BuyWithMe, one of the sites like Groupon that’s going after the online bargain market with social media tools, has just raised $16 million in a second round of funding from Bain Capital and Matrix Partners.

The company, which specializes in local deals for groups (like 20 percent off 10 tickets to a certain event, etc.), says it will use the money to expand its offerings from five to 20 new cities by the end of 2010.

BuyWithMe operates on the same model as Groupon, unlocking deals when a target number of consumers say they will purchase something. The discount opportunities are posted on the site for a week (instead of Groupon’s 24 hours). It integrates social dynamics too, allowing users to share deals with their contacts via email, Facebook and Twitter.

Most of the purchases listed by BuyWithMe range between $30 to $35, with discounts ranging from 50 to 70 percent. The startup makes money by splitting the revenue actually made by merchants 35 to 50 percent. It gets away with this high take by helping sellers offload surplus, temporary or perishable goods and services — it also promises them exposure to help attract regular customers going forward.

Now with plenty of cash on hand, the company’s biggest challenge is surviving in a big pond of big fish. Groupon is active in 75 cities in the U.S. Indirect competitor LivingSocial has raised $49 million, and a bunch of small upstarts are in the fray now too, like SocialBuy. Basically, the business has turned into a race for market share, and while BuyWithMe is staying afloat, that might not be enough.

Based in New York, BuyWithMe is only a year old, but it’s already raised $21.5 million to date.

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