What Investors Look for in a Hyperlocal Startup

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investorsThe hyperlocal industry has seen a spurt of big funding news over the past few months with companies like Booker and FoodPanda nabbing double digit rounds. During an afternoon panel discussion at Street Fight Summit West in San Francisco today, Alex Ferrara of Bessemer Venture Partners and Sharon Wienbar, a partner at Scale Venture Partners, looked at some of the recent investments, and broke down the way in which they approach investing in the local space. The panel was moderated by FixYa’s new chief revenue officer, Lem Lloyd.

“It’s a little bit iterative for us,” said Wienbar about the venture firm’s approach to investing in hyperlocal. She said that their firm looked at megatrend opportunities that propagate across four internally-defined broad customer categories. “We understand the fundamentals of the technology [that is being pitched] and how they will affect each of those categories of buyers,” she added.

TT3_1836One area that has seen a renewed emphasis is scheduling. Ferrara framed scheduling as an entry-point that allows businesses to offer broader capabilities such as CRM. In effect, businesses, whether they are local or national, can upsell products once they have established identification characteristics for their customers.

The panelists also touched on the verticalization of web traffic. Unlike Google and Facebook, which dominate across a number of verticals, Wienbar pointed out that traffic amongst online hyperlocal sites is segmented. For example, Yelp specializes in restaurants and bars while Zillow specializes in real estate listings.

Both Ferrara and Wienbar however, were skeptical of NextDoor, the neighborhood network that raised a whopping $21.6 M round from a group led by Greylock Partners in February. Ferrara termed NextDoor’s value proposition as “incredibly difficult,” and Wienbar said the concept was hard to scale: “You have to be broad and, also, deep in several locations at the same time,” she said.

However, Ferrara said the intersection of open government with hyperlocal, which sites like now-shuttered EveryBlock have pursued, might be an interesting area of innovation in the future. “Combining the social and community features from popular sites such as Reddit and Twitter with open government really has potential,” he said.

While local has remained an elusive market for small and big players alike, investors are always on the lookout for innovative plays. Even in an era of redoubled marketing efforts and daily deals by local businesses, customer churn remains high. “We are always looking out for companies or areas we track closely to see if someone can crack the code for consumer engagement at the local level,” said Ferrara.

Street Fight Summit 2013 is coming soon to NYC. Find out what’s happening and how you can get a seat at Street Fight’s flagship event here.