Nift raises $16.5M for a new kind of gift card

Nift, which is giving local businesses a new way to promote themselves, has raised $16.5 million in Series A funding.

The businesses that work with Nift (the name is short for “neighborhood gift”) can give special gift cards to their best customers. Those customers enter their codes on the Nift website, answer a few questions and can then choose from two free gifts from other local businesses.

Founder and CEO Elery Pfeffer suggested that this can help smaller businesses stay competitive against Amazon, while avoiding some of the pitfalls of promoting themselves through discount sites like Groupon. For one thing, Pfeffer argued that the person receiving the Nift is “somebody else’s best customer — this is not a bargain hunter motivated by a deal.”

“They’re getting a gift they weren’t expecting,” he said. “We make the selection for them, so there’s no self-selecting bargain hunting going on. That’s what makes the whole thing work.”

The idea is that businesses get new customers in exchange for promoting other merchants. It’s up to each merchant to determine what makes someone their best customer and how many Nift cards they want to give out, but Pfeffer (a data scientist who previously founded influencer marketing company Pursway) said his team has built sophisticated tools to find “the perfect match” between customers and gifts.

This approach has already been pretty successful in Boston, where the company says 250,000 customers have activated more than 500,000 Nift cards. Pfeffer said 86 percent of those customers end up receiving a gift from a business that they’ve either never visited or haven’t visited in the past year. Afterwards, 88 percent of customers said they’re interested in visiting the business again, and a month later, 37 percent have actually done so.

The new funding comes from Spark Capital, Foundry Group and Accomplice and will fuel the startup’s plans to expand to five new markets (in addition to Boston, it’s currently available in Providence and Washington, D.C.).

“Retail has changed dramatically with the widespread adoption of e-commerce, but something has been missing for small businesses at the local level,” said Foundry Group’s Seth Levine in the funding announcement. “Nift is providing a way for merchants to deliver the experiences customers want, while fostering a healthy ecosystem. The success of the platform illustrates the impact it’s already having in strengthening these businesses and revitalizing communities.”