Index Ventures backs doll of a company: Swedish startup brings paper dolls to the Net

Toymakers must rue the digital age. First their old style board games became passe. Then, their educational doodads were usurped by shrink-wrapped software and interactive electronics.

So thank goodness for balls and dolls – two low-tech products that have remained a mainstay and have helped hold the toy industry together.

Well, maybe just balls.

That’s right, dolls have gone digital. Virtual, actually, thanks to The Stockholm-based company designs online “paper dolls” that allow its 900,000 users to dress up famous female and male faces and bodies (such as Jessica Alba, Harrison Ford and Mischa Barton) in unique clothes, makeup and accessories. And, like any trendy online company, it has venture capital backing. For, that means $4 million from Index Ventures and unnamed angel investors.

The company was launched in 2002 as the personal homepage of a 50-something Scandinavian woman only known as Liisa S. She was a paper doll hobbyist who learned HTML and Flash, and then began posting various celebrity dolls online. In 2004, with the help of her son, she upgraded the site and named it Paperdoll Heaven.

“Most online sites and video games are focused on violence and competitiveness,” Liisa said in a prepared release. “I wanted to create a positive online environment for young girls who are creative and interested in fashion.”

The site caught on among European teenage girls, and eventually morphed into a full-fledged business funded primarily through advertising revenue.

The company boasts at having a membership base of 900,000 from 190 countries as the site offers more than 320 dolls and tens of thousands of garments and accessories.

About half of the company’s current users reside in Europe, with the average user being a female between the ages of seven and 17.

As part of the VC funding, Liisa S. is stepping aside as CEO to make room for serial entrepreneur Mattias Miksche, whose previous efforts include E*trade Northern Europe and DVD rental site Boxman (which was recently sold to Lovefilm). Miksche says that he hadn’t heard of the site until being approached by Index Ventures last fall, and admits some initial skepticism.

“My first answer was: Of course, I’ve spent my whole life working toward online paper dolls and makeover virtualizations,'” he says. “But I tested it out on my wife, who’s 35, and my daughter, who’s 5, and I realized that the company was onto something big.”

Miksche says that the company plans to expand its revenue stream to include an increased number of VIP users, who get new dolls and clothes before they are generally released. He also hopes to eventually partner with fashion retailers.

Miksche says that the current venture capitalization should be enough to fund StarDoll for the foreseeable future.

Danny Rimer, the Index general partner responsible for its Skype investment, will serve on the board of directors.