Foursquare Banks $20M to Fuel Location-based Service

Location-based service Foursquare June 29 said it raised $20 million in series B funding from Union Square Ventures, O'Reilly AlphaTech Ventures and Andreessen Horowitz.

Foursquare's 1.8 million users vie for points, badges, mayor status and sometimes discounts by checking into bars and restaurants from their mobile phones.

The game serves as an example of how location-based advertising might work beyond simply luring smartphone users to retail stores by pinging their handhelds with advertisements. That is, it's more fun and interactive because it lets users compete while connecting them with businesses they patronize.

Foursquare, which is based in New York, has already struck partnerships with Starbucks, Zagat's, C-SPAN, The Wall Street Journal and The New York Times Company.

Foursquare CEO Dennis Crowley, who watched his previous location-based company Dodgeball swirl down the drain when he sold it to Google five years ago, appears determined not to go that route after reportedly fending off offers from Facebook and Yahoo.

These companies, along with Google, Twitter, Gowalla, Brightkite, Loopt and others, are all seriously investing in location-based services to stimulate more interaction among users. The idea is that the advertisers will go where the users are.

Foursquare has 27 employees and will look to expand that number with the cash infusion, Crowley said, adding that engineers are a primary hire focus.

"We're hoping to build a world-class engineering organization, based primarily in our headquarters in New York City to help us develop the next generation of mobile + social + local products that will excite our users and provide unique value for local merchants," Crowley said.

"The new investment capital will also help fund the infrastructure needed to house our team (we’re finally getting a new office!) and support our growing audience of nearly 2M users."

Foursquare's first round of financing comprised $1.35 million from Union Square Ventures, O'Reilly AlphaTech Ventures and some angels.

New financier Andreesen Horowitz was forged earlier this year by Netscape browser creator Marc Andreessen and business partner Ben Horowitz, who Crowley fairly described as "each legends in Silicon Valley."

Horowitz said his firm funded Foursquare because Crowley is running it; it's a killer product; and there is a major addressable market where users, shop owners, venue owners, brand advertisers and others can benefit.

"The only thing better than the CEO being the keeper of the vision is the CEO being the creator of the vision," Horowitz said in a blog post June 29. "In Foursquare's case, Dennis not only created the vision for the company, but for the entire product category. Beyond that, he is very clearly the thought leader in the market."

He added that Foursquare is growing faster than Twitter did at this stage, going from just 1 million users in April to 1.8 million through June, adding around 15,000 users per day.

Finally, he said more than 200 million people and growing worldwide have smartphones and Foursquare is positioned to capture a huge portion of the market "because it's incredibly fun and addicting."