Greylock invests $5M in social-gifting service, Wrapp

Reid Hoffman, Niklas Zennstrom join board of start-up that's socializing and digitizing gift cards

(Correction: To reflect Spotify's founding CTO)

The business of gift cards is significant. If most people who receive gift cards are like me (I pretty much stack them up without ever having time to use them), it's pretty lucrative for retailers who sell them. But gift cards can also be great for retailers because people who do end up using them, will likely spend more than the value of the gift card when redeeming them. So how do you leverage these gift cards and get them into more hands?

That's where Wrapp, a social-gifting service, comes in. Stockholm and San Francisco-based Wrapp announced Wednesday that it's raised $5 million in a series A round of funding from Greylock Partners. The new funds is an addition to the $5 million already raised from Atomico, a venture firm founded by Niklas Zennstrom, founder of Skype. The total funds raised comes to some $10.5 million, including about $650,000 in an angel round from Creandum in May 2011. 

"Wrapp takes friction away from giving gift cards," said Wrapp CEO Hjalmar Winbladh, who co-founded the start-up with Andreas Ehn, Spotify’s founding chief technology officer. For consumers, the value proposition is that for special occasions, or for those times you just want to say, "Thanks," you can do more than just send a card or post a "Thank you" on someone's Facebook wall. Maybe a gift card is just a tad more appropriate. With Wrapp, you can either text, email or post the gift card on someone's Facebook wall - for all those who like to show they're a giving kind of person. For anyone receiving the gift card, you can download it on your phone and use the phone at a retailers and not have to worry about losing the card.  

For retailers, Wrapp allows them to tap into more potential customers, and more revenue generated by people giving and using the gift cards, and spending more while they're at it. Indeed, if gift cards were even easier to give, they'd probably be sent more often. Already, about $100 billion in gift cards are sent each year in the U.S. About $35 billion to $40 billion in gift cards were sold during the 2011 holiday season alone, said Winbladh.

The social, viral aspect of Wrapp

Anyone using Wrapp has to become a member using Facebook Connect, enabling retailers to tap into someone's social graph. 

The way it would work is that retailers, say Gap, would have a campaign, say $10 gift cards that they would allow consumers to give to their target market. So, if Gap were targeting women from 25 to 35 years old, they'd only allow those gift cards to be available for that market. If I happen to send my 30-year-old sister a little something, like a "Thank You," on Facebook, then Wrapp would suggest to me that I send her a $10 Gap card instead, free of charge. I'd send the card, but most likely my sister would spend more than $10 because after all, what could you possibly get for $10 at the Gap, besides socks?

"The average purchase is profitable for the retailer," said Winbladh. "The sister ends up using the gift card, but buys an item that's even more."