Valley VC firm August Capital must have understood Swoopo’s business model straightaway – it’s much like its own.
The online auction site encourages users to lay out small amounts of money hoping they will win various products at a fraction of what they are really worth.
In similar fashion, August has just made Swoopo one of its investments with a $10m bet that it will be valued at a much higher price one day.
“I think this is the most innovative, interesting business model I’ve seen in a long time and it’s also really fun if you play the game,” says Howard Hartenbaum, August Capital partner and now a member of Swoopo’s board.
“It has the potential to become a massively well adopted entertaining business that generates a good return. We are betting this is going to be a big freestanding company”
Looking at ended auctions on the US version of the site, a Macbook Air shows up as being sold for $200 compared to its $1,800 retail price and a $1,300 LCD TV has gone for $33, among many other bargains.
However, the items can be hard to win. Many of the auction lots appear to be seconds away from closing at low prices, but each time someone bids, the countdown stops and seconds are added instead. Every bid costs 75 cents and this is how Swoopo makes its money – betting enough bids will be made to earn it more than the losses it takes on each item auctioned off at a discount.
So far it has been a winner – the Munich-based company has doubled its revenues over each of the last three years and earned $29m in 2008. It has 2m members and operations in Germany, Austria, the UK, Spain and US, where it launched late last year.
Wellington Partners, the European VC firm, was an original investor, but August has now become the biggest investor in dollar terms with Thursday’s new round.
“There’s Amazon, there’s eBay and I think that this is a third one that’s going to be a huge business,” says Mr Hartenbaum.
