The card-linked loyalty and rewards space is seen by a lot of the smart money as the next Groupon. Today, we saw new money being poured into FiveStars ($13.9 Million), LevelUp ($9 Million) and LocalBonus ($900,000). The companies have now raised $16 million, $21 Million and $1.4 Million respectively — about half the $78 Million that we estimate has been invested in the independent loyalty space.
FiveStars, a 55 person Mountain View, CA entity, won its new funding from Lightspeed Venture Partners and DCM. Other investors include YCombinator; Mayfield Fund; Hadi and Ali Partovi; and former Facebook and AOL Mobile exec Chamath Palihapitiya.
CEO Victor Ho reported to BIA/Kelsey today that the company has signed up over 400,000 users in 14 DMAs, and that more than 775 merchants are paying it monthly fees, which widely vary but are typically around $50-65 a month.
Roughly half of its merchant accounts are with larger chains, while the other half is to mom and pops. The chains include Subway, Round Table Pizza, Metro PCS, Baja Fresh and TuttiFrutti frozen yogurt.
Ho says the major differentiator for FiveStars from rivals like Belly and LevelUp is that it has been fully integrated with the vast majority of POS systems — something loosely claimed by a number of companies. The patented technology is the company’s “secret sauce,” says Ho.
The live POS integration enables offers to be spit out to consumers based on what they are currently purchasing. It also makes it easier to sign up customers on the spot and allow merchants to see information about the customer at their display. “They can see that Peter is a loyal customer” and what he purchased, Ho notes.
The POS integration also cuts down on rebate and rewards fraud and/or mistakes. This is a major issue when cash back rewards are being applied, he says.
Ho adds that FiveStars’ Live POS integration (and other features such as social media and mobile marketing) results in the company getting “3-4 times the penetration of any competitors,” and more than 500 members at the average store, compared to 100-120 for other companies in the space. Verde Tea Cafe, a Silicon Valley chain, for instance, is cited as having gained 20,500 members in one year.