The scandal erupting over online offer networks has not stopped investors from pouring money into the space. San Francisco-based startup gWallet has landed $10.5 million in a first-round funding led by Adams Street Partners and Trinity Ventures. That brings its total raised to date to $12.5 million.
gWallet is among more than a dozen young companies that distribute special offers from marketers via social gaming applications on sites like Facebook and MySpace. In return for signing up for trial subscriptions from advertisers, users gain points toward things like virtual currency for buying in-game items.
But a recent series of articles on TechCrunch exposed how many of the offers from these companies scam people into buying products or services they don't want, like mobile ringtones, while also collecting personal information.
As a result, companies such as Offerpal Media and RockYou have since announced steps they have taken to ensure they only run clean offers while social gaming app developers like Zynga have pulled offers altogether until they can be sure they are not misleading or deceptive. Zynga itself raised another $15 million last month in venture funding last month, bringing its total to about $55 million.
Both Zynga and Facebook have been sued in a potential class action for allegedly profiting from "highly misleading" ads placed in games.
Acknowledging the controversy surrounding the sector, gWallet in its funding announcement Tuesday described itself as "the leader in cleaning up the virtual currency space." It also stated that the company is introducing new technology, strict ethical standards and operating guidelines to better protect consumers and make the emerging virtual currency business "brand safe" for advertisers.
Prior to starting gWallet earlier this year, founder Gurbaksh Chahal started Click Agents in 1999 before selling it to ValueClick in 2000 for $40 million, and in 2004 founded BlueLithium, later acquired by Yahoo in 2007 for $300 million.
In discussing his latest venture in August, Chahal told Inside Facebook: "The virtual currency market today is kind of like the Wild West. You have so much supply being created by so many games, and soon other verticals, but the only way it will work in the long run is if you can use technology to connect an advertiser to a user."
Unlike competitors, gWallet says it works directly with brands rather than affiliate networks to fund the offers. It also promises that its platform enables developers and social media companies to see the exact offers being presented inside their networks at any time. The company Tuesday named Netflix as one of the major brands it is working with.
The company said it would use the new financing to open new offices globally in the coming months, including a substantial presence in New York and a European-based headquarters in London. The capital infusion will also help gWallet pursue strategic acquisitions.