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ry0ohki
People talking about usage being down are missing the bigger opportunity.
Pretty much every app that needs location data uses FourSquare these days. I
think that's the bigger vision here. Not exactly sure how it's monetized, but
I see the opportunity.

~~~
tatsuke95
If nobody is using Foursquare then there is no location data to sell.

~~~
makeee
Unless all those apps that use foursquare data are also sending data to
foursquare.

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awaxman11
I hope this opens people's eyes about venture debt. A much cheaper alternative
compared to preferred stock - the traditional VC go to. Venture debt is
attractive to investors at the right stage, especially with traditional yields
at an all time low. Just look at the investment history of firms like Square1,
Comerica, SVB, and Gold Hill Capital.

~~~
minimax
Can you expand on this a little bit? What does a company like Foursquare post
as collateral on a $10mm+ loan and what are typical interest rates? Will
Foursquare be expected to pay back the entire loan in cash?

~~~
awaxman11
Never having done a deal like this myself (either as an investor or an
entrepreneur) this is just a guess, but I'd say that there is no "traditional"
collateral (i.e. hard assets and / or cash flow) like when a more established
company raises debt. Rather, the debt investors are made comfortable by the
fact that some of the top VCs (USV, Spark, a16z, etc.) are willing to put
additional equity into a company they are all already heavily invested in. I
assume that Foursquare is expected to pay back the entire loan in cash. I also
assume that Silver Lake has some covenants which either call for payback or
allow them to take control if certain growth rates and revenue figures are not
reached soon. This is a complete guess but I'd say in the range of 10-20%
annual interest.

~~~
crapshoot101
10-20%? That's way out of line for venture debt. The upside in venture debt is
usually from warrants, not interest rates, though Silver Lake is different /
closer to PE.

~~~
awaxman11
It's hard to tell without knowing the tenor, amort schedule, and warrants. If
the structure is similar to a junk bond the rate is going to be much higher
than if it's more like a term loan. Would be very interested in hearing rates
and structure of similar deals ppl know of

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avimeir
I don't see the logic of raising $41M for a company that doesn't need it to
buy equipment, raw material, real estate or physical stock of something.

Unless your revenue model is to do 5 rounds of financing and then move on to
the next startup.

~~~
davidu
Some business models only work at scale. Scale can be users, data, traffic,
partnerships, distribution or a variety of things.

This is a bet that Foursquare will find a business model as they become the
location service everything builds on, or something else, that only works at
scale.

In the scheme of private equity financings, this is a rather small deal and
makes perfect sense for Foursquare.

And in fact, buying equipment is one of the worst things to do with cash. If
you have the cash, then you should leverage that to finance or lease the
equipment. :-)

~~~
avimeir
My issue with this is that history teaches us that you don't need big money to
reach scale, you only need the cash to support scaling up from a technical
POV. Look at FB early days, Twitter, etc.

Unless they're going to pay users to join them, I don't see how raising so
much money is going to solve their problems.

~~~
davidu
Your examples are not just wrong, but the opposite is true. Twitter and FB
needed crazy cash early on, and twitter still might. FB has a business model
now, but they didn't for a long time. But they went from low millions to
nearly a billion "over night" long after they had spent hundreds of millions
of dollars.

Twitter is just now building a revenue business but has raised nearly a
billion dollars.

Google is a decent exception to that rule, but only because they turned their
revenue engine on just in time and it was an oil well of cash. Otherwise they
would have had major cash issues as they scaled their infrastructure.

------
heyitswin
At this point are they profitable? It seems less and less people are using it,
but so many want it to be something awesome.

~~~
kapilkale
They've got ~100 people and $2M in revenues, so I doubt it.

------
HunterV
Coming from someone outside of NYC/SF: Foursquare has hit the masses and I
have friends/family who have just discovered the app. It takes a surprisingly
long time for new concepts to implement to non early adopters. So even while
it may not be "trendy" in the SF area the app is pulling in a lot more
"regular" people now.

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prezjordan
Not sure where most of the commenters are from but I completely disagree with
the notion of "no one is using or joining Foursquare." I'm a college student
in Hoboken, NJ (just outside of Manhattan). Everyone's jumping on board here -
but that's just my general demographic.

~~~
mikereedell
Stevens Tech I assume. I'm an '02 grad in CS.

~~~
prezjordan
Yep! Still in the area? (Has the degree paid off?)

~~~
mikereedell
In philly, and yes, the degree has paid off.

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ehm_may
Raised over $112M to date. Talk about a cash sinkhole.

~~~
wpietri
That's just $4 per registered user, so it's not a ton of money. And they've
gotten people to give them a ton of data. Venues, locations, tips, activity.

I've been a user since the Dodgeball days, and I personally wouldn't invest in
them at this point. But I don't think it's a crazy gamble.

Facebook took $2.24 billion in investment before going public. Twitter took
$1.16 billion. Free-to-use network-effect businesses are expensive to build,
because you need to build a mainstream-quality product and keep it running
quite a while before you can monetize. Indeed, it's best to wait as long as
possible before monetizing.

~~~
antr
(i) Facebook did not raise $2.24bn, it was much (much) less. That $2.24bn
figure, which comes from Crunchbase, includes secondary equity sale (shares
sold by employees, early investors, etc. to third party investors like DST).
That cash was not seen by Facebook.

(ii) Facebook and Twitter raised so much capital later on to support real
user/activity growth, the primary use of proceeds was not fund their ongoing
burn rate. The $41m raised by FourSquare is going to finance current
operations/burn rate, not growth.

~~~
wpietri
Which money do you believe didn't go to Facebook? Looking at the Crunchbase
investments, only the $120m Elevation Partners money appears to be secondary-
market purchases. Facebook itself says that they took the $1.5 billion:

[http://www.prnewswire.com/news-releases-test/facebook-
raises...](http://www.prnewswire.com/news-releases-test/facebook-
raises-15-billion-114383494.html)

Regarding point ii, what expenses do you see as under each category? I'm not
denying the difference; I'm just not clear what you think is being done
differently with the money.

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jherrick
I love my <http://untappd.com> and the integration with FourSquare makes me
think there's a lot of potential using their API (or location data in general)
to add location-awareness to an "social" application. I'm sure it's difficult
to monetize that, but it's a ton of value.

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zmitri
I find it interesting that companies like Twitter and Instagram were very
focused on location initially (due to their founders interest in location) but
have more or less have moved away entirely.

Whereas big companies that stuck it out with location - 4sq, gowalla,
highlight, loopt, etc seem to struggle reaching a similar scale.

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heifetz
haven't been following too much on foursquare, but sounds like it is a prime
target for acquisition by Yahoo.

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auctiontheory
One of my biggest challenges as an entrepreneur is I just can't take the
plunge to start a business with no way of making revenue. Even though I can
see all around me that that (once again) is how riches are made.

~~~
apapli
Don't worry, these sorts of companies are just lucky blips. For the most part
if you set out to build a new company and you cannot predict where it's
revenues will come from the odds are against you.

Keep focused on building a business. It may take longer but you will learn
lots more along the way and your chances of success will be greater if you
have a revenue model already baked.

There must be something Foursquare are not sharing with us, along with other
commenters on this thread I don't know of a single user of their product since
2011.

Edit - typo

~~~
auctiontheory
I did use Foursquare once. The blood bank made me check in on Foursquare to
get a t-shirt. (Nice shirt, with a captcha-based pun - I still wear it.)

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aaronbrethorst
Can someone change the title? From the article:

    
    
        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.

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guillegette
the only reason that make sense for me is that 4sq is going to be acquired in
the near future

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hydralist
my friends and i haven't used foursquare in over a year...

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ttrreeww
Down round?

