As a co-founder of San Francisco telecommunications company FiberTower, David Leeds was responsible for raising hundreds of millions of dollars in venture capital. Now, the 42-year-old entrepreneur is keeping things lean with his latest startup, which happens to be rooted in Seattle. Tango Card has landed $1 million in startup financing, primarily from Leeds’ old cronies in the Bay Area, GeekWire has learned.
But Tango Card, a versatile gift card that allows users to manage cash balances on Android and iOS mobile devices, is very much a Seattle upstart.
“My nirvana is that this is a pure Seattle company,” said Leeds.
Tango Card’s nine employees are all based in Seattle, and the company continues to hire here. And while Leeds said it is harder to finance a company in Seattle (one of the reasons the recent cash infusion came from the Bay Area), he said many in Silicon Valley have a misguided perception that people just don’t work as hard in the Northwest. (Perhaps they’ve watched too many episodes of Portlandia or listened to Michael Arrington’s rants about Seattle).
“A lot of people dump on Seattle,” said Leeds, a Stanford MBA who moved to Seattle in 2009 and created Tango Card shortly thereafter. Leeds, who now lives in West Seattle with his family, wants to counter that perception.
And he’s doing that through Tango Card, which is trying to shake up the traditional gift card market dominated by giants like Visa and MasterCard.
The concept is pretty simple. Recipients of Tango Cards can utilize the cash balances across a dozen retailers, including Amazon.com, REI and Best Buy. (About a third of customers split their gift cards between multiple retailers). They also can convert the balances to cash or donate a portion of the gift card to charitable organizations such as The National Parks Foundation, USO or Habitat for Humanity.
“It is the only multi-purpose card that has this cash-back option, and it is the only flexible card that doesn’t have fees of any kind,” said Leeds, adding that American Express or Visa typically institute fees of seven to 13 percent for purchasers of the cards.
Tango Card has been growing like gangbusters in recent months, driven in part by a mobile application that allows users to manage all of their gift cards on the go. The company also recently launched a successful partnership with Tiny Prints, allowing users to insert a Tango Card into the physical greeting cards.
Leeds said that customers are now attaching Tango Cards to roughly three to four percent of cards created at Tiny Prints, a rate which he said has blown him away.
The company initially launched with a free iPhone app in August 2009. Tango Card’s roots are very much tied to the goal of replacing the manila folder or drawer where gift cards are stored. After all, Leeds said that Americans on average have five gift cards, many of which are hard to locate.
By placing multiple gift cards on mobile devices, Leeds said Tango Card has emerged as “the leader in the mobile gift card wallet space.”
Leeds admits that the first deals were “really hard” given how protective retailers are of their brands. But the company — which has exclusive agreements with certain retailers — started to gain traction since it is targeted more at the “tech savvy shopper.”
The economics of Tango Card are pretty attractive since it makes about a 10 percent margin on everything they sell. That means if a customer buys a $100 gift card for Home Depot or Target through the site, the selected retailer pays out $10 to Tango Card.
Retailers like gift cards, and are willing to pay out cash to affiliates like Tango Card, since the consumer spends on average 40 percent more in the stores when utilizing a gift card.
Since a Tango Card is paid for up front, Leeds said that the company is “probably one of the most capital efficient businesses out there today.” That’s a far cry from Leeds’ days at FiberTower, which raised about $235 million in venture capital financing before filing to go public.
“We don’t have a huge working capital problem,” said Leeds, adding that the company has floated in and out of profitability as it ramps up mobile development efforts and adds new features. For example, the company is working on a new feature that allows multiple gift card buyers — think family members, office mates or teammates– to add select dollar increments to one Tango Card.
It is also working on a technology that would allow retailers to send alerts to consumers about unused gift cards, offering additional discounts if they were to use the cards within a certain amount of time.
Leeds certainly thinks there’s room to compete with the Visas and MasterCards of the world, as well as big competitors like Blackhawk (a Safeway subsidiary) and Incomm (an independent provider of gift cards to retailer). Tango Card is nowhere near the scale of Blackhawk or Incomm at this point, which sell about $400 million worth of gift cards each year.
Tango Card has about 11,000 users today, with a goal to hit 60,000 users by the end of the year and 600,000 by the end of 2012. There’s still a lot of room for growth in the sector, since Leeds notes that people now spend about $100 billion annually on gift cards.
“This area is just ripe,” said Leeds. “The quick reality is that … every one percent of business you are doing in this industry is a billion dollars worth of transactions.”