2i’s Deal of the Week: LivingSocial Acquires BYFAD

2i’s Deal of the Week is LivingSocial.com’s (LSC) acquisition of BuyYourFriendADrink.com (BYFAD) . . . 

LSC is a social discovery and cataloging network that allows people to review and share their favorite movies, books, games, music, restaurant, and beer. Founded in 2008, the Company has raised over $5 million in Series A venture capital, has 6.4 million beta user, and has catalogued more than 80 million reviews. Once posted on the site, the user-generated catalogued items and reviews are seamlessly integrated and easily accessed across top social networks, including Facebook, MySpace, Bebo, Orkut and hi5. LSC’s Pick Your Five social media app has been the top Facebook application among the 52,000 with more than 20 million active users.

Founded in 2007, New York based (BYFAD), a social network e-commerce application,  provides automated sampling solution for the beer, wine and spirits industry. BYFAD allows virtual users to buy real drinks for friends.  Once a BYFAD user buys a drink, the friend receives an electronic consumer card that can be redeemed at participating bars by showing a text message code.  BYFAD takes a small commission for each drink purchased through the service.

The deal highlights a few points/trends:

• The real value in BYFAD is the (intangible) community and vendor relationships, which took two years to put in place. The technology (i.e. software code) can probably be developed in a few weeks. As always, it’s the buy versus the build question. Relationships and (proven business models) may be easier to buy than to build.
• Social media and virtual reality plays will increasingly look to monetize their relationships in the real world. Since BYFAD is a private company, we don’t know the revenue and earnings they generated in their two year existence. However, LSC felt that they had proven a online-to-offline business model.
• There has been number of mergers among start up and venture backed companies.  These mergers allow companies to grow their user base faster and prove their business model quicker than otherwise.

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Filed Under Deal of the Week, Internet Trends & Drivers, Merger & Acquisitions