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B2C still attractive?
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January 16, 2001: 12:30 p.m. ET
Venture capitalists still keep an eye on B2C, but with a different approach
By Julie Landry
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SAN FRANCISCO (www.redherring.com) - Everyone says B2C has been bad for capitalists -- venture capitalists, that is. But for all the trash talk about business-to-consumer companies, VCs still are funding the sector.
B2C deals are pouring into the offices of RRE, but they look a lot different than last year's e-tailers, says RRE general partner James Robinson IV. These days, the companies are going after niche markets where the margins are fat and customer acquisition costs skinny.
Indulge.com, one of RRE's portfolio companies and a seller of luxury items for women, woke up in January 1999 to the high customer-acquisition costs of selling solely online. It merged with a profitable catalog business, L'Art de Vivre.
The resulting company is now called Vivre, and it recently pulled in $8 million from RRE, as well as from Charles and North. That brings its total capital raised to $28 million over three rounds. The company promises to finally show some profits by the end of 2001. The two outlets complement each other, Mr. Robinson said. But he admitted that the catalog is still bringing in more money than the site.
If Vivre can't make a go of it, it may want to seek the help of Smartbargains. The newly launched B2C site, a spinoff from 97-year-old liquidation specialist Gordon, snaps up closeout inventory and sells it to consumers at discount prices. Smartbargains, based in Boston, raised $33 million in its first round of venture funding from Highland, America Online (AOL: Research, Estimates), Berkshire, Dorset, General, and Madison. The company expects to be profitable within a year and a half. Its monthly burn rate is $1.5 million.
Believe it or not, Swell.com, a portal for surfers, skateboarders, and snowboarders, based in San Juan Capistrano, Calif., predicts it will be profitable by the fourth quarter of 2001. Edgewater, Matador Capital Management, and Richland believe it. They put $8 million into the 2-year-old company, bringing total VC funding to $25 million. They must be buoyed by the fact that one of Swell.com's competitors, Hardcloud, drowned and another, Bluetorch, a Web division of the Broadband Interactive Group, laid off part of its staff.
While U.S. VCs lick their wounds from failed B2C plays, international investors are learning from overseas counterparts. South American investors Ventana Columba and Grupo Claro didn't let Kozmo.com's floundering business model stop them from investing $4.5 million in a second round for its Chilean equivalent, Bazuca.com, which sells convenience goods like gifts, food, CDs, and handheld devices, primarily over the Internet. Unlike Kozmo.com, Bazuca.com takes both Internet and telephone orders, and it charges a delivery fee for transactions of $7 or less.
In Brazil, E-nicial Ventures plunked $4 million into Fulano.com, an interactive entertainment site similar to Uproar (UPRO: Research, Estimates) that hopes to make a buck by selling ads on its quiz, contest, and joke pages. Although the company has pulled in more than $2 million in revenue in 2000 and claims it has 430,000 registered users, its fate won't be a pretty one if it sticks to getting paid solely from online advertising. 
© 1997-2000 Red Herring Communications. All Rights Reserved
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