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Having sat out the frenzied fundraising for Internet retailers in 1999, Boston-based Shoebuy.com Inc. took advantage of a tentative return of venture capital interest in dot-com retailing to raise $9 million from Chicago's Apex Venture Partners and Boston's Tudor Ventures.
The 5-year-old dot-com had raised just $2.7 million in previous funding, primarily from founders and angel investors. CEO Scott Savitz said the company launched its shoe-sales Web site in January 2000 amid the tail end of the Internet investment boom but never considered raising large amounts of money at the time.
Instead, it nurtured growth to profitability before seeking professional investors. "We felt our efforts were better spent on continuing growth than on spending time on the capital markets," Savitz said. "We had always expected to raise money again at about this time, and we also thought it didn't make sense to raise money at the kind of valuations other retailers were getting."
Savitz said the company's strategy has created revenue growth of better than 100% each year, and he said it meant that unlike more ambitious e-tailers, the company never had to scale back as original expectations of the online market collapsed. "We never had a retrenchment period," Savitz said.
Savitz would not disclose a valuation on the deal but said the round came at a large increase over earlier investment, which came in stages beginning in April 1999. He said the company was happy to have stayed on the sidelines the last few years, when online retailers that managed to raise money often took huge hits in valuation.
"We found the fundraising market much healthier than people have found it the last couple of years," Savitz said. "We do have dot- com in our name, but we went out with real metrics to judge the company by."
Shoebuy enlisted the aid of Boston's Innovation Advisors LLC to help raise the round; Innovation managing director Doug Brockway handled the deal. The company had legal representation from Mike Balfe of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC in Boston.
Savitz would not disclose Shoebuy's revenue, but the company has access to more than $1 billion in inventory. The company was profitable in 2003, though Savitz would not reveal earnings.
Shoebuy claims to be the largest online retailer specializing in shoes, and the company carries all categories of footwear. Shoebuy has partnerships with more than 200 manufacturers and represents more 200,000 products including Adidas, Aerosoles, Bass, Bostonian, Brooks, Clarks England, Dexter, Dockers, Dr. Martens, Ecco, Etienne Aigner, Fila, Florsheim, Franco Sarto, Hush Puppies, Johnston & Murphy and Keds.
Investors saw Shoebuy as a solid late-stage company that has been able to build its business with a minimum of initial capital by operating essentially without inventory, said Tudor Ventures' Carmen Scarpa.
Shoebuy returned to the market as venture capitalists have re- emerged after fleeing the retail sector following the spectacular collapse of heavily funded ventures such as Pets.com, Webvan Group Inc. and Wine.com Inc. Consumer investment specialists including San Francisco's Venture Strategy Partners and Rosewood Capital Associates LP and Seattle's Maveron LLC stayed with the sector but have remarked recently that broader-based venture firms have recently paid more attention to retail investments.
Savitz said that as confidence grows in online retailers that have managed to survive the past few years, the company expects to grow more aggressively. But he expects the current round to be the company's final venture round and will stick largely to funding growth internally.
"If you look at the surviving companies that have made it through all this craziness, what you see is that they didn't raise more money than they needed," Savitz said.
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