Clearstone invests in OpenBucks

Individual angel investors generally don’t take leading roles in providing new institutional funding rounds for start-ups, but OpenBucks broke that tradition.

The Mountain View, Calif.-based financial services start-up raised $4.8 million in Series A funding this week led by Yahoo Inc. co-founder Jerry Yang, with former Yahoo Chief Executive Terry Semel and several other individuals and venture capital firms participating.

OpenBucks has come up with a new way to solve a persistent problem for e-commerce, moving cash from the physical to the digital world by allowing users to use physical gift cards from leading brands to pay for unrelated online services and stores.

So far, Subway, CVS Pharmacy, Burger King, Circle-K and CITGO are participating in the OpenBucks Gift Card Payment Network, and more merchants are expected to join. A gift card from Subway, for instance, can be used for more than 500 online games, although more uses for the gift cards and ultimately more payment methods are being developed.

OpenBucks Chief Executive Marc Rochman said he had term sheets for the Series A round from several venture capital firms and expects to raise money from VCs in the future. But the type of help that an experienced entrepreneur like Yang can offer him at this stage outweighs what most VC firms can give.

“It’s invaluable for me to be able to pick up the phone and speak with an investor who’s been in my shoes before…who knows payment inside and out and has access to the right people. That’s something that’s much more difficult to get from pure VCs,” Rochman said.

Venture capitalists tended to expect higher overhead-some wanted a five-person board instead of OpenBucks’ three-person board, and they wanted more dilution than Rochman was willing to give.

Some also expected five-year forecasts on the business, “but it’s so speculative to think what the business will do in one year or two years,” he said. “It might be that a lot of what we’re doing in one year, we’ve not even thought about now.”

Rochman said he hopes to serve the billions of people around the world who live off cash rather than credit cards, and he understands that he has to move fast. Relocating his start-up from the East Coast to Silicon Valley helped, he said, because the pace of business is accelerated in Silicon Valley and he was able to meet people like Yang.

“We know we have a strong, big idea here,” he said. “Everybody is trying to bridge the gap between online and offline…but how do you make money move to the digital side? That’s what OpenBucks wants to resolve.”

Investors in addition to Yang and Semel include Greycroft Partners, BV Capital, Clearstone Ventures, Morado Venture Partners (a current investor that has Yang as a limited partner), Novel TMT Ventures, Inspiration Ventures, CrunchFund, SV Angel and TiE Angels.

Whether Yang will join OpenBucks’ board is undecided.

By Deborah Gage courtesy of