BuyWithMe, an online “group buying” site based in Boston announced last month that it raised $5.5 million in Series A funding from Matrix Partners.

BuyWithMe’s founder and CEO is InSITE alumnus Andrew Moss (NYU JD ’01). Andrew discussed his experience running BuyWithMe, and the decision to raise venture funding with InSITE:

The BuyWithMe Concept
BuyWithMe partners with local merchants to offer group discounts on its website to consumers in target cities (currently Boston, Washington D.C., and San Diego). Consumers indicate if they are interested in a deal through the website. Once a certain minimum people sign up, the deal activates, customers are charged, and BuyWithMe sends a link to a printable voucher used to redeem the discount.

BuyWithMe positions itself as a win-win for both consumers and businesses. Consumers get discounts at stores in their local areas. Merchants get new customers, advertising on a website targeted at local shoppers, and guaranteed volume.

Moss explained how BuyWithMe functions as a new advertising medium for businesses which have traditionally been limited to newspaper or radio ads. Unlike newspaper and radio ads, however, BuyWithMe is much more highly targeted to consumers who are actively looking to shop, and offers a superior ability to track and quantify the success of a promotion. Businesses also do not pay unless the promotion works and the targeted number of shoppers sign up.

In this respect, BuyWithMe is similar to other online “flash sale” companies, most notably Gilt Groupe, which is also funded by Matrix Partners. Unlike Gilt, however, BuyWithMe is locally targeted, focuses on driving guaranteed store visits rather than shipping merchandise online, and covers many industries besides apparel.

Founding BuyWithMe
Moss’ background as a corporate lawyer and hedge fund manager isn’t typical of most entrepreneurs, but prior to starting BuyWithMe Moss already been involved in entrepreneurship. While at college, Moss and a few friends started a business making custom t-shirts and merchandise – an effort that eventually evolved into customink.com. While Moss left the business relatively early to enroll in law school, he said that a lot of the knowledge and unit economics of Customink transferred to BuyWithMe. The experience also contributed to Moss’ decision to leave his day job to run BuyWithMe full time. “I didn’t want to miss out again,” he said.

Moss discussed how one of the biggest challenges starting out was getting initial traction in Boston. In a classic version of the chicken-and-the-egg problem, merchants were reluctant to sign up before BuyWithMe had an established user base, but user growth in turn was largely dictated by the number of deals on the site. A well-timed partnership with Boston.com tipped the scales for BuyWithMe, driving enough traffic for BuyWithMe to gain momentum. Currently, Moss is focused on trying to scale the concept nationally, with launches in new cities expected soon.

Securing Funding
Moss was initially cautious about seeking venture funding, influenced by the notion that certain companies benefit minimally from venture funding, and the fact that Customink succeeded despite raising minimal venture financing in only one round.

Despite being approached by numerous other firms, Moss took the initiative and reached out to Matrix Partners largely because of their experience with e-commerce generally, and online sales and group purchasing in particular. “In my opinion BuyWithMe is part of a select category of businesses where VC expertise can really add a lot of value,” Moss said. “[Matrix Partner] Nick Beim was a huge value-add. He made lots of introductions and offered insightful advice based on his experience with Gilt.”

Moss also discussed some of the differences between advising entrepreneurs on the fundraising process as an InSITE fellow and actually going through it as a company founder. “One of the biggest differences was the importance of the personal relationships,” Moss said. “It’s really important to have people who not only give you money, but who are trusted advisors with whom you want to spend time working. We didn’t want to just raise capital, we wanted intelligent capital.”

Moss believes his business background and experience with the pitch process from InSITE was helpful while raising funding. “It was great to not have to learn to pitch on the fly,” Moss said. “Many companies come in with a great idea but are still working on the business process. Having a coherent pitch on the viability of the business impresses VCs and helps your case.”

– Alessandro Presti