Monday, September 22, 2008

SwapTree collects first VC funds in third round

By Christopher Calnan

SwapTree Inc., the web-based barter business that launched in Boston last year, closed last week on a Series C round of funding with Safeguard Scientifics Inc. as the sole investor, company officials said.

Safeguard (NYSE: SFE), a Pennsylvania-based venture capital firm, is SwapTree’s first institutional investor. The company had previously attracted $2.3 million during two rounds of funding from individual angel investors, CEO Greg Boesel said. He declined to disclose the specific amount of the Series C financing.

Boesel expects the capital to fund a marketing campaign and the expansion of the company’s customer service, which is needed to deal with the 1,000 new registered users per day SwapTree is now attracting, he said.

Safeguard Scientifics, founded in 1953, typically invests in more mature companies but backed SwapTree on the recommendation of Erik Rasmussen, vice president and managing director of the firm’s technology group, who participated as an angel investor in SwapTree’s initial funding. He expects Safeguard to remain as SwapTree’s lone institutional investor while the company continues to grow its business.

“It truly is, if you look at the evolution of e-commerce, the next logical step,” Rasmussen said.

SwapTree is not alone in the online bartering space. Other such website operators include: Zunafish.com, partially based in Northampton, for various media products; California-based Swapthing.com for goods and services; California-based peerflix.com for DVDs; and Georgia-based PaperBackSwap.com for books.

In 2004, Boesel founded SwapTree with Mark Hexamer. The two had previously founded Sidebar Software Inc. in 2000, and got the idea for SwapTree while trying to figure out what to do with dozens of books that had accumulated at the home of Hexamer’s parents.

Listing such low-cost items on eBay wasn’t worth the bother, but trading for other books seemed like a solution, Boesel said. The entrepreneurs received an initial $300,000 in seed funding from friends and family after developing a SwapTree prototype in 2005. They then attracted another $2 million from more individual angel investors during a round of fund raising that closed in 2006, Boesel said.

The sluggish economy combined with a surge in environmental awareness have contributed to the adoption of SwapTree, he said. The website now claims about 450 members who complete trades on a daily basis, Boesel said.

“It’s just been a great run of things,” he said.”