FiveStars raises $26M for small-business loyalty platform

Have you noticed that loyalty programs are everywhere now? Every retailer of any size wants you to carry their rewards card or app around with you.

Companies spend $60 billion a year on loyalty and marketing automation technology, but they’re traditionally pretty expensive to implement. So it’s big Fortune 500 companies like Starbucks and Macy’s that are doing the vast majority of that spending. Small neighborhood shops can’t compete.

So San Francisco-based FiveStars has built a platform that integrates with the point of sale systems of small and medium-sized merchants and allows them to offer rewards programs that can compete with those of the big guys. The programs, administered through a cloud platform service called AutoPilot, not only deliver coupons and rebates to regular customers but allow merchants to track and study store visit and purchase patterns over time.

For instance, the system might note that many of a store’s customers are visiting twice and then not coming back, FiveStars CEO Victor Ho told VentureBeat. Knowing that, the store might offer some type of attractive reward to lure those customers back after their second visit.

Ho told me that merchants pay a flat fee of $200 per month to deliver programs run from the AutoPilot platform.

He stressed that merchants regularly spend thousands trying to lure new customers through services like Yelp and GrubHub. But they often neglect to invest in services that keep existing customers coming back and grow the profitability of a relationship over time.

FiveStars apparently has some true believers. The company announced it has raised a hefty $26 million round led by Menlo Ventures, with participation from existing investors Lightspeed Venture Partners, DCM, and Rogers Communications. Launched out of Y-Combinator three years ago, FiveStars has now raised a total of $45 million.

Ho said demand for the platform has been growing quickly. FiveStars launched three years ago, and has built a customer base of more than 5,300 small and medium businesses across all 50 states and Canada. The AutoPilot platform is now automatically sending more than 2.5 million targeted rewards and announcements on behalf of merchants every month.

The new funding money, he said, will be used to hire the people and build the technology needed to meet the demand.

“FiveStars’ mission is to help local businesses turn every transaction into a relationship,” Ho said in a statement today. “This new round of funding brings us one step closer to making that vision a reality.

Earlier on in its life, FiveStars was focused on providing consumers with a single loyalty card that would work a many different merchants. But the focus of the company has shifted to the other side of the counter, providing the merchant the technology to offer the rewards. FiveStars does still offer the consumer rewards card, but it also offers a rewards app that lets consumers earn and track rewards at thousands of merchants.