Foursquare Said in Talks for Strategic Investment

Foursquare Labs Inc. is in talks with multiple large technology companies about a potential strategic investment, according to people with knowledge of the discussions.

The social-media company, which lets users check in to show they're visiting a location, is also negotiating with venture capitalists who own convertible debt about turning their holdings into equity, said the people, who asked not to be identified because the information isn't public.

The discussions suggest that potential investors are more bullish on Foursquare's prospects after it began reaping the benefits of a new advertising approach that lets brands target users when they've checked into a locale. Foursquare in April raised $41 million in debt, a move that let it keep tinkering with an unproven business model while delaying debate about the company's true worth.

The company is on track to beat its sales goals for the year, Chief Revenue Officer Steven Rosenblatt said in an interview. Last month, Foursquare started letting brands target users after checking into a location. Those advertisements are bringing in three times the revenue New York-based Foursquare had expected, Rosenblatt said.

"I think we've proven our business model," Rosenblatt said. "Our business model is very clear and it's working, doing what we thought it would do, if not more. It's all well ahead of what we anticipated."

Rosenblatt declined to comment on the company's targets. Foursquare also had no comment on the talks with investors, said Jon Steinback, vice president of marketing.

Encouraging Sign

Foursquare's results are an encouraging sign to investors who valued the company at $600 million in 2011 and have waited for it to deliver on promises. The company, which pulled in just $2 million in sales last year, has introduced more advertising products in the past few months to make money off its applications. Users click on or save ads delivered after check-ins more than 15 percent of the time on average, Rosenblatt said -- a rate that beats the less than 1 percent engagement on a typical mobile ad.

Earlier this year, when Foursquare needed money to continue operating, it made forecasts for investors about how successful its products were going to be. Because the targeting methods hadn't been tested, investors didn't come to an agreement with Foursquare on how much the company was worth.

Rather than raising equity and debating the $600 million valuation with venture capitalists, the company took on debt from two sources -- a loan from a Silver Lake Management LLC debt fund and convertible notes, which can be changed into shares later, from investors that already owned pieces of Foursquare.

International Customers

The company has been putting the money to work. Foursquare hired about 20 more people for its engineering and sales teams, and has started opening up its advertising platforms to businesses that want to create their own promotions. The company's first international customers are among the thousands using the service so far, Rosenblatt said.

"We're ramping up as fast as we can," he said, noting that the company has had some single advertising purchases of more than $1 million apiece. "I didn't think we would see a dollar from anyone overseas this year."

In the next three months, Foursquare will have 50 to 100 advertisers buying the post-check-in advertising product, he said. The self-serve advertisements will be open to the company's entire base of merchants by the end of the year.

Check-In Rate

The company still sees about 6 million users checking into locations each day -- a rate that hasn't changed since April. To help boost the figure, the startup updated its mobile applications on iOS and Android operating systems, plus a new version for Windows 8. The updates included a feature that lets people check their friends into locations in addition to themselves.

The company said today it's also unveiling a technology that will send users automatic recommendations when they visit a new restaurant or neighborhood, without having to open the application.

Foursquare aims for its next big investment to come from a larger company, rather than soliciting venture capitalists beyond those debtholders who want to convert to equity, one of the people with knowledge of its plans said.

To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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