Nextdoor, the US-based operator of a social network based on users’ neighbourhoods, secured $110m in series D funding last week, proving that there is still space left in the sector for new entrants.
The round, raised at a valuation of $1.1bn, featured Comcast Ventures, the corporate venturing unit of cable and telecommunications company Comcast, as well as Redpoint Ventures, Insight Venture Partners, Meritech Capital Partners, Coatue Management, Benchmark, Greylock Partners, Tiger Global Management, Kleiner Perkins Caufield & Byers (KPCB) and Shasta Ventures.
Nextdoor has now received approximately $210m in venture funding altogether, with its previous investors including Google Ventures, the corporate venturing unit of internet company Google, DAG Ventures, Pinnacle Ventures, Allen & Company and Bezos Expeditions.
Founded in 2010, Nextdoor launched its social network in October the following year. It enables members of a neighbourhood to interact with each other and jointly plan events or keep each other informed about issues that may affect local people.
In contrast to more public networks such as Facebook, Nextdoor is largely private in that each individual group is closed off from those who live outside. Upon signing up, users either verify their address online or are sent a postcard in the mail that will enable them to actually join the network, thus ensuring it remains localised.
Speaking at the time of Nextdoor’s launch in 2011, chief executive and co-founer Nirav Tolia explained: “We ‘friend’ more people than ever and ‘follow’ strangers we’ve never met, yet we don’t have a good way to communicate with the people who live right next door.
“There are many ways our neighbours can help us, but these days people don’t know their neighbours, or how to contact them. Nextdoor was created to change that.”
Nextdoor operated in closed beta until 2012, when $18.6m in funding allowed it to fully launch the service. Although Nextdoor has not disclosed details regarding the number of actual members or monthly visitors, it has now grown to the point where it encompasses 53,000 neighbourhoods across the US – by its estimates about 35% of the neighbourhoods in the country.
The growth of the service has been fairly rapid, and also achieved during a period when several hyped social networks have stalled or crashed and burned entirely.
Reports in 2013 suggested Path, a photo and message sharing service that keeps members’ friends limited to a small number, was reportedly set to raise $50m at a $500m valuation in 2013, only to limp to a $25m fundraise months later amid controversy over privacy and spamming issues. Ello, briefly hyped in autumn last year as a potential Facebook rival, meanwhile seemed to appear and disappear within a week.
Nextdoor has successfully grown into a unicorn because of two factors. The first is that, similarly to the likes of LinkedIn and Twitter and in contrast to ‘Facebook killers’ that have come and gone, it offers a specialised service that differentiates itself from what more generalised networks can provide. You can be a member of a more mainstream network and still have a reason to join and interact on Nextdoor.
The second is that Nextdoor has grown steadily in line with its funding. When the company closed its 2012 series B round, it had 3,700 neighbourhoods signed up and had ironed out any faults before launching nationwide.
The company has also secured the funding necessary to grow its infrastructure in line with member growth, in sharp contrast to Ello, which was inundated with member requests in a short time, long before it could build the infrastructure required to retain those members.
As for Nextdoor itself, a crucial part of its valuation is that the service still has considerable capacity to get far larger. It still functions primarily in the US, but could hypothetically look to expand to other markets in the next year or two, and the potential for growth worldwide is huge.
The other factor is the company’s plan to monetise the network, Tolia recently told the New York Times.
An important part of Nextdoor consists of tips, where users will recommend a local service, such as dog walking or babysitting, to each other. Nextdoor intends to monetise those recommends, using its presence in local communities to sell advertising more efficiently, or even to link with on-demand services such as taxi hailing companies or delivery providers.
The first step in that process will reportedly happen this year and will involve allowing businesses to also post to the network, though it is unclear whether only local businesses will get the privilege. If Nextdoor can smoothly introduce monetisation to its network while continuing to grow its user base, $1.1bn could look a relatively small valuation relatively soon.