Hyperlocal social media platform Nextdoor has agreed to go public through a merger with a special purpose acquisition company, in a deal that it said would give the business an implied valuation of $4.3bn.
Founded in 2011, the social network carved a niche distinct from dominant rival Facebook by creating an online space for neighbours to discuss local events, rate local businesses and exchange goods and services.
It will merge with a Nasdaq-listed Spac launched by Silicon Valley venture capital group Khosla Ventures, raising $686m in gross proceeds — including $416m in cash and $270m in so-called Pipe financing.
Investors in the Pipe, or private investment in public equity, include T Rowe Price Associates, Soroban Capital, accounts advised by Ark Invest, as well as existing investors Tiger Global. Nextdoor’s chief executive Sarah Friar also participated in the Pipe financing.
In an interview with the Financial Times, Friar said that the Pipe had been oversubscribed, with $550m in demand.
“We think we’re a company that can maintain hyper growth over multiple years,” Friar said, adding that the platform, which largely relies on advertising revenues, was experiencing “really strong traction” among US brands.
Nextdoor is backed by $393m in venture capital funding from investors including Benchmark and Kleiner Perkins, according to Crunchbase data, and was valued at $2.2bn at its latest fundraising in September 2019.
The company’s growth was supercharged by the pandemic, Friar said, as those housebound turned to social media out of boredom or to participate in community efforts tackling the crisis. Daily active users rose 50 per cent in 2020, and Nextdoor is present in nearly one in three households in the US, she said.
Friar said that she had chosen the Spac route rather than a more traditional initial public offering because it afforded “deal certainty” earlier on, allowing the company to start planning how it would allocate funds.
In particular, the money raised would go towards launching new products, expanding into new geographies and bolstering its offering to advertisers, she said.
So far large advertisers have tended to focus on bigger platforms such as Facebook and Google, with Twitter, TikTok and Snap also gaining traction. For Nextdoor, wooing new brands will rely in part on how it handles accusations from critics that it has become a home for toxic content, nimbyism and misinformation.
Friar said the platform was “not perfect” at content moderation but that this was a focus “particularly when you think about the scale of the company, relative to some of the tech giants”. In a nod to its ambitions to encourage neighbourliness over curtain-twitching, the company is to be listed under the ticker “KIND”.
Friar played down the risk of increased competition from Facebook, which in May launched a clone product, Neighbourhoods. “It is a very hard bill to build individual neighbourhoods,” she said. “There’s a reason why it’s taken us a decade to get to the scale that we’re at. So that puts a huge moat around what we do.”
Friar said the company had been “picky” in choosing to work with Khosla Ventures, whose billionaire founder Vinod Khosla was a major investor in payments group Square while Friar was chief financial officer at that company. Nextdoor rebuffed approaches from several Spacs last year, according to Bloomberg.
The deal is subject to approval by the Spac shareholders and is expected to close in the fourth quarter of 2021, Nextdoor said.