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Zappos.com makes it look easy, continued

zappos.jpgZappos.com, the fast-growing online shoe retailer, said it has raised another $15 million from the big-name Silicon Valley venture capital firm, Sequoia Capital.

It's the latest in a series of stellar performing Internet companies where venture capitalists are paying a high price to get in the deal. Founder and CEO Tony Hsieh said Zappos.com expects to surpass $300 million in gross merchandise sales this year, a continuation of the sharp growth he's seen over the past few years (which we wrote about here).

We haven't confirmed this, but the word is that Sequoia owns less than 10 percent of the outstanding shares, even after it invested $20 million last year at a purported valuation of around $200 million. That could mean that Zappos.com's current valuation is $300M or more.

Other deals with high prices include Netblue, a Mountain View online direct marketing company, which scored $20 million from Oak Investment Partners; Foster City's Quinstreet, another online marketing company which raised $50 million, and WeatherBug, a weather information site, raised $23 million, also from Sequoia.

"These companies have got a ton of traction, and are doing very well, so you can justify the price," Roger Lee, a partner at Battery Ventures tells us. "But they are very expensive transactions."

Interesting tidbit, though, is that Adteractive, the other hot online marketing company, apparently was so expensive that the whopping $100 million venture round that was in the works fell through. General Atlantic Partners evidently decided to pass, and instead acquired a majority stake in another expensive company, Webloyalty.com.

See Zappos' full release via this page.


Whatever the strengths of Adteractive, they're definitely involved in a lot of adware (some might say "spyware" based on nonconsensual installations). For example, my May 2005 article about advertising intermediaries found them to be among the largest ad networks helping to fund 180solutions. See http://www.benedelman.org/news/052305-1.html .

In short: 180 shows some 2000+ pop-up ads that in turn obtain payment from Adteractive. So money flows from advertisers to Adteractive to independent distributors to 180solutions, whose software is frequently installed on users' PCs without consent. I would think investors would be concerned about the liability that could result from helping to support spyware/adware in this way.

Ben Edelman on July 6, 2005 9:41 AM
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