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Chewpons’ model shows promise

Adam Marks, founder of Chewpons in his Reisterstown, MD. home office.

Adam Marks, founder of Chewpons in his Reisterstown, MD. home office.

Adam Marks looked at the success of companies offering daily coupon deals like Groupon and Living Social and saw an opportunity, subsequently launching his own Baltimore-focused variant, Chewpons. And investors see the promise of many new web companies too, thanks to an expanding Internet marketplace and relatively low startup costs.

Chewpons, which launched in the past month, offers e-mail subscribers daily discounts, such as buying a $10 coupon that will get you $20 worth of food at area restaurants.

Marks, 44, said the fact that Chewpons is Baltimore-focused and Baltimore-based will allow him to gain a foothold in the local daily deal market with both consumers and restaurants.

“I want to keep it very local,” Marks said. “All these others are rolling into town, so I’ll be the only one that really started in Baltimore and is actually focusing on Baltimore.”

And he’s added another twist to the equation — a small portion of each coupon purchase goes to a charity of the restaurant’s choice.

“We’re more niche than the others, really tying on to the Baltimore factor,” Marks said. “We’ve seen a tremendous amount of interest, because it’s local and it supports local charities, like our partnership with the Maryland Food Bank.”

Marks explained that the site should be successful because people are always hungry for deals, and restaurants want ways to advertise that show a direct impact.

“[Unlike traditional advertising,] there’s no upfront cost to the restaurant at all,” he said. “We just take the total [price of the deal], the restaurant gets the majority of the proceeds, then the charities get a portion and Chewpons keeps the rest. There’s no risk to the restaurants, because people are buying the coupons upfront, so they’re already committing to [going to the restaurant].”

While Marks eventually wants to scale up and expand, his first goal is to build his reputation and market share locally.

“In due time, what I really want to do is, I want to be Maryland and own Maryland,” he said. “I want to be the company that starts in Maryland, grows in Maryland and then expands from there.”

Marks said Chewpons’ launch, which cost in the tens of thousands of dollars, was funded solely through private investment.

In order to expand, Marks would likely need some outside investment. John Taylor, the research and financial affairs executive for the Virginia-based National Venture Capital Association, said now is a good time to be starting a web-based company.

“There’s very strong investment in the Internet in general, and the feeling is that the Internet is very investable,” Taylor said. “Overall traffic on the Internet is increasing, the ways people use the Internet are expanding, and at the moment it’s relatively inexpensive to start an Internet company.”

Taylor explained that it is cheaper than ever to start an Internet company because much of the infrastructure needed is already in place.

“[Startups] can use some of the free cloud computing tools for e-mail or document management, so communication and collaboration is available for free or at very low costs,” he said. “In the past, a company would have to install a file server and a mail server, which is a lot of infrastructure. So there are tools available for a virtual company to be put together with relatively little capital investment.”

Art Marks, a managing general partner at mid-Atlantic venture capital firm Valhalla Partners, said venture capitalists are very interested in websites using the “daily deal” formula.

“There’s a lot of interest in that, especially with the supposed [$6 billion] offer from Google to buy Groupon,” he said. “And there doesn’t seem to be a lot of barriers to entry. But while Groupon’s got the scale [to dominate the market], there’s not a lot of loyalty on the part of customers, because once you’re tuned up on Groupon, you’ll likely look at three or four other sets of offers.”

But Art Marks added that he thinks the number of companies trying to capitalize on this business model makes it hard for venture capitalists to judge which websites will succeed and which will fail.

“I guess in my 29th year in venture capital, it seems a little overheated,” he said. “There are probably too many copycats, and there probably are not going to be as many winners as there are entrants certainly. But I don’t know.”

And Taylor said the key for Chewpons to succeed would likely be rapid expansion.

“The trick to making something like that successful economically is to scale it rapidly and at very high levels,” Taylor said. “It won’t work long-term for something like that to be a small business, at least by venture capital standards.”

He added that the idea to stress the local aspect of Chewpons could be a strong selling point, especially since the company doesn’t have the luxury of being the first company to offer daily deals.

“One of the topics of conversation you hear all the time is that if people are thinking locally and acting locally, this is something that could scale up in different locations and yet still be local, so that could be a competitive advantage,” Taylor said. “Look at Facebook. It popped up in clusters on different campuses, and it almost happened virally, campus by campus.”