With Some Wind at Its Back, Loyalty Lab Looks for New Capital Infusion

Convincing online gamers to buy more hearts of romaine lettuce might sound like a tall order, but that’s what 7-year-old Loyalty Lab recently managed for client General Mills, through a partnership with social gaming giant Zynga.

How? By smacking “Free Farm Cash” stickers on participating packages of General Mill’s Green Giant Fresh produce — stickers that can be redeemed by Farmville users for five units of the game’s virtual cash currency.

Indeed, in the promotion’s first five weeks, more than $100,000 of the units were redeemed by customers, who cashed in two coupons apiece on average. (The companies have limited the redemptions to three per user.)

General Mills isn’t the only big customer using the software-as-a-service CRM suite of 7-year-old, San Francisco-based Loyalty Lab. Among the company’s roughly 40 other large clients is Virgin America, whose Elevate frequent flier program is run “soup to nuts” by Loyalty Lab, says its CEO Matt Howland. (Soup-to-nuts includes program management, email messaging, promotions and incentives management systems.) Meanwhile, Privant Insurance, a Sioux Falls, S.D.-based insurance company Thrivent Financial for Lutherans, an Appleton, Wis.-based not-for-profit financial services organization, uses Loyalty Lab’s software to enable its customers to accrue “votes” that direct its charitable contributions. (Note: The previous sentence was corrected on 8/31/10. -Ed.)

The 47-person company isn’t actively seeking funding, says Howland, but he says that it’s likely to seek out a new round soon, one in the $7 million to $10 million range, money that would be invested heavily in sales and marketing. (Most of the company, which plans to hire another 15 people by year end, is comprised of engineers.)

Though he shies from disclosing revenue numbers, Howland says such collective partnerships have propelled his company into profitable territory for the second year in a row, with 48 percent top-line growth last year and with a 50 percent increase in bookings thus far in 2010.

And while traditional loyalty programs like Virgin’s remain the company’s bread and butter, Howland suggests that social media is one of Loyalty Lab’s greatest areas of focus these days. Howland hints, for example, that another deal with Zynga may be around the corner — and little wonder, given that Americans now spend more than a third of their online time surfing their social networks or playing games. The company also spends more time these days talking with clients about getting their most vocal customers to profess a love of their brands — including what incentives they can give those customers in exchange for retweeting the companies’ offers.

Loyalty Lab has plenty of competitors, both big and small. Upstarts like Topguest.com, for example, are beginning to help a small but growing number of hotels deliver reward points to users of Foursquare, Twitter, and Yelp who “check in” to their properties. Meanwhile, Howland says Loyalty Labs “often sees” competition from bigger loyalty-specific direct marketing firms like Epsilon, a subsidiary of Alliance Data; Carlson Marketing; and Oracle and IBM, which it tends to run up against “when we go for larger deals.”

The company, born InStorecard.com, raised its most recent round of funding of $7 million in 2007, including from OpenView Venture Partners in Boston. Its Series A investors, which gave the company $4 million in 2004, include Canaan Partners, Outlook Ventures, and Mobius Venture Capital.

The company, founded by serial entrepreneur Mark Goldstein, changed its name to Loyalty Lab in 2005. Goldstein remains its chairman.