CityPockets, Still Couch Surfing and Managing Daily Deals, Gets Office After $500K Grab

6/7/11

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users selling vouchers to other users. But investors convinced her to try to enter the packed market of voucher issuers and group-buying sites. Instead of helping to organize coupons from Gilt City and Groupon, try to compete with them, the investors said. The new idea would have had stores issuing daily deals instantly through CityPockets, a scheme that several of the larger companies have since adopted.

The lure of a first funding round had Yeoh and Fung back in New York plodding to stores through the winter, trying to sell their service to merchants with a sales force of two. “This really would have required many salesmen and lots of capital,” said Fung. “But it was just me and Cheryl.” The model proved unfeasible. And in any case the prospective investors decided to walk. “I realized that I should have just stuck to my idea instead of changing it for the money,” Yeoh said.

The incubation program was over and so was the free office space. But in February, Yeoh was convinced that her original idea could still work. She and Fung decided to try to make money with the service by charging a small fee to users who sold vouchers—$1 per deal coupon plus 8 percent of the sale price.

Even as more users slowly came on, their cash continued to thin. Yeoh got rid of her Gramercy Park apartment and moved in with Guthu, a friend, to save rent. She convinced him to start working as her software engineer for free as he boned up on the programming language they were using. “I was turning down jobs,” said Guthu. “And I came to terms with the fact that I might lose my house [in Phoenix]…I really thought she could do it.”

By April they had around five thousand users, but were still only bringing in a few hundred dollars a month. The team realized they would need to grow the business to at least several hundred thousand users before any real money would come in. What’s more, since Durham, patience had been wearing thin between Fung and Yeoh. “People [at LaunchBox] used to say to us, ‘CityPockets isn’t fighting today. What’s going on?’” Fung said. The team had been spending most waking moments together for months.

Yeoh met with the latest prospective investor, in mid-April, in the Chinatown workspace they shared with dozens of other startups. And the discussion lasted just 30 minutes. “Usually you have to meet with an investor 10 times before he offers you even a penny,” she said. “David and Jhony didn’t believe me when I came out and said he had wanted to take the whole [funding] round, $500,000.” Yeoh herself was not entirely convinced, until the money was wired into their business account last month. (Yeoh declined to reveal the identity of the angel investor.)

As the next phase begins for the team, the challenges are unlikely to let up. Though still a relatively new niche, other daily-deal aggregators and voucher marketplaces like Lifesta and DealGator are out there, and as Fung explains: grabbing the market first is power. CityPockets also relies on the daily-deal companies not making a legal fuss. Companies like Groupon have not given their permission for CityPockets to collect and help resell their vouchers. And the legality of the model hasn’t yet been tested. “They could probably shut us down if they wanted to,” Fung said.

Last week CityPockets moved from the share-space to a Chelsea office of its own. Guthu is finally getting paid. And Yeoh is already grappling with the real problems that real companies face. “I worry how we grow from 10,000 users to 50,000. And then to half a million,” she said. “I worry about the culture. Do I want to provide free food so people work longer? We will definitely have free snacks.”

Joel Schectman is a journalist based in New York City. Follow @

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