Symbolizing the splintering strategies of venture capital investors, electronics e-tailer 800.com Inc. recently closed a $20 million Series E venture financing with a significant portion of its existing investor base opting to stay on the sidelines.
OVP Ventures Partners led the round, and was joined by APV Venture Partners, Leverick, Portage Ventures, SAAD Investments Geneva, Trinity Ventures and Vulcan Ventures. In addition, Fleet Retail Finance provided an additional $15 million in debt financing.
Despite the heady roster, 800.com lost out on such previous investors as Advent International, Amerindo Investments Advisors, Attractor, Berkman Capital, Societe Financiere d?Innovation, Sofinov and WI Harper Group.
“The company operates in a highly competitive segment, which is dominated by Amazon and Buy.com in the online world and Bestbuy.com and others from the offline side,” explained WI Harper?s Lawrence Tse. “And I don?t feel particularly optimistic about the outlook of the company.”
Greg Drew, chief executive with 800.com, chalked up the lack of pro rata exercising to fund restrictions. “Some VCs are limited,” he said. “They are required to do certain things with their funds. It would have been nice for everyone to participate but they have good reasons for not [doing so].”
Mitch Bartlett of Amerindo Investments seemed to concur with Drew by saying he still believed in 800.com, but his firm just couldn?t cough up more money, even though the issuer?s post-money valuation was cut to under $100 million from a $240 million valuation last March.
It is important to point out, however, that severely lowered valuations cut both ways as they can turn off investors by implying the presence of fiscal instability.
Part of that downturn could have to do with 800.com?s decision to pull a possible IPO after the public markets began to tank last April. Instead of collecting $60 million from the public sector, 800.com has been forced to take in $121 million worth of private financing.
Spencer Tall, a general partner at APV Technology Partners, said he was very upset about the aborted IPO at the time, but in retrospect pulling it was the right thing to do. “We weren?t at the whim of the market. Etoys went out of business because of that. But on the sly we get to make changes that public companies can?t. As a privately held company we make choices where to go, how big to be and we don?t have liability to shareholders.”
Additionally, Tall felt confident that 800.com?s revenue will continue to grow because, unlike many e-tailers, 800.com has authorization from over 70 companies to sell their products.
“We?re authorized by major names in the business, which gives 800 an advantage that others don?t have. By buying merchandise direct, we get a full return,” he said.
For the current fiscal year, 800.com has had revenue of $48.3 million.
Matt McCall, a partner at Portage Ventures, which also invested in the company?s C round, said, “We have a lot of faith in the company?s management team. The fact that [Drew] has been able to position the company very close to breaking even and continues to scale revenue says a lot about the team?s ability. What doesn?t kill you will make you stronger.”
Eventually the company plans to try its luck in the public markets again or entertain an acquisition, but Drew said for the time being the electronics company will focus on operations, growing the business and developing wireless and satellite product lines, thanks to the new money. In addition, 800.com will also add 10 more employees to its staff of 140 by the end of the year.
The line of credit 800.com secured from Fleet will be used to stock up on inventory in preparation for the holiday season.
Contact Danielle Fugazy: Danielle.Fugazy@tfn.com