SAN FRANCISCO (Private Equity Week) - Internet users spend copious amounts of time on social networks, such as Facebook, but relatively few of those hours are spent shopping.
Portland, Oregon-based ShopIgniter www.shopigniter.com is one of several startups looking to help merchants change that dynamic. The two-year-old company, which develops software for retailers to operate storefronts online and within Facebook, announced last week that it raised $3 million in Series A funding from Madrona Venture Group.
ShopIgniter plans to use the money to expand sales and marketing and further hone its software platform, which it sells to retailers through a subscription model.
"There are a lot of virtual goods transactions that happen within Facebook. However no one"s really hit it on the head in terms of doing physical transactions," said Alan Wizemann, founder and chief product officer of ShopIgniter.
Matt Compton, ShopIgniter"s new CEO and a former venture partner at Madrona, said social networks are already more influential in shaping retail decisions than most people think.
He pointed to a holiday survey by analytics provider ComScore, which found 28 percent of online shoppers reported that social media influenced their purchases.
"If you"re selling something and you don"t have a presence on Facebook, you"re missing out on that Internet audience," Compton said.
ShopIgniter isn"t the only venture-backed startup looking to innovate at the intersection of commerce and social media.
Minneapolis-based Alvenda, which develops tools for setting up shops on social networks, raised $5 million in November from Split Rock Partners. Austin, Texas-based BazaarVoice, which develops "social commerce" applications for retailers to integrate customer feedback, has raised nearly $30 million in venture funding since 2006, including a $900,000 round in February.
Since last year, venture capitalists have invested more than $100 million in at least nine developers of members- only shopping sites, such as Gilt Groupe and BuyWithMe, which leverage social connections to promote group buying.
ShopIgniter pitches itself principally as a backend software play, rather than a branded consumer application. It sells its software to subscribers for a fee of between $500 and $3,000 a month, depending on the scale of the operation, plus setup fees that start at about $2,500.
The product works as a platform for both traditional internet commerce and sales through social media sites. A merchant who signs up gets a "Facebook store" as part of the package. The way such purchases typically work, Wizemann said, is that a prospective customer takes an interest in a product or brand, and uses Facebook to talk about it with a friend. From there, the customer can visit a store within Facebook and make a transaction.
Spurring sales through social media can be particularly challenging for small and mid-sized retailers, or those with between $1 million and $10 million in revenue, Wizemann said. He added the bulk of his company"s approximately 100 customers fall within that revenue range.
With its latest funding, ShopIgniter has added some powerful connections. Tom Alberg, a managing director at Madrona and board member at Amazon.com, has joined ShopIgniter"s board as a director.
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