It’s official: Highly-hyped location-based startup Foursquare just closed on a $20 million round of funding at a $95 million pre-money valuation. Andreessen Horowitz led the round, with previous investors O’Reilly AlphaTech and Union Square Ventures also participating.
Foursquare famously materialized from the vestiges of Dodgeball, a mobile service cofounded by Dennis Crowley, who sold the company to Google in 2005. When the search giant killed the service, Crowley, who’d logged roughly two years at Google, quit and quickly revived the idea. Today, the 18-month-old company employs 27 people and has attracted 1.7 million users. It’s also in a race against a growing number of location-based services, including those of Gowalla and Loopt, and soon to include Twitter and possibly Facebook.
A few moments ago, I talked with Marc Andreessen about why his venture firm, Andreessen Horowitz, was so hot on the deal despite all that competition, whether he or Ben Horowitz use FourSquare, and how he’ll reconcile his involvement with the startup with his role as a director at Facebook, which is widely believed to be developing its own location-based service.
There’ve been so many reports on this deal, which reportedly involved Khosla Ventures and Accel at one point, along with acquisition overtures. What was really happening behind the scenes?
So basically the company had an important decision to make, which was to stay independent or merge, and it’s had no shortage of suitors — no shortage of companies wanting to bring a Foursquare into their family. And Dennis needed time to go through that process. So the venture process was elongated as a consequence. But as soon as they made the final decision to build a company [rather than sell it], the process was very straightforward.
Can you break down how much each investor contributed to the deal?
We aren’t breaking it down by investor.
And what happened to Redpoint and Accel and Khosla, all of which were said to be vying to get into the deal?
It was competitive throughout the process, but I would pass on any questions about specific firms to the company.
Are you taking a board seat?
Ben is going to be a board observer.
The big question here seems to be: what about Facebook, which could duplicate every feature of Foursquare and has an enormous sales force, not to mention those 500 million registered users. Why does that not concern you?
Well, I’m not going to talk in huge detail about Facebook. Foursquare has demonstrated a significant and unique and original concept and idea, and so I think there’s lots of room in the market for different services. I think the companies need to do what they do and do it well.
But won’t this investment present a conflict for you as a Facebook board member if and when Facebook builds out its own location-based service?
I’m not going to comment on anything Facebook might or might not do, but if I thought there would be great conflict — and obviously I would check these things first — I wouldn’t do the investment.
Do you or Ben use the service?
Oh, yeah, it’s incredibly cool. It’s just tremendous amounts of fun. I’ve been playing with all these tools and ideas going back to Dodgeball. This kind of idea has been kicking around for a long time, and in many ways, Dennis is the thought leader of this category. So we’ve always been in love with the category and we think its time to become a mainstream service is here.
As a user, rather than an investor, what do you like about it?
It’s just cool to be tied in with the world around you, and the Internet is the umbrella. Facebook ties into your friends, Twitter ties into your followers and who you want to follow, and Foursquare ties you to the people around you, if you want to be found. It’s why I think these are each unique services. In this era of everyone having a smart phone — a mobile computer in their pocket — the idea that you’ll be able to see who’s around you and that you’ll be able to connect with businesses around you for a special on a latte or a pair of shoes, that’s fun and that’s powerful.
FourSquare is already working with companies like Starbucks and Bergdorf Goodman to give away coupons to those who check in, yet it’s been said that the company hasn’t yet figured out a business model. Is that coupon business enough of a business model, and how big a cut of those transactions does FourSquare get?
I can’t comment on its cut, but when we started Netscape, people said, “They haven’t figured out how to turn it into a business.” They said the same about Google and Twitter. Generally, if people say a company hasn’t figured out how to turn their [popularity] into a business, it’s a good sign; our ears perk up.
In terms of specifics, is there anything about the company’s roadmap that you can share?
I don’t want to get out ahead [of the company] in terms of specific models, but it will be a good business. If you have people connected to businesses around them, that’s going to be a good business. Foursquare already has this phenomenon where users are signing up local merchants to participate in the business and that viral process is big, because you’ve traditionally needed a feet-in-the-street sales force; when users become that sales force, that’s really powerful.
Can you talk at all about Foursquare’s revenue or when the company expects to turn profitable?
Can you share what you think Foursquare is doing better than Gowalla and Loopt?
I know both [Gowalla CEO and cofounder] Josh [Williams] and [Loopt CEO and cofounder] Sam [Altman]. I think they are all first-class guys and they are all doing great work, but Dennis is the thought leader in category. This is his life’s work. He’s the originator of a lot of ideas, and in the time we’ve spent with him, it’s become clear that his vision is larger and more expansive. So for us, it’s the chance for us to work with the guy whose ideas are inspiring an industry.
That’s great, but given all that competition, and the still-nascent stage of the company, would you, had you been in Crowley’s shoes, taken the $80 million [that Yahoo reportedly offered to acquire Foursquare]?
Oh, absolutely not. We weren’t competing with Facebook on the deal. We wouldn’t have gotten in Facebook’s way. If Facebook had wanted to buy it, we would have supported it without a peep. But in general, with respect to other acquirers, we were urging Dennis to build a company.
Facebook is a great illustration of the advantage of building a company. When have this early user enthusiasm, real thought leadership, and a very large addressable market, you have the opportunity to build a primary franchise.
It’s impossible to know where it will go, but this could be a very big opportunity, and there are too many things like Foursquare that sell too early. I sometimes look around and wonder how many big, important companies there would be in technology if that didn’t happen as often as it did. You think of Cisco and Oracle and Google, but wouldn’t it be great if there were two to three to five times as many big companies out there?