If ever there was a startup that seemed like a can't-miss bet to build the next billion-dollar app, it was Foursquare. From the beginning, it was social, local, and mobile, that holy trinity of totem words parodied on Silicon Valley for being a mandatory part of every pitch deck. Its launch at SxSW in 2009 set the bar for a buzzy debut. It had the backing of blue-chip VC firms like Union Square Ventures and Andreessen Horowitz; a pedigreed founder, Dennis Crowley, who had sold his previous startup to Google; and the love of early-adopter types and journalists, the same constituencies that helped make Slack a breakout hit.

But early advantages aren't everything. The New York City-based company is currently in talks to raise a "down" round of funding, one that reduces its valuation--in this case by a considerable degree. According to Re/code, Foursquare will take between $20 million and $40 million at a valuation of $250 million, a haircut of more than 50 percent from the one attached to its last round of funding, in December 2013. (Inc. hasn't independently confirmed those numbers, but we understand them to be in the ballpark. Foursquare had no comment on Re/code's report.) 

Down rounds are typically punishing for founders, reducing both the value and the size of their stakes in concert. Frequently, doing one triggers "anti-dilution" mechanisms designed to protect early investors by carving up founders' equity still more. A down round is thus widely regarded as a red flag for a company--though, as TechCrunch notes, the widespread sense in Silicon Valley that 2016 will be a harder year for raising money may drive some to do deals at worse terms than they would otherwise just to get cash in the bank. Many observers believe Foursquare's move primes it for an acquisition, with Microsoft, current investor, and Apple being the most likely buyers

A spokeswoman for PitchBook, a research firm that tracks venture capital flow, said Foursquare had not yet filed documents for its new funding round, preventing a detailed analysis. But, she said, taking funding at such a steep markdown is quite rare, with fewer than 8 percent of startups ever dropping their valuations by 50 percent or more. 

Foursquare started out life as a fun social service that let friends keep track of each others' whereabouts and keep "score" of their visits to bars, coffee shops, and the like. While it grew steadily, and now claims 55 million users, several obstacles prevented it from attaining the kind of mass popularity enjoyed by Instagram or Twitter. Expecting users to "check in" everywhere they went turned out to be asking too much of them, but making check-ins an automatic process raised privacy concerns. The idea of constantly broadcasting one's whereabouts holds limited appeal for many, as Facebook discovered when it launched a "Nearby Friends" feature. Over time, Foursquare split off the friend-finding feature as a separate app and repositioned itself as a search tool for finding restaurants and other attractions. But in so doing it ran into a differentiation problem, with Yelp already well entrenched.

But while it never escaped its early-adopter niche, Foursquare did manage to amass an enviable trove of location data. That alone could justify the purchase price, if not to Microsoft or Apple, then to someone else.