Better than Groupon/LivingSocial - TreatFeed $5.4 Million In Funding

Los Angeles startup TreatFeed just launched a new spin on the crossover between social networking and e-commerce — it wants to reward users for their social recommendations with prizes and cash.

Scott Roback, the company’s senior vice president of strategy and business development, said that where companies like Facebook are trying to build a social graph, TreatFeed is trying to create “the commerce graph, or the monetization layer of the social graph.”

Here’s how it works: TreatFeed aggregates deals from across the Web. Users come to the site for the deals, then ask their friends and family to join too. When users find deals they like, they can recommend them to their connections on the site. And if someone actually acts on a deal, then TreatFeed gets an affiliate commission, which it then splits with users. The user who signed up for the deal gets a percentage, and the user who brought them into TreatFeed gets a smaller percentage, and so on, up through four “generations”.

Technically, the commission for shoppers takes the form of points, but those points can be redeemed for prizes or cash. Roback estimated that half of the money TreatFeed receives for each deal will eventually go to users.

This system takes advantage of the fact that shoppers are already recommending products and deals to each other, Roback said. And the fact that TreatFeed is rewarding people for bringing in more users, rather than for recommending specific deals, seems smart, because it will help the site build out its user base quickly. It might also avoid criticisms that this system (like other “multilevel marketing” programs) starts to look like a pyramid scheme.

Even though TreatFeed is building a social graph (er, “commerce graph”) of its own, it also integrates with Facebook, allowing users to find friends from Facebook and post deal recommendations on the social network. And it will work on affiliate programs with publishers, allowing publishers to make money not just on the shoppers who sign up directly from their site, but on the larger SocialTree that builds as those shoppers continue using TreatFeed and bringing in their friends.

TreatFeed was incubated by Lagovent, the firm created by Konstantin Glasmacher and Brett Markinson. Markinson is the new startup’s chief executive. The pair has already successfully launched one e-commerce company, HauteLook, which was acquired by Nordstrom. TreatFeed raised $5.4 million in a round led by Norwest Venture Partners.