Down The Drain: Sells Out

Portland, Ore.-based e-tailer eVineyard last week acquired competitor from Sand Hill Capital and seems already to have popped its cork in celebration. Meanwhile, at least some investors are probably still trying to wash the taste of sour grapes from their mouths.

With the acquisition of and the imminent launch of a $15 million private equity round, eVineyard expects to be profitable by year-end. The Series D financing will be used to help gel and into a cohesive company, said Brett Lauter, vice president of marketing with eVineyard.

While Lauter said he expects there to be strong interest in the deal, the company has yet to line up any investors. EVineyard previously received more than $30 million in funding from Angel Investors LP, Bear Creek, ITech and Osprey Ventures.

One group which almost certainly won?t be participating in the deal are investors, who have pumped more than $200 million into the company over the last six years. One investor said that poor management decisions led to the sale and that every firm?s stake has been essentially rubbed out.

Bubble, Bubble, Toil & Touble troubles began with the acquisition of, another online retail wine site. After much conflict between investors, the online vendor united with Wineshopper, which was only bringing in about $500,000 in annual revenue. As part of the agreement, gave away about a 30% equity stake and took on all of 180 employees and its debt.

The first sign of troubles for came soon after. In January 85 employees were laid off, which was blamed largely on the debt. But then, in early April, the company laid off another 160 employees, approximately 65% of its staff.

“Taking on Wineshopper was the biggest mistake the company made. It was losing money and was overspending on advertising,” said the disgruntled investor. He added that was burning through [its] advertising [dollars] and was not close to becoming self-sustaining.

Offering a slightly different perspective, Lauter said that failed because it was not a licensed wine retailer like eVineyard, which forced it to use others to distribute its wine, hiking its overhead costs.

“ original business model was never to be a national retailer,” Lauter said. “The original concept was just to sell to California and 12 reciprocity states. The VCs tried to make them something they weren?t.”

The investor agreed that the VCs hold much of the blame. He said many of his peers ? specifically Kleiner Perkins Caufield & Byers which declined to comment ? kept saying there would be more money to come and pushed executives, who also refused to comment, to continue growing their business with hopes of having a strong IPO quickly.

Private Equity Week also contacted eight backers in addition to Kleiner Perkins, all of which declined to comment.

Needless to say, the markets turned sour and soon thereafter hit rock bottom, leaving investors by the likes of Alpine Technology Ventures,, Applied Technology, GE Capital, Inroads Partners, Kleiner Perkins, MediaOne Ventures, New Millennium Partners and TH Lee Putnam Internet Partners without anything to show for their investments.

eVineyard?s Harvest

Unable to raise another round, debt lender Sand Hill foreclosed on assets, selling off anything it could to eVineyard.

Lauter said eVineyard bought the and URLs, content, software, trademarks, logos and customer lists of 210,000 customers and 200,000 registered users. Lauter contends that the cash and stock deal was worth less than $10 million. According to the source, wound up selling out for less than $l million.

eVineyard did not acquire any warehouses, products, employees, or debt, but said it may look into hiring former employees as eVineyard grows its business.

EVineyard, founded in May 1999, had estimated revenue of between $5 million and $10 million last year. Since its acquisition of exactly one week ago, eVineyard has seen its revenue jump about eight times per day, according to Lauter. Last year revenue was estimated at $25 million, almost three times that of eVineyard?s.

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