Exclusive: Buywithme secures $5.5 million in funding

Meet the latest "viral loop" company to enter the big leagues

Boston-based Buywithme, an online "group buying" site, will today announce that it has secured a $5.5 million investment from Matrix Partners. Prior to the investment, the startup had been privately funded by friends and family.

Buywithme, like rival Groupon, combines the power of online shopping with social media.

Matrix's lead partner on the deal, Nick Beim, also spearheaded the firm's $43 million investment last August in Gilt Groupe, the U.S. leader in another buzzed-about sector of ecommerce, online luxury sample sales. (The model originated in France with the site Vente Privee).

"There are interesting similarities between Buywithme and Gilt when it comes to the nature of viral loops and the best merchandising and marketing strategies to optimize virality," says Beim.

One of the hottest corners of e-commerce today, "group buying" sites offer daily limited-time deals in the form of deep discounts from local merchants, provided a minimum number of buyers "buy in." Groupon, based in Chicago, last month raised $25 million from Accel Partners.

Since launching with its first deal in May 2009, Buywithme says it has saved $2 million for hundreds of thousands of users in the three cities where it operates: Boston, San Diego and Washington D.C.

Deals range from discounts on oil changes to hotels to apple picking. Last week, 4,636 Bostonians purchased a  $25 voucher for $50 worth of food at Sel de la Terre, an eight-time "Best Of Boston" winner.

Like Groupon, Buywithme utilizes the social web to attract new users. More than 10% of users share the deals with tools like Facebook, Twitter, and email. And of those purchasing each deal, almost one-third are new.

Battle of the online co-ops?

Buywithme differs from Groupon in that its deals are available for a week rather than 24 hours like at Groupon. Since a new deal is introduced each day, that means multiple deals are run simultaneously at Buywithme. The intention is to prevent any buyer's remorse stemming from impulse purchases, that might then turn people away from the site.

Founder and CEO Andrew Moss, 34, also emphasizes developing ongoing relationships with merchants. "Clients should want to offer on our page repeatedly," he explains, saying that only then can the deal truly be considered a win.

And Moss resists the coupon moniker. "We don't use that word. We are selling vouchers," he says. "Our subscribers are people with an interest in trying things, not just coupon clippers." This is thanks in part to a deal inked last October with The New York Times Company's (NYT) Boston.com, wherein Buywithme "powers" the news site's daily deal.

It's no secret that Buywithme will use the additional funding to grow its subscribers and expand to new markets.  But how it does that, and how far it takes the group buying model could have larger implications for the future of commerce online.

Just as Gilt has grown the luxury flash-sale platform beyond women's fashion to include new categories, including travel site Jetsetter, Buywithme can "offer many differentiated services over time," says Matrix's Beim.