Apparently, investors have checked in with Foursquare and don’t like what they see.
Foursquare is looking to raise another $50 million round of funding, but potential investors are hesitant to throw more money into the company due to concerns about Foursquare’s slowing user growth and monetization strategy, according to a report in The Wall Street Journal.
Dennis Crowley, Foursquare CEO and Co-Founder (Click Image To Enlarge)
The Journal reports hearing from sources that the social media startup is expected to generate a paltry $2 million in revenues this year — a small fraction of the $153 million in revenues Facebook generated in its fourth year from ads. To be fair, Foursquare only rolled out its first revenue-generating product — promoted updates for businesses — earlier this year, but the latest revenue figure suggests that the startup’s business model still has a long way to go to prove itself.
Meanwhile, Foursquare’s VP Jon Steinback acknowledged to the Journal that user growth is slowing. The social network has more than 25 million registered users, but just 8 million monthly active users. To date, there have been 3 billion check-ins on Foursquare.
Foursquare went from raising $20 million at a valuation of $95 million in 2010 to raising a $50 million round at a valuation of $600 million a little more than a year later. Since then, the company’s valuation has reportedly increased to more than $700 million.
In the aftermath of the Facebook IPO, however, investors appear to applying more scrutiny to hyped Internet startups with large valuations, including Foursquare.
COMMENTARY: If you've been following my previous posts about foursquare, you already know that I don't think very much about foursquare, their CEO Dennis Crowley, or location-based social networks as a matter of record. In fact, I think the entire LBSN category is headed for a train wreck and said so much in a previous blog post dated April 13, 2011.
So when I heard that Foursquare was looking for additional investors, but had generated a paltry $2 million in revenues so far in 2012, I just had to chuckle. I don't know where foursquare came out with that valuation of $700 million, but if you do the math, this works out to 350 times revenues, which is a ridiculou number, when you consider that Facebook at the time of its IPO commanded a multiple of 26. No wonder investors are taking a close look at Foursquare or are very hesitant of investing in a company lacking a successful business model.
I feel especially bad (NO, I don't) about foursquare's investors, especially Andreessen Horowitz which I mentioned in a blog post dated June 27, 2011, when they invested $50 million in foursquare. At that time, foursquare had reached 10 million users. Today it has 25 million users, but only 3 million, or roughly 12% are active.
In the above blog post, here's my concluding comment:
"I sure wished that foursquare CEO Dennis Crowley would make things a big more transparent and level with us once and for all and tell us how much revenue they have generated. As long as location-based social networks continue their silent about their revenues, it forces bloggers like my self to predict that location-based social networks are headed for a train wreck."
Now that's what I call prophetic, and that train wreck is about to happen.
Courtesy of an article dated November 21, 2012 appearing in Mashable
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