LivingSocial Gets $25M for Group Buying

We know there are lot of entrants in the group deals space — see my recent piece, Groupon and the Wannabes — but now the competitors are seriously bulking up. LivingSocial — which has more than a million daily email subscribers — is today announcing it’s raised a $25 million Series B round led by U.S. Venture Partners and including Grotech Ventures and Revolution Capital, bringing the company to a total of about $35 million raised. That follows Groupon’s $30 million B round from Accel Partners and New Enterprise Associates announced in December.

Setting up group deals does require capital, because you need salespeople on the ground to find desirable venues and negotiate with them — and given the now tens of competitors in some cities, elbow out your rivals’ salespeople. LivingSocial is currently in 13 cities (it launches four more today), still quite a bit behind category leader Groupon, which is in 40. But armed with this new capital, LivingSocial CEO Tim O’Shaughnessy said the company hopes to rapidly expand its business.

O’Shaughnessy said LivingSocial’s angle, beyond deals, is to help small businesses grok social media in order to keep in touch with their customers. The Washington, D.C.-based company, which has been around for two and a half years with products like online book reviews and drink coupons, launched the deals product last summer. “We’re basically creating marketing budgets for people who never had marketing before,” he said. “There are not a lot of ways to guarantee customer foot traffic like we do.”

LivingSocial, which is not currently profitable as it expands (again, regret the incessant Groupon comparisons, but they say they have been turning a profit for a while), takes a 30-50 percent split of revenue collected from its deals, but it only pays out if its customers spend money, so there’s little financial risk for participating businesses. It primarily brings in customers through daily emails, but it also has an iPhone app with push notifications and a Facebook presence. O’Shaughnessy pushes off the competitive angle, saying many more merchants want to work with his company than they have space for, but says he’ll work to stand out from the crowd with the launch of an affiliate program today and soon launching more personalized subscriptions.

P.S. For those of you who are skeptical of group buying and competing in such a jam-packed space, I should say I’m a total believer. In the course of writing this article, I happily bought a half-off coupon for my neighborhood sushi joint, which happened to be LivingSocial’s San Francisco deal of the day. Speaking from personal experience, group deals totally spark spending and loyalty.

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