Startup Alvenda’s ‘social commerce’ technology bags $5 million in venture capital

A Minnesota startup that seemed to come out of nowhere in 2008 and then won the prestigious 2009 Minnesota Cup competition has rocked the local startup community with news it has secured a significant initial round of venture financing. Alvenda, an e-commerce software developer, is now busy hiring additional key employees at its offices at 12th and Marquette in downtown Minneapolis, to meet a building market demand for its “social commerce” technology.

If you’re a Facebook user, chances are you’ve already been exposed to “shoplets” there that are powered by Alvenda.

At $5 million, the investment is one of the largest “Series A” venture capital rounds for a startup software firm in Minnesota in recent memory. And it would seem to quell, for at least a time, the long-standing lament of local Internet and software startups that they seem to get no love from the VCs, especially the local ones.

Eden Prairie-based Split Rock Partners has been identified as the investor. My sources tell me they are responsible for the entire round. The news broke Friday afternoon in the Minneapolis St. Paul Business Journal, in a story triggered by an SEC filing.

Split Rock has been quite active as of late. According to its news page (where the Alvenda announcement does not appear as of this writing), this would be the firm’s third funding announcement so far in January, two of which are for Minnesota companies.

(More background on this story is included in the latest Minnov8 Gang podcast, which we recorded Saturday morning. Our guest was George Reese, CTO of startup enStratus, which shares offices with Alvenda. He said Alvenda uses enStratus’ cloud computing management tools.)

Alvenda’s selection as the winner of the 2009 Minnesota Cup business plan competition was no small feat, with more than 1,100 entries across six categories. Founded in 2008, Alvenda quietly announced initial funding that December from private investors it did not identify (see its news page.) Two of its three founders hail from downtown Minneapolis-based retail powerhouses — the former Retek (since acquired by Oracle) and Target.com.

What boosted Alvenda’s fortunes was news that broke last summer that “social commerce” was coming to Facebook by way of 1-800-Flowers, which set up its first online store there — with Alvenda’s technology behind it. Coverage of that development ensued on TechCrunch and in BusinessWeek, the Financial Times (registration required), and elsewhere. The attention gave Alvenda quite a sudden high profile, the likes of which a Minnesota startup hasn’t seen in some time. And that buzz certainly boosted the firm’s chances in the Minnesota Cup judging.

Here’s a backgrounder page on Alvenda, which includes this quote from Wade Gerten, CEO, that I think captures the essence of what this breakout Minnesota startup is all about:

“We believe the majority of future online sales will happen offsite. Customers will be able to shop with brands wherever they happen to be whether they’re on YouTube, a favorite blogger Web site, or in Facebook. With innovative merchants like 1-800-Flowers, Alvenda is moving commerce forward to these touch points and is generating remarkable sales results.”

But the Facebook flower store is just the beginning of putting “shops next-door to the conversation,” as BusinessWeek so aptly puts it. The FT.com story cited above, said in August 2009 that “at least 20 more such storefronts will appear on Facebook in the next two months,” quoting Alvenda’s Gerten. The story said Gerten claimed contracts at the time to develop eight such storefronts, and that, since the 1-800-Flowers application launched, Alvenda had secured 12 more. So, you can understand why there’s a flurry of activity at the firm these days. FT.com quoted Gerten as saying the contracts were with “very large general merchandise retailers, and very large electronics retailers.”

Hmm, I wonder what companies that might include …

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