FiveStars raises $50 million to help small businesses build consumer loyalty

Engaging customers with rewards and special offers is smart business. Instead of spending a ton acquiring new users, small businesses can re-engage with customers through rewards and special offers. FiveStars does just that, which is why the company is announcing today that it has raised $50 million in a third round of funding.

FiveStars drove more than 35 million visits across 10,000 small businesses in 2015, with the simple promise of making consumers feel like VIPs.

“We saw this transformation [where] instead of [spending] marketing dollars on acquiring new people, it was more cost-effective to get existing customers to come back more often and treat them better,” said Victor Ho, CEO of FiveStars, in an interview with VentureBeat. “Starbucks can do this with its mobile app. But we saw small businesses get left behind.”

The third round of funding comes from lead investor HarbourVest Partners, as well as existing investors Lightspeed Venture Partners, Menlo Ventures, and DCM Ventures. The company is using part of the money to hire more sales and engineering staff.

Big companies can spend lots of money on marketing tools that allow them to re-target customers with personalized messages. But FiveStars has a platform that lets small businesses do so in an automated way.

Ho said that a good example is the local coffee shop. If 1,000 customers come in each day, it’s hard to remember everyone’s names. But if you enroll a person in the engagement program, you can give them rewards for being a loyal customer. You can send a tailored special offer to get the customer to come back. And since the customer logs in with an app, the business owner can identify that customer by name while they’re in the store and provide more personalized service.

Big chains such as Apple are replacing cashiers with kiosks and tablets to take orders and serve customers, Ho said.

“Our vision is to make commerce as personalized offline as it is online and bring exceptional service experiences back in-store,” Ho said. “We’re just scratching the surface on what’s possible and we’re excited to work with our investors who share the same passion, dedication, and vision as we do to make this happen.”

FiveStars has raised $105 million to date and has 350 employees. The company plans to use the new funds to expand its customer service programs. FiveStars was launched via a Y-Combinator incubator program in 2011. More than 10 million consumers use FiveStars today via its customers.

“FiveStars provides small businesses with a truly differentiated tool set allowing them to learn about their customers and continuously engage with them,” said Joel Hwang, vice president at HarbourVest, in a statement. “The company has demonstrated its ability to provide tangible value for merchants through its offerings, team, and vision. We are thrilled to partner with management and existing investors to extend its leadership position in the market.”

The company said it asks users permission before accessing anything personal, such as location or a Bluetooth connection. It sends messages to consumers via push, SMS, and email. FiveStars charges about $300 a month for its services, which may be viewed as expensive, compared to competition. But Ho believes his company offers more.

“Everyone has a loyalty program,” Ho said. “And everyone has something aimed at acquiring more users. We view ourselves as much broader when it comes to customer engagement. We help our clients understand customer behavior.”

“Our mission statement is to turn every transaction into a relationship,” he added. “We believe local commerce has become very transactional. To others, you are a number. Not a repeat customer. We want to bring you a better experience.”