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Nextdoor is homing in on the 'hyperlocal' market

The start-up is getting a big vote of confidence from venture capitalist David Sze, who contributed $15 million in its most recent round of funding.

February 12, 2013|By Jessica Guynn, Los Angeles Times
(David Paul Morris, Bloomberg )

SAN FRANCISCO — Nirav Tolia is trying to build the next big social network — block by block.

Nextdoor is like Facebook but for a neighborhood: a private network to find a baby sitter, borrow a cup of sugar, organize a block party or spread word of a break-in.

It's not the first time a start-up has tried to network neighbors, but Nextdoor is one of the first to gain momentum. So far, more than 8,000 neighborhoods across the country have signed up for the service, including Laurel Canyon and Atwater Village. That's double the number of just six months ago.

Now Nextdoor is getting a big vote of confidence from David Sze, an early Facebook and LinkedIn investor. The San Francisco company is expected to announce Tuesday that Sze is one of the venture capitalists who raised $21.6 million for Nextdoor in its most recent round of funding.

"Every social network on Earth pitches me and I say no to nearly every single one of them," said Sze, who wrote a check for $15 million and took a seat on Nextdoor's board.

"I put the largest check I have ever written on the table to work with these guys. I think this could be another one of those seminal networks."

Tolia, who launched the service in 2011, says Nextdoor is targeting the so-called hyperlocal market. For years, Internet companies — AOL, Facebook, Google and Yahoo among them — have been homing in on these small communities to capture a piece of the local online advertising action, with limited success.

People make most purchases locally, and the Internet and mobile devices are increasingly influential in those purchase decisions, said Greg Sterling, a senior analyst with Opus Research.

Market research firm Borrell Associates predicts that U.S. local digital advertising will reach $24.5 billion this year for a 25% share of total local ad budgets.

"It is a huge market, and company after company after company has gone after it with mixed success," Sterling said.

Yelp and Craigslist are two of the winners, but most companies struggle to attract users and advertisers, and many start-ups fail. One of the most ambitious hyperlocal sites, EveryBlock — owned by MSNBC.com — was popular with civic-minded users but suffered such heavy losses that it announced it was shutting down last week.

In December, OhSoWe, another neighborhood social networking service started by OpenTable founder Chuck Templeton, also shut down.

Analysts say Nextdoor, which is spreading mostly by word of mouth, will be buffeted by many of the same challenges.

"I don't know if Nextdoor will succeed, but the odds are not in their favor," said Gordon Borrell, chief executive of Borrell Associates.

Tolia, one of the early employees at Yahoo, is betting that he can beat the odds. He founded product review site Epinions in 1990 and merged it with Shopping.com in 2003. In 2005, EBay bought the combined company for $620 million.

Tolia's Nextdoor team originally worked on an online sports almanac called Fanbase but scrapped the idea. Tolia, who hails from Odessa, Texas, the small oil town where the film "Friday Night Lights" is set, hit on an idea that tapped into his own nostalgia for that sense of tightknit community: replacing online bulletin boards and email lists with a social network for neighbors.

In July, Nextdoor raised $18.6 million at a $100-million valuation (Tolia would not say what valuation investors assigned to the most recent round of funding). Tolia's own social network has helped him fuel Nextdoor's growth. He organizes a supper club for Silicon Valley hotshots. Apple's Jony Ive, Twitter's Dick Costolo and Yahoo's Marissa Mayer were among the guests last month.

Tolia said Nextdoor, which is aiming for tens of thousands of neighborhoods and international expansion, is "100% focused on user adoption." Eventually Nextdoor will explore ways for advertisers to target special offers to the communities they serve, he said.

"Where you live and who lives around you is an essential part of your life. Yet there is no easy way to keep track of everything that happens in your local community, and it's even more difficult to stay connected to the people in your local community," Tolia said. "Nextdoor can change all that. Nextdoor can be the service that connects you to everyone and everything that matters around where you live."

The concept intrigues social scientists who study neighborhoods. In creating a social network based on real-world proximity, Nextdoor is helping neighborhoods become more connected, not so neighbors can be friends but so they can build ties and trust, said Robert Sampson, a Harvard University sociology professor.

"Nextdoor provides the potential for interacting in a way that goes beyond the more traditional, old-fashioned kind of neighbor-to-neighbor connection," he said.

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