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May 17, 2012

Pinterest raises $100m in funding from eCommerce giant

The US based startup raised a hefty $100m in funding from Japanese eCommerce giant, Rakuten, placing the company's valuation at more than $1bn.

By Tineka Smith

Pinterest

The funding from one of the largest internet companies in the world will be used to help Pinterest improve its service and expand the site’s community globally.

Pinterest and Rakuten’s partnership is set to help the company break into the Japanese market as well as 17 other global markets.

Ben Silbermann, co-founder and CEO of Pinterest says the partnership with Rakuten will help Pinterest move closer towards its business goals.

"Our goal is to help people discover things they love, by connecting people through their shared interests," said Silbermann. "Bringing Rakuten on board gives us an amazing opportunity to move a step closer to this goal."

Other investors participating in the funding round include Bessemer Venture Partners, Andreessen Horowitz, FirstMark Captial and other angel investors.

Hiroshi Mikitani, CEO of Rakuten says the investment in Pinterest compliments Rakuten’s business model for e-commerce.

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"While some may see e-commerce as a straightforward vending machine-like experience, we believe it is a living process where both retailers and consumers can communicate, discover, and curate to make the experience more entertaining. We see tremendous synergies between Pinterest’s vision and Rakuten’s model for e-commerce. Rakuten looks forward to introducing Pinterest to the Japanese market as well as other markets around the world."

The upstart lets users pin items that are interesting to them and it has seen a quick and steady surge of traffic and mentions in social circles. The site began at the end of 2009 and was named among the 50 best websites of 2011 by Time Magazine.

Users can create themed image boards and can add items to their own board found online using the "Pin It" button. The Pins that users share show up on a Pin Feed on the home page. The pins can be divided into discussion, pictures, videos and even gifts that are sectioned into price ranges from $1 to more than $500.

In a report by Hitwise, the site received a whopping 11 million visits during the week of 17 December 2011 which was 40 times the number of visits it received six months before during a week in June 2011.

Pinterest can be a paradise for retailers due the amount of trafficking the site gets and its large content revolving around fashion. Consumers often show off their purchases on boards which friends can then discuss and repin. The website’s popularity status is growing and according to data by Monetate, is becoming one of the top five referred for many apparel retailers.

The site is ranked No. 5 in social networking sites driving the most referral traffic, beating Google+ which ranked at No. 9.

Earlier this year the company was also questioned about their copyright practices as individuals and businesses were stating that their work was being used without attribution.

The company updated its terms of service to give user a way to block pinning on their websites as well as creating a new way for users to attribute pins who originally created content.

Pinterest explained its new terms of service on its official blog.

"Attribution appears below the pin’s description and provides a permanent link to the work, its author, and where they host their content. Because attribution cannot be edited, photographers can rest assured that pins and repins of their work will credit and link back to them."

Even though investors believe Pinterest has clear potential for making money, the company was making no profit earlier this year and has no set business model for making revenue.

Social media start-ups with no revenues haven’t stopped them from being bought at overvalued prices.

When social media first became popular, AOL purchased the social network, Bebo for $850m and News Corp purchased MySpace for $580m. Both are now "essentially worthless."

"Rather than a bubble, these ‘inflated’ prices are perhaps better described as a temporary market condition centred around a limited number of acquisition targets perceived as valuable and driven by the cash of four high-rolling Internet giants," says Ovum’s Mark Little.

Will Pinterest be the next instagram? A profitless start-up that will be bought at an inflated price? The company is the latest one to be valued over $1bn (£630m) after its $100m round of funding.

Please follow this author on Twitter @Tineka_S or comment below.

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