Foursquare does a down round

with one comment

11th April 2013 Update – Foursquare have finally announced a $41m round of debt and/or convertible debt. Union Square Ventures’ Fred Wilson has blogged about the round

Keith Rabois appears to be enjoying his birthday. After a Twitter tête-à-tête with Foursquare founder/CEO Dennis Crowley (which was amusingly misreported by Business Insider as “Square-bashing”), Rabois referred to “another down round” (emphasis mine) at Foursquare, which intrigued me, so I asked the obvious question:

Rabois

Rumours have been circulating since last November that Foursquare was struggling to find investors willing to accept a pre-valuation of “between $700 million and 800 million“. At the time, Crowley claimed he was looking forward to confounding Rabois’ skepticism about Foursquare but Rabois’ single word answer implies that the Series D is done and at a valuation below that of the Series C (which was rumoured to be $600m).

Despite having raised $71.4m to date and attracting millions of users, Foursquare has struggled to come up with a revenue model that justifies such a lofty valuation. I’d have expected it to be challenging Yelp and Groupon by leveraging its userbase to build a revenue stream based on charging businesses for advertising to prospective customers but it seems to have passed up on this opportunity, even in the highly competitive spa and massage sector:

Foursquare

Instead, the company has focused on generating revenue via partnerships with credit card companies. It recently announced deals with Visa and Mastercard to provide cardholders with discounts when they check in and shop at participating merchants. However, competition from companies like Square and Birdback and the prospect of a decline in the importance of payment cards as new payment technologies gain traction raises questions over the value of such deals.

Since the aforementioned Series C round in June 2011, Groupon, Zynga and Facebook have floated and fallen. Some pundits were already predicting that Foursquare would fail by the end of 2013 but a new round of investment should eliminate that risk. However, a down round will put immense pressure on Crowley to deliver the revenues required to begin generating positive cash-flow and improve the prospects of a profitable exit for investors.

If the round is done, we should see confirmation in the form of an SEC filing (like this one) within the next few weeks, although such filings don’t reveal at what share price or valuation an investment is made. Given the circumstances, I’d be surprised if the round was more than $15m in size. Once it’s been announced, I expect we’ll see a flurry of activity from Foursquare as Crowley and his team start chasing revenues with the sort of urgency a ticking clock incites.

Written by jackgavigan

March 17, 2013 at 8:15 pm

One Response

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  1. Foursquare’s currenty trying to close a round, and it is a confirmed a DOWN ROUND we know for a fact, with heavy dilution to Crowley and all Foursuare employee.

    In Janauary we predicted after obtaining access to Foursquare’s meager revenues, dwindling cash on hand, and $2 Million /month burn rate – and speaking to the most obvoius investors – even FourSquare’s current investors said the company needs more capital soon, and the company must be more “realistic on valuation .And and that’s their CURRENT INVESTORS. Any knew money coming in won[t just be a down round using simple match, as a lawyer I can tell you it will come with so many side-agreed preferences cumulative dividend, muiltiple liqudation preferences and so on that the common stock will effectivelly be worthless and the peferred will own it all.

    New Board’s first move shold be: fire Crowly. I have nothing again him personally, but any pubic co. CEo would be fired for quantnig tens of mllions of dollar and soon about to bounce checks.

    Private co. research firm PrivCo Top 10 Predictions for 2013 included #6 Foursquare fill fail by end of the yaer. Looking more true every day.
    http://www.privco.com/privcos-2013-private-company-predictions-6-10.

    PrivCo (@PrivCo)

    March 18, 2013 at 9:46 am


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