Petopia.com is the latest Internet-based retailer of pet products to receive venture capital backing, raising $66 million July 12 in its second round of financing. Since March, venture firms have invested more than $125 million in the pet niche.
Corporate investor PETCO Animal Supplies Inc. of San Diego led the Series B round and has formed marketing and distribution partnerships with the online retailer. PETCO retained Morgan Stanley Dean Witter to review 12 Internet investment candidates and selected Petopia.com because of “its higher service-oriented applications and ability to offer a new channel of distribution,” said Chief Financial Officer James Myers. PETCO has a 20% equity stake in the company, with warrants that provide the opportunity for an increased ownership stake.
“It’s not a common practice for us to invest in other companies,” Myers said. “This new foray will allow us to become part of a new arena.”
Groupe Arnault, the venture affiliate of LVMH Moet Hennessey Louis Vuitton (LVMH), also contributed to the round.
Petopia, which was incorporated in February, had previously raised $13 million from Technology Crossover Ventures. The venture firm elected not to participate in the second round, although General Partner Jay Hoag said TCV was directly involved in bringing LVMH – a limited partner in its fund – into the deal.
“We have the opportunity to teach them about the online world and provide in-store marketing to 485 stores,” said Petopia.com Chief Executive Andrea Reisman.
Reisman added that the company’s association with LVMH will help it grow its international operations.
The San Francisco-based company expects to launch its retail Web site before the end of July.
Proceeds from the investment will permit the company to hire additional staff, continue development of the site and enhance sales and marketing.
Petopia.com recently inked a distribution deal with America Online and is negotiating similar agreements with several national Internet portals, Reisman said. The company will advertise through print and radio campaigns and has secured an exclusive Internet fulfillment deal with Loveland Pet Products.
“The [pet] industry is very grassroots-oriented, and there are many ways to leverage our brand,” Reisman said.
Petopia.com will compete with venture-backed Pets.com, whose site launched in 1998. In June, Pets.com raised $50 million from Amazon.com, Hummer Winblad Venture Partners and Bowman Capital Management LLC (PEW June 21, p. 1), and TruePet.com, which raised $10 million from Battery Ventures in March.
“Like any good category, we have competition, and we view that as a positive thing,” Reisman said. “The constellation of the portals, Loveland, AOL and PETCO is huge branding and will make us enormously powerful.”