FiveStars raises $26M to build up its digital loyalty program

Retail rewards program startup FiveStars just landed the biggest reward of them all: $26 million in funding. The San Francisco company, which launched out of Y-Combinator in 2013, just closed a Series B led by new investor Menlo Ventures with participation from its previous backers DCM, Lightspeed Venture Partners and Rogers Communications.

Retail loyalty programs tend to be tied to specific merchants (sign up for Starbucks Rewards and earn a free coffee) but a growing number of startups have created generic loyalty apps with the aim of bringing thousands of small local businesses into rewards programs – offering something a bit more sophisticated than a buy-nine-get-the-tenth-free punch card.

Chicago’s Belly has been one of the front-runners in the space, attracting the interest not just of local pizzerias and mom-and-pop grocery stories, but also of big national chains like 7-Eleven. FiveStars, however, has quietly been building up its own base of 5,300 merchants in the U.S. and Canada by offering businesses a loyalty system that requires no special hardware or investment.

While Belly requires merchants to set up iPads on their sales counters so customers can scan QR codes from their apps into their systems. FiveStars is making use of the point-of-sale systems merchants already have, whether they’re touchscreen computers or keypad terminals. The basic credential is a mobile phone number, which FiveStars uses to keep track of check-ins, points and eligible rewards.

Though its merchant base is still relatively small, it’s managed to lure in 4 million consumers to the program and they have collectively redeemed 2.6 million rewards, according to FiveStars. With the new funds, FiveStars said it plans to start hiring not just engineers to design its product, but also sales people to help build its merchant base.