CashStar lands $1M in funding
CashStar, the online gift card company in South Portland, will receive the nearly $1 million in financing to continue developing its online services for retailers.
The financing comes from the Maine Technology Institute, which gave the company a $472,000 development award, and matching funds from its sister company, California-based Coupons Inc. CashStar will use the funds to continue developing its online gift card services for retailers, David Stone, CashStar's CEO, told Mainebiz. The company currently employs 12 people in South Portland, but Stone says the plan is to have 30 employees by the end of 2010.
Stone, an experienced executive in the payment processing industry, including 14 years at American Express, says CashStar has seen "explosive growth" over the past few months. He says sales grew six-fold in May, and are on track to double again in June. However, he declined to give any specifics about the sales figures.
CashStar has created a platform that allows companies to offer interactive gift cards on its website. A consumer will be able to go to a company's website, buy a gift card for whatever amount they choose, write a personalized message and email it to a friend, business associate or relative. The recipient can then use it immediately if the retailer has an online store, print it out and use it at a brick-and-mortar location or save it for later. That's the basic offering. The next layer allows retailers to embed incentives, special promotions and rebates into the gift cards.
Gift cards are a $97 billion business, but online purchases of gift cards account for only 6% of total sales, according to CashStar's market research. However, Stone believes the purchase of online gift cards will grow to 30% of the total within three to five years. "Everybody sees this as the next evolution of the gift card," Stone says.
Since CashStar came out of stealth mode in late February, it has added 10 new clients to its roster, including restaurants like 99 Restaurants and Summer Shack. Gorham Bike & Ski is currently CashStar's only local customer. But Stone says the company recently inked a deal with one of the country's top 10 largest retailers, with more than 7,000 locations across the country, and is in discussions with one of the top two retailers in the country. He could not release details about either yet because the deals are not public. "That's big for Maine," he says. "We're engaged with some of largest retailers in America."
The company faces its fair share of challenges, though, says Stone. Some are what he calls "normal development hurdles for an early stage startup," such as finding the right people to fill its technology jobs and educating people on the company's product, the online gift card. "It's a new medium, so people aren't as used to this medium as plastic," Stone says, referring to the virtual gift card versus the traditional plastic gift card you buy at a checkout counter.
Another, more serious challenge has been an increase in the amount of credit card fraud the company faces. Stone says the economic climate has created this problem for the entire retail sector. CashStar is dealing with the issue by developing stiffer security barriers. In the end, Stone says the challenges will make CashStar "a stronger company down the road."
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