Fresh Capital

Foursquare Dodges a Potential Down Round, Grabs $41M In Loans and Convertible Debt

According to a Businessweek source, the company netted just $2 million in revenue in 2012.
(Photo: Sound Ctrl)

(Photo: Sound Ctrl)

Everyone, it seems, has an opinion about Foursquare, the New York-based check-in and recommendations app that was the breakout darling of SXSW 2009.

Former Square COO Keith Rabois recently engaged in a very public dustup with Foursquare founder Dennis Crowley on Twitter, tweeting that only a “Hail Mary Bebo-style acquisition will bail you out.” In January, data and research company PrivCo predicted that the startup will fail by the end of the year, eventually surrendering to an acquisition price of no more than $50 million (though the analysis didn’t account for mobile traffic). In November of last year, the Wall Street Journal reported that investors were “cooling” on Foursquare. “The company claims more than 25 million registered users, but only about 8 million of them use the app at least once a month,” it wrote.

Now, Businessweek reports that Foursquare has raised $41 million in loans and convertible debt from Silver Lake Partners, a private equity fund, as well as Andreessen Horowitz, Union Square Ventures and others. The influx of capital, Businessweek notes, will allow Foursquare time to grow as it tussles with low revenue (a source tells BW that the company only made $2 million last year) and works to launch a new ad program that will allow all of its merchants to serve mobile ads.

Foursquare’s latest update to its iOS app brought search and recommendations to the forefront; sources also told Betabeat that the company has toyed with the idea of a recommendations app not equipped with check-ins, which speaks volumes about where the value of the app lies. A new mobile ad strategy, which would most likely serve ads to users based on their location, could help to greatly increase revenue at the company.

Taking on debt instead of raising a new round also helps Foursquare avoid a dreaded down round and what would undoubtedly be a fierce public debate about its valuation. The Series C in 2011 brought the company’s total capital to $71 million at a valuation of $600 million, but the novelty of a check-in app seems to have worn off since then, and that coupled with thin yearly revenues could lead to a lower valuation.

One source told Betabeat that the company is “frustrated with lack of hype/momentum/growth,” and that company culture has transitioned from “uplifting” to “oh shit.”

Investors in this debt round are patient, allowing Mr. Crowley the time he needs to expand the business. But others, like Greylock’s John Lilly, declined to participate–according to BW, he simply thinks Foursquare’s $600 million valuation is too high.

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