BusinessWeek broke the news of the Series D funding round early on Thursday, an article that was quickly followed by a post from founder Dennis Crowley on the official Foursquare blog — entitled “Continuing Foursquare’s Growth” — and posts from two separate partners at one of the company’s main financial backers, New York-based Union Square Ventures.

Crowley compares the challenges to Google

In his post, Foursquare founder and CEO Crowley describes the challenges ahead — including some fairly dramatic technical challenges, such as the need to index and filter more than 3.5 billion check-ins and other location data in something approaching real time, in order to successfully recommend to users a restaurant or other business that fits their needs. Crowley compares it to the kind of data wrangling that Google has to do in order to provide search results:

“To us, this is like when Google came and revolutionized web search. Suddenly, you could find things on the internet. The real world is the same way. Four years ago when we started Foursquare, it was really hard to discover a new retro arcade that opened up on a side street, or to make sure you weren’t overlooking the best dish on the menu, or to know a good friend was just around the corner. Sometimes, we think of Foursquare as having the ability to give people superpowers for exploring the real world.”

In a post at the Union Square Ventures blog, Albert Wenger talked about the potential for Foursquare to capitalize on its new focus as a platform for discovering local businesses — something GigaOM’s Eliza Kern highlighted in her post on the newly redesigned Foursquare app, which launched on Wednesday. In effect, the company is going head-to-head with local recommendation services like Yelp, and giving up its earlier focus on “gamification” elements like mayorships and badges.

Debt instead of a lower valuation

Union Square Ventures partner Fred Wilson, meanwhile, wrote a post on his own blog about the fact that Foursquare chose to (or was forced to) use convertible debt rather than equity. As Wilson explains, this kind of late-stage debt issue is often used when a company doesn’t want to (or can’t) raise equity because doing so would involve a “down round” — in other words, raising money at a lower valuation than it was given in earlier rounds. As he described it:

“Both of our firms have been investors in Foursquare for several rounds and both of us own a meaningful stake in the company. Valuation is somewhat immaterial to us as our stake in the company is not going to increase much in this round of financing. But valuation is very material to the Foursquare management team because $41mm of capital is going to be dilutive at any valuation that would make sense here.”

As Foursquare has evolved from being a fresh young startup with the hot iPhone app — which it was in 2009, when it launched at the SxSW festival — into a four-year-old company that has raised a total of $70 million in three separate rounds, it has faced increasing pressure to prove that it has a real business, along with questions about whether it can ever justify its earlier valuation, which was in the $600 million range. In a report in January, private-company research firm PrivCo argued that Foursquare could go out of business by the end of the year unless it raised more money.

In a much-publicized spat on Twitter last month, investor Keith Rabois — a former PayPal founder who is a backer of Foursquare competitor Yelp — said Foursquare’s only option was to be acquired, because it had failed to back up its valuation with any real business success.

@dens @sriramk @hunterwalk great use of jargon. Maybe Hail Mary Bebo-style acquisition will bail you out.—
Keith Rabois (@rabois) March 16, 2013

Foursquare needs to prove it is a business

Foursquare’s biggest problem is that it hasn’t been able to generate any meaningful revenue from the millions of users and partnerships it has announced over the past couple of years — according to an anonymous source quoted in the BusinessWeek article, the company had revenue last year of just $2 million, which makes a $600-million valuation look almost ridiculous. According to Crowley, much of the new financing will be used to develop advertising products that can run next to Foursquare’s local recommendations.

Despite its inability to produce revenue, the company’s supporters remain optimistic about its chances of building a truly large-scale and profitable local recommendation service. Hunter Walk, a former YouTube staffer turned venture capitalist, said on Twitter “All I know is the financing allows them to continue building a product I love,” and Shai Goldman of the 500Startups angel fund said: “I hope they figure out how to monetize, I’m a fan.” Even John Lilly of Greylock Partners, which didn’t invest in the company, said on his blog that he thinks Foursquare has a chance to build a real business:

“What does matter is that they raised the money they need to give this a real go. I have high confidence in these guys that they’ll do well and build interesting products and a great business for a long time.”

Others, however, were less complimentary — and many seem to see Foursquare as a high-risk bet, much like email-offer flameout Groupon:

.@mdudas @jackgavigan @rabois @bijan I can only hope foursquare goes public. I didn't short Groupon nearly big enough.—
Rakesh Agrawal (@rakeshlobster) April 11, 2013

Post and thumbnail photo courtesy of Pinar Ozger

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Hyperlocal: opportunities for publishers and developers
• Opportunities and challenges for mobile deals
• Facebook’s IPO filing: ideas and implications

Jim Bankoff, Chairman and CEO, Vox Media

Data helps destroy containers, and that’s a good thing. Data creates new content and information experiences and helps bring an end to the notion of content silos, Betaworks’ John Borthwick said: “The moment you start thinking about it as information, you start to think less about the package and more about the users.” Forrester’s James McQuivey pointed out that it’s not just a “tablet or iPad world,” but an “everything world” — and millions of people are consuming content not on iPads or e-readers but on gaming systems like the Xbox 360.

Digital storytelling is a native art. Stories on the Internet are not a new form of magazine or newspaper stories, but a medium in their own right — just like radio or TV. Publishers should develop their platforms accordingly rather than just repurposing other print vehicles. When Wenner Media released Us Weekly on iPad for the first time, it figured out a way to enable the “passalong” that’s so popular with the magazine’s print edition. As Vox Media CEO Jim Bankoff told us, George Lucas had to build a new story-telling platform called Lucasfilm so that he could tell the story of “Star Wars.” And don’t say blogging is dead: “That’s like saying creativity is dead, or personal expression is dead,” said WordPress founder Matt Mullenweg.

Om Malik interviews John Borthwick, founder and CEO, Betaworks.

Not all “media” are created equal. Union Square’s Fred Wilson and Betaworks’ John Borthwick gave a rude awakening to Big Media executives, urging them to give up control of their content — and even to stop calling it “content.” But declaring new digital networks victors over somewhat different traditional print and broadcast operators after simply labelling each “media” can sometimes seem counterproductive and insufficient: What’s being created now are entirely new kinds of information vehicles. The industry is truly “at the crossroads” suggested by the paidContent 2012 conference’s subtitle– but technologists and information producers may now be heading in different directions, as well as speaking different languages.

Publishers have to sell their brands directly to consumers. “Publishing companies need to understand that the thing [companies] like Amazon, Barnes & Noble and other retailers really respect is a brand,” Pottermore CEO Charlie Redmayne said in an explanation of why those companies agreed to send customers directly to the Pottermore site to buy e-books. “If we’ve demonstrated anything, it’s the power of a brand,” he said, noting that over half of Pottermore’s e-book sales result from readers coming directly to the site instead of being referred there by the retailers. Not every brand is Harry Potter — but “need to understand that their role in the future is creating these brands,” Redmayne said.

It’s time to toss CPM as a yardstick for online advertising success. How can Facebook be so inept at advertising? Because it’s handing advertisers a sledgehammer not a scalpel. Betaworks’ Borthwick and GigaOM’s Om Malik say it’s time to discard old-fashioned display ads as the basic unit of online ad success. Instead, it’s time for advertisers to adapt their ads to the evolving nature of the internet itself. That means forgetting about CPMs and focusing on data and social dynamics. On a broader level, it means re-imagining basic precepts of advertising and product discovery in a world where Web pages are being eclipsed by new types of online discovery and interaction.

If you didn’t make it to the TimesCenter yesterday, you’ll find video of all yesterday’s panels here (registration required). And let us know your takeaways from the day in the comments.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Takeaways from connected consumer’s second quarter
• Connected world: the consumer technology revolution
• Connected Consumer Q2: Digital music meets the cloud; e-book growth explodes

The fact that writing of all kinds has been freed from the confines of the printed world isn’t really new. But while the Amazon Kindle has led to an explosion of e-book publishing, some people feel storytelling hasn’t really taken advantage of the social revolution that comes with going digital. Union Square Ventures partner Albert Wenger is one of those people, and in an interview with GigaOM, he talked about why USV is the lead fund in a $3.5-million Series A funding round for a Toronto-based startup called Wattpad, which has a created a simple service that allows writers of all kinds to share their stories and create a community of readers.

The Kindle has been a great success, says Wenger, and e-books have become hugely popular — to the point where sales of electronic titles have eclipsed sales of printed books for many retailers, including Amazon — but so far, this is mostly just a reshaping of the traditional book-publishing industry. Wattpad, he says, takes a “digital native” approach to the same idea: that digital tools allow anyone to become a publisher, that writing can be shared easily with users anywhere, and that writers can also connect with their readers. Says Wenger:

Wattpad didn’t start with the existing industry structure, where there’s a printed book and all sorts of existing rightsholders. It simply lets anyone tell a story and lets anyone read a story — so it taps into this fundamental human need for storytelling in a way that’s unique to the Internet.

The Internet — where anyone can publish

Wenger said Wattpad’s net-native approach fit with the investment thesis that has seen Union Square Ventures invest in Twitter, Tumblr and other social-media success stories. “The fundamental promise of the internet is that anyone can publish, just like anyone can tweet,” he says. “That’s what the internet is good at.” Unlike some other writing-oriented services, Wattpad doesn’t have any “big, heavy-handed editing process up front,” says Wenger. Writers simply upload their content and then tap into the community of readers. In some cases, users create cover art for other users’ books and stories.

While the Kindle and the disruption of the traditional book-publishing industry have gotten a lot of attention over the past year or so — with e-book authors like Amanda Hocking and John Locke becoming celebrities through self-publishing — Wattpad has more or less flown under the radar. Although it has been around in its current form since 2007, the company doesn’t get a lot of press, perhaps in part because it is based in Toronto. But its reading community has been growing steadily: The iPhone app alone (there’s an Android and a BlackBerry app as well) has been downloaded more than 5 million times, and Wattpad recently signed up its one-millionth user.

In a nutshell, the service makes it easy for anyone to write a story and upload it, and the mobile app and website then allow the writer to connect with readers through the Wattpad service. The company likes to call itself “YouTube for e-books,” because the focus is on self-publishing — not just by people who are professional authors, but by anyone who wants to write. The service sees more than 250,000 new stories uploaded every month, and Wattpad has more than 3 million already on file.

But doesn’t the Kindle Singles program allow writers to do the same thing with Amazon’s platform, as authors like Hocking and Locke have shown? Yes, says Wenger — but Amazon doesn’t make it easy for writers to connect with their audience through its platform (although it seems to be trying to move in that direction with the launch of features such as its @author program). In any case, the USV partner says there is room for both to co-exist as the market for writing of all kinds continues to expand.

Writing and publishing, plus a community

“I’m reading a book on my Kindle right now, but I’m also reading a story on my iPhone with Wattpad,” says Wenger. “On Wattpad you can interact directly with the author, which gives it a very different feeling.” In some ways, Wenger says, Wattpad follows the same pattern as Tumblr has. Despite the fact that there were already existing blog-publishing tools such as WordPress (please see disclosure below), Tumblr has continued to grow because there’s a “built-in feedback mechanism and a built-in community — as opposed to being something that’s just floating out there in the vast sea of the internet.” Adds Wenger:

What we’ve found is that platforms without that legacy structure [like the Kindle] tend to be more powerful in the long run. The Kindle leverages a large body of already published works, but it has to make tradeoffs in order to do that.

Other services that take a similar approach include Scribd, which began as a simple web-hosting service for documents but has expanded to try to appeal to writers and publishers. And much like other web services that rely on “user-generated content” — including YouTube — both Scribd and Wattpad have been criticized in the past for hosting copyrighted content that has been uploaded by users who don’t own the rights (Wattpad now has a system in place that allows authors and rightsholders to have content removed from the service). Co-founder Allan Lau says Wattpad’s main goal is simply to make it as easy as possible for writers of all kinds to find and connect with readers.

In addition to Union Square, the Series A funding round for Wattpad includes W Media Ventures — a Vancouver, British Columbia fund founded by Boris Wertz, who helped sell online book retailer AbeBooks to Amazon in 2008 — as well as a new Toronto fund called Golden Venture Partners and a number of Wattpad’s initial angel investors.

Disclosure: Automattic, the maker of WordPress.com, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.

Post and thumbnail photos courtesy of Flickr users Jeremy Mates and Zarko Drincic

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• What media companies can learn from the book industry’s disruption
• Amazon’s E-book Imprints: Another Big Threat to Publishers
• As E-book Sales Grow, So Does Disintermediation

I am a big fan of fast growing crowd funding platform Kickstarter, arguably one of the most disruptive and innovative platforms to emerge for the creative community.

Less a technology site, more a socio-cultural movement, Kickstarter is changing how we make things, how we turn dreams into reality and make ideas come to life. While a lot of people focus on Union Square Ventures’ Fred Wilson’s big name portfolio of Twitter, Zynga and Foursquare, I would argue, Kickstarter is the one that transforms the very idea of commerce.

On his blog, author/publisher Craig Mod tells the story of how folks pledged $24,000 for Art Space Tokyo, a book he co-wrote with Ashley Rawlings, on Kickstarter. I think this quote sums up everything that is awesome about Kickstarter and why it works.

With Kickstarter, people are preordering your idea. Sure, they’re buying something tangible — a CD, a movie, a book, etc — but more than that, they’re pledging money because they believe in you, the creator. If you take the time to extrapolate beyond the obvious low-hanging goals, you can use this money to push the idea — the project — somewhere farther reaching than initially envisaged. And all without giving up any ownership of the idea. This — micro-seed capital without relinquishment of ownership — is where the latent potential of Kickstarter funding lies.

Twilio’s other investors include Union Square Ventures, angel investors and Dave McClure’s 500 Startups, which established a dedicated $250,000 Twilio micro fund in September. Twilio, which will use the money to expand, announced Ty Wang, former senior director of the business communications unit at Oracle, was joining Twilio as its vice president of business development. Byron Deeter from Bessemer will also join the Twilio board. Twilio raised an earlier $3.7 million round last year.

Twilio makes money by charging for phone calls and text messages. That adds to the costs of start-ups but the platform seems to have wide support from developers who are responsive to Twilio’s focus on them.

Related content from GigaOM Pro (sub req’d):

• Mobile Operators’ Strategies for Connected Devices
• As Always, Mobile Music Faces Uncertain Future
• Mo’ Money: Life is Good for Cloud Vendors