Foursquare Bets Squarely On Data

When Foursquare launched out of the South by Southwest conference in 2010, it was briefly something of an overnight sensation. Consumers just couldn’t get enough checking-in.

Six-and-a-half years down the line, things have not quite proceeded so smoothly. Last spring, Foursquare made a big and audacious bet by splitting into two firms — the one that retained the Foursquare name was based on making recommendations, while the splinter app, Swarm, maintained the “check-in” function as a “social heat map” that allowed users to get a sense of where friends are and what they are doing.

“Listen, the point of the company, this whole thing, was never to build an awesome check-in button,” said CEO Dennis Crowley in an interview. “That’s not the thing we got out of bed and said that we wanted to build the most awesome check-in button in the world! Back in 2009, declaring your location was a necessity, because phones didn’t have the power to reliably pinpoint a user and Foursquare didn’t have much data on what venues were nearby. By 2014, however, both the technology and the data have finally come of age.”

Unfortunately, users haven’t been exactly pumped up to come of age along with Foursquare, causing many industry watchers to dub the interesting move by Foursquare something of a flop. Swarm has had an extremely hard time gaining traction, and while Foursquare has done better, it has seen its traffic essentially cut in half over the last five years.

In 2013 — the year during which VC and equity investors’ love affair with throwing billion dollar valuations on relatively untested startups really took off — Foursquare hit its first down round, where equity raised values a company at a lower level than the previous round. The firm raised $35 million on a $650 million valuation, according to people familiar with the transaction. That was over a $100 million drop from its 2012 valuation of $760 million.

And now, according to emerging reports, it looks like Foursquare is getting ready to take another haircut in a new down round. Where exactly that round will clock in valuation-wise remains unknown; a source told TechCrunch that one possible investor this time around was Microsoft, a previous investor.

What Does It Mean?

Down rounds are a symptom that a firm is doing well enough to generate interest in its core products but not so well that investors are impressed.

The non-impressive stuff — the flatlining Swarm and fading Foursquare traffic — is pretty public and visable. Foursquare’s willingness to take its medicine and a lower valuation is possibly an indication that the need to get funding while the gettin’ is good outweighs any concerns about the ugly visual that is a down round. And that conservatism is likely warranted, as the last few weeks on this Investment Tracker have demonstrated; investors’ enthusiasm for writing the big checks seems to have dimmed some as 2015 is coming down the home stretch.

But the move also highlights something about Foursquare and the business it has been building over the last half decade. Ultimately, what Foursquare is selling may not be the users it has but the massive data set it has at its command.

Foursquare’s Precious, Precious Data

With 55 million people registered for its service and over 2 million businesses claiming locations, Foursquare has built itself a nice little database on consumer behavior patterns, particularly as they relate to retail foot traffic.

Which, in turn, gives it some pretty impressive insights — a fact it demonstrated recently when it came to (accurately) predicting the sales volume of Apple’s latest iPhone. Foursquare, calling on years of data about foot traffic in the vicinity of Apple Stores, was able to detect the sudden spike, which meant it correctly hit predictive numbers that many, many others underestimated at first.

If — and this is a big if, because those sorts of predictions are not easy to scale — Foursquare can find a streamlined, scaled and simple system for retailers to access, it might have a very bright future as a premier tool for business intelligence.

To some extent, Foursquare has experience providing these types of services. For example, Apple contracted with the firm to tap into its deeper data firehose to verify its Map searches and business listings. According to Foursquare’s Jeff Glueck, in June, over 40 percent of its total revenue comes from powering other platforms’ location services.

However, until now, that data access has been offered as part of the deal with the company’s other products; now, it seems, Foursquare might just be looking to spin the data business into its own standalone. Having lost ground to other social media apps with a flubbed attempt at splitting the business, its data might be its best path back to favor with investors.

In which case, the new funding, even with a dropped valuation, makes sense. To build a data-specialized side of the business, it is going to need money. And to get the valuation back up to where it once was, it is going to have to impress those investors, and these days it looks like its data might just be the best way to do that.

In the home stretch of 2015, the Investment Tracker perked up a bit, with the total financing activity coming in at $445 million for the week that ended on Dec. 18. Not a bad showing given the anemic pace that had marked the preceding weeks. The thaw comes amid unseasonably high temperatures for the holiday rush, so perhaps the warmth quickened investors’ appetites to deploy capital that otherwise might have gone unused to finish the end of the year.

Breaking down the week a bit, as has been the primary focus for investors for some time through 2015 (a theme, anyone?), the FinTech arena got the most play, indicating that there is a wealth, no pun intended, of interest in disruptive financial platforms, banking and otherwise. Fully, 85 percent of fund flows this week wound up in FinTech coffers.

The biggest deal of the week, by far, came through the credit raised by Pave, an online lender that directs its energies to the younger crowd. The firm raised $300 million last week, with debt and equity in place through a group of investors, led by Seer Capital, a hedge fund based in New York. The company aims its loans at people with “thin files” of credit and with FICO scores of about 660 and above. The company looks to push past the $100 million lending mark next year, according to The Wall Street Journal. A bit lower down the line in terms of deal size, the $65 million raised by Bizfi, also a FinTech player, which grabbed $65 million in structured financing to help grow its presence within the small to mid-sized business arena. And in the wake of initiatives across the FinTech world that have seen growing interest and awareness of the roles that social media can play when it comes to lenders making decisions about creditworthiness, JanRain, which is based in Portland, Oregon, got $27 million in Series D financing, with a total funding cumulatively in place of $79 million. This is the first dip into social media direct investment that we’ve seen stateside for our IT in quite a while. The company will use the investments, which came from HighBar Ventures and others, to increase its technology portfolio. Below are the top five investments that came through in the week just ended.