Updated

weatherbill-logo.pngWeatherBill, a company that lets you make money by betting on the weather, has raised $12.5 million.

The San Francisco-based company sells contracts that essentially let you put money down against bad weather hurting your business, so you can still get paid even if your business itself suffers.

You can choose your contract to be for hot, cold, rainy, snowy or dry days or seasons, and customize every specific aspect of your scenario, such as the temperature, precipitation or snow level. Choose a location with all of your weather specifications and how much you hope to earn from the contract, and the site will calculate its cost.

For example, VentureBeat could purchase a contract to bet that cold winter weather will hit the Bay Area all of next week — a way to make ourselves feel a bit warmer if this turns out to be the case (screenshot below). We’d get paid $100 from WeatherBill for every day that the minimum temperature dips below 65 F. The example below shows the contract would cost us $660. Question is: How likely is it that every day next week will be that cold? There’s a chance we won’t make our money back — and we’re not experts enough at predicting the weather to know.

But let’s say you’re a travel agency and you want to guarantee your customers that they will receive a full refund if their flights get cancelled due to heavy snows on New Year’s Day, 2008. Simply take out a contract with WeatherBill and it will pay you if there’s enough inches of snow on the ground to cancel flights — that’s what a Canadian travel agency called itravel2000.com has done, a contract that company chose to be worth up to $100 million.

WeatherBill bases its prices on accumulated weather statistics as well as computer-generated models of weather forecasts and longer-term trends.

Hundreds of businesses have bought contracts, typically worth less than a couple million dollars; the company earns between one and 20 percent revenue from its contracts, chief executive David Friedberg tells us.

Weatherbill is growing quickly he says, and is cash-flow positive — most likely because it makes money no matter what. Nephila Capital, a re-insurance fund that normally sells capital bonds, weather derivatives and financial instruments to large clients such as insurance companies, backs 100 percent of WeatherBill’s risk, paying the company in the event customers cash out on large contracts.

Because WeatherBill’s contracts are considered “over the counter financial instruments,” Friedberg says, they are regulated by the US Commodity Futures Trading Commission — meaning that businesses and individuals must have a net worth of over one million in order to purchase them.

Current clients include ski resorts, farms, restaurants, outdoor sports companies, and others.

New Enterprise Associates and Index Ventures led the round, with Allen & Company, Atomico Investments and angel investors participating. Current investors include First Round Capital and angel investors.

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