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How CouchSurfing Got its Start, and Landed VC Millions

This story appears in the December 2011 issue of Entrepreneur. Subscribe »

In 1999, Casey Fenton scored a cheap ticket to Iceland, but needed a place to stay. He sent an e-mail to more than 1,500 students in Reykjavik asking for a place to crash--even on someone's couch. The result was a new network of friends who offered to show him the "real" Reykjavik. After spending a weekend immersed in the of the area, Fenton walked away with disdain for the typical sanitized tourist experience--and an idea for a new nonprofit.

He invited former colleagues Daniel Hoffer and Sebastien LeTuan from Fuxito Worldwide, a venture-backed international soccer website, and friend Leonardo Silveira to form CouchSurfing. The -based organization was designed to provide a platform for people to connect all over the world, fostering more affordable travel, not to mention more immersive cultural experiences, by encouraging users to provide and benefit from free in-home lodging.

But sometimes the best-laid plans don't work out, even for enthusiastic tech guys like these. The had operated as a nonprofit since 2003, but its application for a 501(c)(3) nonprofit status was denied earlier this year, since the organization didn't fit into any IRS categories, Hoffer says. The team then applied for B-corporation status, which offers advantages to companies that have socially responsible missions. But they also needed cash.

"We were looking for investors that were compatible with our objectives to build a strong and lasting socially responsible organization," Hoffer says, noting the two they selected, Benchmark Capital and Omidyar Network, were "each considered best-of-breed with that particular focus." Benchmark led the $7.6 million round, which closed in August.

Hoffer says much of the money will go toward hiring, especially increasing the size of the engineering staff to service the company's more than 3.2 million members in 240 countries and provinces. However, CouchSurfing's revenue model is a bit fuzzy. According to Hoffer, the only source of revenue is an identity-verification feature used as a basic safety measure to protect users (credit card information is cross-checked with information provided to the site). The company also faces competition from free services like The Hospitality Club, Global Freeloaders and BeWelcome, although each claims fewer members.

Like with most platforms that connect people who don't know each other, safety is a concern. The company's site addresses the "stranger danger" issue in several places, urging members to use the site's reference system, which encourages users to leave references and comments about other members they've hosted or stayed with. Members can also vouch for each other's character, putting in a good word for people they know. Beyond that, the site says, "You can--and should--pick and choose who you want to host, and when."

And across the globe, people are responding. The company boasts more than 3.7 million successful "surfs" since its founding, with more than 6 million "positive experiences." Stats on the number of people forced to sleep on lumpy sofas were not available.

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