Wrapp Mogul: Why LinkedIn's Reid Hoffman Is Investing In The Social Gifting Site

Hoffman's previously tossed cash at Facebook, Groupon, and Zynga. Now the Greylock partner sees potential in the data you can collect from watching who gives what kinds of gifts to whom, and when, and why.

Looking for the newest hot tech company to back? You may want to pay attention. Reid Hoffman is not just LinkedIn's cofounder and executive chairman. He's also one of Silicon Valley's savviest investors, having gotten in on the latest boom's hottest ventures. Facebook? Check. Groupon? Check. Zynga? Double check.

Which is why it's worth paying attention when Hoffman (pictured) decides to toss cash at a new startup. Last fall we told you about Wrapp, the Stockholm-based "social gifting" company that's the latest idea on how you distribute discounts digitally as a means of getting people into brick-and-mortar stores.

Today, Wrapp announces that Greylock Partners, the venture capital firm where Hoffman is a partner, is participating in a new round of funding in the company, with Hoffman taking a seat on Wrapp's board. Co-leading the Series A is Atomico, the venture firm formed by Skype cofounder Niklas Zennström. The round's $5 million will be used to fund an expansion of Wrapp, down into Europe and onto U.S. shores.

Wrapp joins Groupon and Coupons.com among the shopping-related investments Hoffman has made. But Hoffman, who has a particular interest in big data, tells Fast Company he sees the potential for new insights once a service like Wrapp gets to scale, insights that can lead to ideas for new products.

"You can see which aspirational brands people are most interested in," he says. "What do people like to give? What are the triggers and events that lead to gift-giving?"

A recap of how Wrapp works: The service allows you to send gift cards to other people. The cards usually involve a certain amount of free money, like $5 or $10. The system syncs with Facebook, so when you want to send a gift, you select the recipient from your list of friends, and the service tells you what cards that person is eligible for. (Retailers can limit their cards to people who meet certain demographic criteria, like "women aged 20 to 30" or "men 35 to 50".) You can add more money to the card (like $30 to a $10 card to a women's boutique). And since you can publish the gift to Facebook, other friends can click on the status update and add money to the card, in the case of a friend's birthday, for example. (That's the "social" part of "social gifting.")

The service went live in Sweden in mid-November, and so far, the results appear promising. Almost 400,000 cards have been sent so far, with a quarter of a million in December alone. (Wrapp cofounder and CEO Hjalmer Winbladh tells Fast Company there would have been more, but most retailers' inventories got tapped out.) Two percent of Swedish Facebook users are Wrapp users, and usage is growing 30% every week.

What consumers like about the service is clear: Free cash and an easy way to send a gift to a friend. (It all happens electronically.) What retailers like about it is the ability to target exactly the type of consumer they want to get in the door.

A side benefit for retailers is free advertising. The use of the cards in Sweden has produced about 250,000 postings on Facebook--along with about 150,000 Likes--Winbladh says, which translates into about 3.3 million views.

Another pleasant surprise for retailers has been that average purchase amounts per customer haven't gone down. In the Deals business, some merchants have complained that people using Groupon-type discounts sometimes only spend the amount of the voucher, no more, which defeats the purpose of issuing discounts as a loss leader. Winbladh says that the average amount being spent by customers who enter a store in with a Wrapp discount has remained consistent with what they would have bought otherwise.

Winbladh chalks that up to Wrapp's targeting mechanism. "Stores can target people with high receipt sizes," he says. "They can avoid kids 13-18 years old who would just go into Best Buy and [use their card] to buy a packet of batteries."

Something else Wrapp has seen since its launch is that people are using Wrapp cards for more than just conventional gift-giving occasions. Users are sending them as thank-you's for a dinner party or for babysitting. "Instead of writing 'thank you' on someone's Wall [in Facebook], they're doing it through Wrapp," Winbladh says.

Winbladh attributes that to the ease with which a user can send a Wrapp card. And both Winbladh and Hoffman expect that the ease factor will accelerate the social aspect of the service as well (which Wrapp is waiting to turn on until it gets a critical mass of users). When being able to give someone a gift is as easy as shooting them an IM, both men say they think people will happily toss money into gifts started by others, the same way that today, people who wouldn't necessarily have gone out to buy someone a birthday card now happily send wishes via Facebook, because of the ease involved.

Winbladh says Wrapp plans to expand to the U.S. in the first quarter of this year. They are also ramping up in Europe with plans to launch in the U.K. in a month.

[Images: Fickr user jayneandd, Greylock Partners]

E.B. Boyd is FastCompany.com's Silicon Valley reporter. Twitter | Google+ | Email

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