According to PrivCo's sources, Foursquare is missing venture capitalist's projections, and even its own projections, quarter after quarter. PrivCo thinks investors will get tired of this and sell their shares by year-end for less money than they initially invested.
Specifically, PrivCo thinks Foursquare will be acquired for less than $50 million by the end of 2013, significantly less than the $71.3 million investors have pumped into it.
It's reasoning is this:
Aside from missing quarterly projections, PrivCo says Foursquare has struggled to raise a new round of financing for "nearly a year."
More so, it says Foursquare's existing investors have "made it clear to Foursquare management including CEO Dennis Crowley that they will not be investing additional capital into Foursquare either." PrivCo says it's their way of warning Crowley that he must find a sustainable business model quickly.
We have to assume the investors PrivCo is talking about are Union Square Ventures, a long-time investor in Foursquare, and Andreessen Horowitz, which led Foursquare's last round of financing and helped value the company at $550 million in July 2011.
As further proof, PrivCo reads between the lines of a recent blog post written by Union Square Ventures' Fred Wilson, which stressed frustration with startups. Wilson wrote, "So if I can give entrepreneurs a single piece of advice for 2013 it would be to deliver on your promises. Not just to your investors but also to your team and ultimately to yourself. This is no time to be in denial. That is a lethal attribute in times like these."
Union Square Ventures opted not to comment on PrivCo's report or its satisfaction with Foursquare's performance to date.
PrivCo also used Foursquare's flat web traffic as a sign of bad times ahead. It says its website has hovered between 2.2 million and 2.5 million monthly uniques for the past year and a half.
"This shows that not only is Foursquare's audience too small for a consumer-oriented Internet company to attract meaningful ad dollars, but its web traffic numbers are flat, with no reversal on the horizon; this is a likely death spiral for a consumer social network," PrivCo writes.
Of course, Foursquare is first and foremost a mobile app and it hasn't pushed particularly hard to increase monthly uniques to its website. The report does note that Foursquare's users logged 1.9 million minutes on the app in 2012, up 15% from 2011 according to Nielsen. Foursquare also added 15 million new accounts this year, bringing its total users to nearly 30 million. There have been more than 3 billion check-ins to date on the app.
What to make of it all?
It's true that investors aren't keen on investing at the moment.
It's also been reported that Foursquare only generated $2 million this year, which we have to assume is a big miss for both investors and the company.
But in the report, PrivCo made some blatant errors. For one, it incorrectly named Dennis Crowley's co-founder, Naveen Selvadurai, "Naveen Jain."
PrivCo makes money selling the business and financial research it collects on private companies. One way it seems to be making a name for itself is by publishing very negative reports about startups. It did this with Groupon and Facebook. (Then again, some of those reports proved to be accurate.)
If PrivCo is right, it means the investors that will take the biggest hits are Union Square Ventures, O'Reilly Alphatech Ventures, Ron Conway and David Lee's SV Angel, Bijan Sabet's Spark Capital, and Andreessen Horowitz. But they'll receive cash back before common stockholders see a dime.
The person who would obviously get hit the hardest is Dennis Crowley, who's spent his entire life trying to solve one problem: finding his friends who are nearby.
Foursquare declined to comment for this story.
(PrivCo is a company that collects business and financial data on private companies)
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