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WeatherBill Inc. has closed a $12.5 million Series A round to expand its financial service that allows businesses to buy derivatives as a hedge against revenue losses from bad weather. The San Francisco startup has raised $16.8 million since its launching in January. New Enterprise Associates of Menlo Park, Calif., and Index Ventures of Geneva led the Series A round, which included Allen & Co. of New York; Atomico Investments, the venture fund started by Skype Ltd. co-founders Niklas Zennström and Janus Friis; and individual investor Sean Park. Seed investors were First Round Capital of San Francisco and several angel investors, including Del.icio.us founder Joshua Schachter and Salman Ullah, the vice president of corporate development at Google Inc. As part of the financing, Kittu Kolluri and Neil Rimer, partners at NEA and Index Ventures, respectively, will sit on the company's board of directors, as will Barney Schauble, a partner at Nephila Capital, WeatherBill's risk capacity partner. The company sells commodity contracts intended to be used as risk-management instruments that can help buyers manage financial risk tied to the weather. WeatherBill partners with Nephila, a $3 billion catastrophe re-insurer fund that specializes in insurance-linked securities, catastrophe bonds, and weather derivatives, in order to write the contracts for businesses greater than $1 million. Nephila covers 100% of the downside and shares in the upside, allowing WeatherBill to write large contracts against its balance sheet, according to CEO and co-founder David Friedberg. The contracts do not work like insurance, as a buyer needn't prove losses to collect. The contract pays if the specified inclement weather occurs on that day, month or season specified in the contract. The use of weather-related contracts as a hedge has been used for years by energy companies that usually buy derivatives to protect themselves against exposure to losses from harsh winters or very hot summers. WeatherBill is targeting small and midsize businesses in weather-sensitive industries such as agriculture, travel-leisure and retail. Clients include ski resorts, golf courses, farmers, restaurants, travel service providers and outdoor sports such as NASCAR and PGA events. Friedberg says that these industries offer huge market opportunities for the startup. "In agriculture there are tens of thousands of farmers losing over $100 billion a year due to the weather," he said. "The warm weather on the East Coast last year decimated so many [ski] resorts, and they're all trying to figure out what to do this year. They were all in the red last year and are trying to figure out how to make profits if there's another warm winter." After reaching positive cash flow, WeatherBill decided to raise another round of funding to accelerate growth, expanding its services into Europe and this week hiring engineering and sales staff. "It's been challenging keeping up with all the opportunities we're seeing, so we decided to take on additional funding to hire more people and get a lot of projects were working on done," Friedberg said. Wilson Sonsini Goodrich & Rosati was counsel to the company in the funding.  Deal Video
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