Tango Card, the Seattle-based startup that aggregates digital gift card services from dozens of companies like Amazon, Nike, Target, iTunes, charities and more, has raised $4.125 million in a Series B round of financing led by Allegro Venture Partners. Floodgate, Swan and Legend Ventures, and existing investors Western Technology Investments and Innovation Endeavors, the early-stage fund co-founded by Google chairman Eric Schmidt, as well as a strategic investor that Tango Card cannot disclose, also participated in the round. A Form D from Tango Card filed with the SEC for $5.452 million includes both this round along with some of the money raised in Tango Card’s previous venture round. To date, Tango Card has raised $6.925 million.

David Leeds, founder and CEO of Tango Card, says the company will be using the funding for the first stages of its international expansion and to continue building out its existing sales and marketing efforts around its enterprise service, in which businesses offer employees and customers gift cards as part of incentive and reward schemes. To date, the company has over 80 live enterprise customers covering 600,000 users and grew 500% from 2011 to 2012 in terms of revenue.

Enterprise-based gift card services may have a lower profile than consumer focused apps — with companies like Square and Facebook getting into a space already full of smaller startups like Wrapp and Gyft.

But they are nonetheless a lucrative business: Leeds estimates this to be a $50 billion annual opportunity, when you calculate employee recognition schemes ($20 billion); customer acquisition ($10 bilion) and customer loyalty offerings ($20). And given that the market may well be over-saturated for straight consumer business in the current market, “Gift cards are growing much faster on the enterprise side than on the consumer side,” Leeds notes. He also points out that enterprises can be more lucrative in the digital gift care business.”In enterprise your customers pay you in advance and via methods like checks and wire transfers. One of the challenges on the consumer side is that those purchases tend to be with credit cards, so if you take 10% margin, 3% disappears at the time of the transaction because the customer is not present,” he says. The other issue is fraud, which can be higher in consumer services.

The opportunity for a company like Tango Card is that enterprises that have traditionally tried to run gifting schemes in-house are starting to outsource services like these to third parties.

Tango Card’s pitch is that it can provide a cost-effective back end to run these services, and offer more engaging rewards to boot — “rewards as a service,” in Leeds’ terminology. When these services have been outsourced in the past, it’s been to large third party companies like Maritz, Carlson and Affinion, which offer gift catalogs rather than gift cards for recognised retailers. These catalogs and the services of larger companies tend to be priced at higher rates than Tango Card offers, and as for the offerings in the catalogs, “people are just not interested in crystal clocks and t-shirts anymore,” says Leeds.

Tango Card takes an API-based approach to working with enterprises for their gift card needs. They offer enterprises an API, which the business uses to enable rewards inside its own corporate platform; these can integrate with wider accounting packages that the enterprise uses to manage their employees’ expenses. Often these are integrated with yet more platform providers that work directly with enterprises to enable this: typical customers are companies like oPower, Extole and work.com, with oPower. These are typically charged on an SaaS-style model per user and per month.

The other part of the Tango Card’s business focusses on small and medium businesses that want to offer rewards to their employees or customers. Again, here the aim is to interface with other companies that help drive loyalty/reward schemes, giving them a gift card service to have as part of their offering. Leeds notes that these companies include companies like Beintoo for mobile loyalty; Plink, which helps drive offline purchases from online customers.

As a part of the deal, Julie Allegro is joining Tango Card’s board.

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