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.
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.
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
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.
Yeah, my first thought was, no one I know has ever used foursquare, after so long without significant traction why would anyone want to pump it up? Having said that, there's a huge opportunity for someone that can become search for the real world. Foursquare might just be best placed to move into that area.
When something doesn't make sense many times I have found that there is probably something about it that is not known. Either something in the pipeline, or is a candidate to be acquired and they need to keep it alive a bit longer to make that happen.
You missed the point entirely. This is a convertible debt deal and as such is not dilutive to common/employees. If FourSquare fails they lose everything. If FourSquare hits a homerun they benefit greatly. It's a very very smart move. (They meaning employees & management)
Foursquare is largely used by cool urbanites. There aren't that many cool urbanites. The use cases for Foursquare in middle America are laughable. People want to humble brag: share cool coffee shops, countries they've been to etc.
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.
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.
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.
The problem with this is in order for it to be a useful tourist app it has to be a frequently used local app. I tried to use it in Sydney a few weeks back and its recommendations were hopeless so we gave up and went trawling for food blogs.
IMO, FourSquare's big missed opportunity was the chance to become the first popular meatspace social network. They could've provided interesting ways to meet new people, not just track your friends.
Instead, they've pivoted into a boring Yelp competitor. In fairness, it's probably an easier way to make money. But I never hear anyone talking about FourSquare anymore.
> They could've provided interesting ways to meet new people, not just track your friends.
I couldn't agree more. And you're right, at one point everyone was always talking about in, checking in and everything, but you just don't see that or hear about it anymore. People would rather check-in on Facebook because they know their friends will see it, unlike checking in on FourSquare where it gets lost in app-space.
Really, the majority of hardcore FourSquare users I still see active are narcissistic bloggers who are always going to conferences or traveling.
I have zero interest in meeting random people via Foursquare -- however, the "explore" functionality is awesome. The competitor isn't Yelp (outside the Bay Area), but TripAdvisor, which is really the only service which great coverage of a lot of places.
I have been in the SF bay area, NYC, Europe and looked up TripAdvisor all the time. I tried to see if Foursquare provided any more useful information. Unfortunately, none.
As another comment already stated they have become a "boring yelp competitor" I think it is exactly this geographical information that they have in this database that is the main value the company has. If anybody wants to compete with Google on maps they will need this info. I think the investors are looking for an acquisition Yahoo/Facebook/Ms.
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.
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.
Anecdotally, myself and several friends use Foursquare fanatically. Though I've been waiting forever for Foursquare to do something more with the service itself.
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.
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.
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.
If you're confident in what the money can allow you to do, then it's the best way to go about it - to match expectations and risk level of investors, and then benefit more if you know your product, market, etc..
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?
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.
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.
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
If they're going to pay back in cash, I don't understand how they do that at $2MM/year in revenue. Essentially all of their revenue would go to payments on the debt. I suppose they could be planning to IPO in which case they could use some of the cash raised in the IPO to pay back the loan, but it isn't clear who would be interested in buying Foursquare, especially after the Facebook IPO.
From what I understand, it wasn't all pure venture debt, but a split between convertible debt from insiders and venture debt from silver lake. Given silver lake's place in the capital structure and likely covenants, if foursquare is still burning a ton of money with minimal revenue in 6-12 months they probably can be paid with the new money from USV / Spark / a16z.
And in order for this deal to work out for anyone, the $2MM/year figure is going to have to be much larger. With 6.0 you can already see Twitter and Facebook esque promoted ads, which are going to make that figure grow a fair amount in my opinion.
I hope this opens people's eyes about venture debt. A much cheaper alternative compared to preferred stock - the traditional VC go to.
Unless we know the debt terms, I wouldn't comment on that. For all we know, it might have been the equivalent of a payday loan. I doubt Foursquare was in the driver's seat.
I agree with you, however in most cases debt is cheaper than equity, and it is an alternative that is rarely looked at by founders. Entrepreneurs take VC terms at face value without thinking twice. As the space gets more and more competitive with non-traditional early stage / growth investors (i.e. hedge funds, strategics) I believe we will see a lot more creative deal structures and terms that are more favorable to entrepreneurs
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. :-)
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.
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.
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.
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.
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.
(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.
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:
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.
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.
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.
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.
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.
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...
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.