Deal With It

CityPockets Raises $750 K. to Bring Sanity to Daily Deal Madness; Secret Angels Revealed!

landing page CityPockets Raises $750 K. to Bring Sanity to Daily Deal Madness; Secret Angels Revealed!

An early CityPockets design.

CityPockets announced its $750,000 round of funding today, a triumph for the struggling quinoa-eating bootstrappers behind the site–thanks to persistence, careful budgeting and two local angels who fronted more than $500,000. 

The round took just over two months to raise, CEO Cheryl Yeoh told Betabeat, but it seemed like much longer. She and her co-founder basically tried to raise money for CityPockets twice: first as an instant deals platform, a pivot advised by investors.

After wasting two months trying to be heard in the crowded daily deal space, Ms. Yeoh reverted to her original idea–the current incarnation, a site for organizing and reselling daily deal coupons–and found things much easier.

“At the end of February, I started really asking myself what is my passion, why am I building a company based on what other people tell me the opportunity is?” she said. She met “a ton of people” at South By Southwest in mid-March, and came home to New York to try again. “Raising was still hard, but in early April we got our lead investors,” she said.

For a while, the investors remained stealthy. But we now know the leader of the lead investors was Ben Lin of Great Oaks Venture Capital, a two-angel early-stage fund with investments in Invite Media (acquired by Google), Trulia.com, 33Across, OKCupid and Warby Parker, among others in a portfolio Mr. Lin estimates is worth $50 million.

“We have a handful of investments in the daily deal sites,” Mr. Lin said. “We see a huge problem with the daily deal space where it’s getting really crowded, with 500, 600 players trying to chase after the same piece of pie. We see a real need for what CityPockets is doing.”

There are two opportunities for CityPockets to take advantage of users who feel overwhelmed by too many deals, Mr. Lin said, and the CityPockets marketplace, where deals can be resold, is key. “Number one, people are more likely to buy [deals] knowing that they’ll be able to get rid of them. Number two is, people might be more willing to buy them for the sake of selling them. Almost like ticket scalping.”

The second example is close to the model of another Great Oaks investment, Stubhub.

Great Oaks also recruited MI Ventures and several other NYC-based angels and international investors.

CityPockets is now comfortably ensconced in Great Oaks’s Chelsea office, where Ms. Yeoh still interviews two or three users a week by phone or instant message to find out “who are these people.” She just spoke to a superuser, a mom who tracks 200 coupons through CityPockets at any one time. Another fan is the Groupon Pawn, who tried to use the site to organize hundreds of Groupons–he’s trying to survive off the site for a year. Things apparently went a little sour with Groupon, though, when the Pawn’s usage of CityPockets became public without an okay from the big discounter. Which reminds us of a problem raised in this post by Xconomy, which asserts, “Companies like Groupon have not given their permission for CityPockets to collect and help resell their vouchers. And the legality of the model hasn’t yet been tested.”

The dangers of this were greatly exaggerated, Ms. Yeoh says. “The ending about concerns about Groupon shutting us down, I do not agree. I’m not worried about that at all.”

In her user interviews, she said, people have told her they were ready to give up on daily deals until they found CityPockets. “Since they discovered us they’re starting to use [daily deal sites] again because they have confidence knowing they can keep track of everything,” she said. CityPockets has a working relationship with LivingSocial, BuyWithMe, Tippr and others. Ms. Yeoh says they’re going to talk to Groupon “soon.”

Maybe it’ll go really well, we said. Maybe Groupon will want to buy CityPockets.

“I don’t know if we can be bought by any particular site because we want to work with all the deal sites, with their needs and their users’ needs,” she said.

What about other daily deal aggregators?

“Yipit doesn’t have enough money to buy us,” she said. “But Google, Facebook are kind of testing the waters by aggregating… Or Amazon, eBay. There’s potential with bigger overarching companies.”

Follow Adrianne Jeffries on Twitter or via RSS. ajeffries@observer.com