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Foursquare Raises $45 Million, Cutting Its Valuation Nearly in Half

Foursquare executives, from left: Steven Rosenblatt, president; Dennis Crowley, executive chairman; and Jeff Glueck, chief executive.Credit...Ewan Burns

When Dennis Crowley helped found Foursquare in 2009, he was ahead of the pack in creating a social app that used location technology. Now Foursquare may be at the front of another coming wave: tech start-ups that are raising money at lower valuations than before.

On Thursday, Foursquare said it had raised $45 million in a new round of venture funding, as it tries to bolster its location data-based advertising and developer businesses. The financing pegs Foursquare’s valuation at roughly half of the approximately $650 million that it was valued at in its last round in 2013, according to three people with knowledge of the deal’s terms, who spoke on the condition of anonymity.

Foursquare, which is based in New York, is likely to be joined by other start-ups this year in doing what is known in investing circles as “down rounds,” in which companies that once raised money at soaring valuations are forced to accept funding at lower values. While tech start-ups boomed in recent years — with many easily attracting investors and big sums — that environment has now turned on fears that many of these young companies got ahead of themselves.

Investors have grown more cautious; the amount of money funding private companies has fallen 30 percent, to $27.3 billion, in the last quarter of 2015 from the previous quarter, according to a report from the research firm CB Insights. Mutual fund investors have also recently marked down valuations of some of the most prominent private companies, such as Snapchat, the messaging start-up, and Dropbox, the file storage service.

“The short of it is, expect more down rounds,” said Anand Sanwal, chief executive of CB Insights. “You might be able to raise, but not at the valuation you might have gotten even just a year ago.”

Foursquare’s valuation plunge reflects how the buzz around the company — which was once the talk of the start-up scene — has faded, something that Mr. Crowley, who is stepping down as chief executive to be executive chairman, acknowledges.

“Everyone thought we were going to be the company that toppled Facebook, which is crazy talk,” Mr. Crowley, 39, said in an interview. Still, he added, “we’re building a really amazing, very scalable business around the many successful products we’ve built that people love.”

Foursquare declined to comment on its valuation or specific fund-raising details, except to say that the round was “oversubscribed” and that the terms were “employee friendly.” Recode and TechCrunch earlier reported that Foursquare was raising a down round.

“To raise $45 million in this environment, and on very employee-friendly terms, is a testament to the real business we have,” said Jeff Glueck, Foursquare’s chief operating officer, who is being promoted to chief executive. Steven Rosenblatt, the chief revenue officer, will also shift roles to become president.

The executive moves reflect Foursquare’s future direction, said Mr. Crowley, who added that his new role would be more advisory. “I know what my strengths are — building, prototyping and making things from scratch,” he said. “I believe it’s important for Foursquare to be run by executives who have previous experience scaling companies.”

At its birth, Foursquare made a splash as a pioneer of using the global positioning technology found in Apple’s iPhone. The app let people “check in” to venues and businesses, a type of social game that quickly rose in popularity among tech elites and young audiences.

The attention made Foursquare a star of New York’s start-up scene. Investors including the venture capital firms Andreessen Horowitz and O’Reilly AlphaTech Ventures flocked to give the company money. In total, Foursquare has raised more than $100 million.

As of early 2012, Foursquare said it had 1.5 billion check-ins and 15 million users. The company began making money by selling location-based ads to local businesses; a sandwich shop, for instance, could send a coupon in the form of a smartphone notification to a Foursquare user walking by its restaurant, all using the GPS technology running in the background of the app.

But the location check-in quickly became a standard feature among other apps like Instagram and Facebook, and users became less interested in the gamelike aspect of Foursquare. The start-up shifted direction to focus on “discovery,” and split itself into two apps: Swarm, an app for check-ins, and Foursquare, which recommends users to nearby restaurants and venues based on their location and preferences.

That vision, which has had stop-and-start degrees of success, has also changed over time. Today, Foursquare’s business is primarily selling data and insights about consumer trends to developers. Foursquare said it planned to spend its new capital on bolstering that business, which accounts for a majority of its revenue. The company says it now has 50 million monthly active users and has had 7.8 billion check-ins.

Even with the new capital, down rounds can be brutal on start-ups for several reasons. In addition to any shifts in the public perception of a company’s fortunes, employees who had joined at the higher value may find the equity they own isn’t worth as much as it once was. Investors who bought in at the higher value also will see the worth of their stakes decline.

“In a down round, there are a few folks who can suffer,” said Mr. Sanwal of CB Insights.

Foursquare’s new financing was led by the venture capital firm Union Square Ventures, which was an existing investor in the company. Other previous investors including Andreessen Horowitz and DFJ Growth, as well as a new participant, Morgan Stanley, are also involved in the new funding.

“Location is one of the linchpins for creating compelling experiences on mobile,” said Albert Wenger, managing partner at Union Square Ventures.

The funding will buy Foursquare some time to prove that its new vision can become a reality. The company said it planned to hire 30 more employees across sales, engineering and other divisions to meet what it expects to be great demand for the location platform.

“Good things happen to companies who are performing really well,” Mr. Crowley said. “If we continue performing how we have been, we’ll find that we have a lot of options down the line.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Foursquare Raises Cash, but Lowers Its Valuation. Order Reprints | Today’s Paper | Subscribe

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