LevelUp’s Latest Fundraise Intended to Get It to “Break-Even”

11/8/13Follow @curtwoodward

We’ve got an answer about the latest fundraising round for LevelUp, the Boston-based mobile payments startup with a history of twists and turns–and big venture backing.

In late September, LevelUp quietly filed SEC paperwork for a $7.5 million equity investment round.

That came on top of the startup’s existing $41 million venture pot, but was much smaller than LevelUp’s previous financing round, a $21 million chunk of cash that valued the company at $172 million.

CEO Seth Priebatsch didn’t respond to e-mails seeking comment at the time. But earlier this week, while covering the company’s press conference on patent issues, I asked Priebatsch what the money was for. Could it be related to legal bills, since LevelUp filed a lawsuit against a patent licensing foe just a few days after the fundraise?

Nope, Priebatsch says. Instead, the money was needed as a cushion to get the startup through the next year, when it might be able to start living off its revenues.

“We as a company are about 12 months away from break-even,” Priebatsch says. “So we raised sort of just a top-up round to give us extra buffer to get there.”

Priebatsch says LevelUp now has more than 1.5 million users—defined as people who have registered to use the app. That does not include users of the shut-down former SCVNGR app, he said. The company also claims some 5,000 merchants as partners.

The latter figure has become increasingly important for LevelUp as it tries to carve out a niche in the turbulent mobile payments world. There’s a huge array of players in this sector, from Google and the credit card companies on down, but it’s still not exactly clear what the future of mobile payments will look like.

A big reason for that is the difficulty of getting adoption and consistent use from local merchants, a notoriously difficult sector upon which to build a business. Add in the structural difficulties of building a two-sided marketplace, where you also have to get consumers to adopt your product, and it’s a long slog.

LevelUp has proven incredibly resilient, if nothing else. The company started off life as a scavenger-hunt app that was licensed to other businesses, and later debuted a consumer app that took a gamified approach to location “check-ins.”

LevelUp was initially more of a deals service, but morphed into a payment processing app and marketing service for merchants, making its money when consumers redeem special digital coupons by paying with a scannable code on their smartphone screens.

At this point, writing about the pricing or other particulars of the LevelUp service seems a bit dicey because things change so rapidly while the startup seeks a solid path forward. Getting tied into merchant payment systems seems like the latest key—earlier this year, LevelUp partnered with point-of-sale company Heartland Payment Systems to get wider distribution.

This spring, BostInno had a very detailed and apparently deeply reported article about difficulties at LevelUp. That piece detailed what BostInno said was a pretty urgent need for LevelUp to raise more capital, just a few months after it finished off the previous $21 million round.

Priebatsch downplayed that report, but the SEC filing indicated more fundraising followed a few months later. So keep an eye on this company to see if the latest buffer financing winds up being enough to get LevelUp on its own two feet.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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