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Venture investors look at some eCommmerce projects

Jan. 11, 2008

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According to various reports, some venture investors are still finding some early or mid-stage eCommerce and B2B businesses to invest in. It isn't always easy for them, but as is generally the case, if their homework and due diligence is done carefully, the prospects of a successful deal become more eminent for them.

According to a Pricewaterhouse-Coopers report published in December, on average, eCommerce and Web-focused venture investments rose a little over 16.7 percent in the third quarter of last year, compared with 2006, and more than US $1 billion has been invester into the sector for four of the past five quarters.

On average, the deals are a bit smaller in size than they were when the dot-com bubble was building (pre-2000) and the businesses themselves are being built in a more quiet, workmanlike way.

The interest in the Internet sector (with search marketing and social networking leading the way) helped propel 2007 on pace to be the best funding year since 2001, another year marked by solid interest in the Internet economy.

Just as then, eCommerce and B2B remains a favorite play of many investors, with even companies trying to elbow into what seem like crowded niches garnering their share of venture backing.

It's important to note that most venture funding found its way into the coffers of luxury eTailers near the end of 2007.

Tracy Lefteroff, managing partner of the venture capital practice at Pricewaterhouse-Coopers said "in 2007 we saw venture capitalists diversify their investments across various industries more."

Lefteroff added "overall, software and biotechnology remained the top categories, but investors seemed to be more optimistic that solid opportunities are available elsewhere as well."

A luxury site earlier in its evolution received a $3.8 million capital backing in December. Ideeli got its first round of venture funding from Kodiak Ventures and others to expand what is still an invitation-only luxury shopping site.

Many companies in the luxury sector have proven adept at attracting affluent customers and delivering a top-notch customer experience, Forrester Research analyst Carrie Johnson said.

Also successful is Bag, Borrow or Steal, another luxury site that focuses on high-end handbags and related merchandise. Bag Borrow or Steal landed $15 million over the summer 2007 to expand its unique business model, which allows users to rent handbags and either return them or "steal" them by paying an additional fee.

Other names and ideas from the first dot-com wave were among those landing venture backing last year, including Cooking.com, which scored $7 million from Orix Venture Finance and others.

"Investors generally recognize that companies that can find traction with some demographics can be very successful," Johnson said. "A lot of attention is being paid to that segment now that consumers have shown they'll buy even high-end luxury items site unseen over the Web."

Ten years after the first Internet travel sites arrived in 1998, investors are betting there is still room in that already crowded niche. Claremont Creek Ventures and Garage Technology Ventures backed online travel site cFares with $4.5 million last July.

Another dot-com revival attempt is PetFoodDirect.com, which raised $10 million in June. The site actually predates the 2001 eCommerce shakeout and is now a key Amazon.com partner. What makes cFares unique is its "disruptive business model and defensible intellectual property," said Nat Goldhaber, managing director of Claremont Creek Ventures.

Goldhaber added that "the company has also negotiated almost unprecedented access to airfares. It addresses the needs of both airlines and travelers by taking advantage of major changes in airfare distribution."

New ways to enable consumers to track and manage their money were also popular avenues for venture backers lat year.

Mint.com also scored pretty good last year, raising $4.7 million for its online money management platform in October. Shasta Ventures backed the site, which went live in 2007 and which enables users to manage their entire financial lives from a single interface.

Another financial services firm received a rather large sum of cash, with money transfer site Xoom.com landing $20 million from DAB Ventures, Fidelity Ventures, New Enterprise Associates and Sequoia Capital over the summer of last year.

Last October, mFoundry raised $15 million for its mobile financial services platform, with backers including eBay's PayPal, Motorola Ventures and NCR.

One of 2007's largest venture went to Revolution Money, a website that is promising to remake the credit card business in a more secure way. Citi, Morgan Stanley and Deutsche Bank were among those backing the startup with a $50 million round.

Notwithstanding all the current turmoil in the national housing slump, online real estate ventures continued to garner venture backing. Zillow.com, real estate value comparison site, raised $30 million in September, with backing coming from Legg Mason Capital and a few others.

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Source: New England Business News

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