Lot18, Backed by NY and Silicon Valley VCs, Creates Exclusive Wine Club

8/1/11Follow @jpruth

Wine aficionados can be rather choosy about what they will imbibe. The casual drinker may simply pair any red wine with steak, but New York’s Lot18 wants to serve those with highly discerning tastes.

Lot18 is a members-only website that sells wine and gourmet food products that are available in limited supply. Though the website might not sell Screaming Eagle Cabernet Sauvignon—which typically costs several thousand dollars per bottle—it does offer wines from fellow California winery Jonata, which is hard to find in stores. “[Jonata] is not a $1,000 wine, but it’s a $100 wine,” says Lot18′s Philip James.

One-year-old Lot18, co-founded by James and Kevin Fortuna, has more than 400,000 registered consumers all eager to satisfy their cravings for unique vino and repasts. James says Lot18 lists select wines from small wineries, as well as large producers such as Robert Mondavi Wines. “Maybe it’s a prized vintage, a special blend, or an incredibly high-scoring wine,” he says. “We don’t have 2,000 products on the site; we have five to 10 [at a time].”

Lot18 has been quick to find financial backers. The company has already raised $13 million in funding—including $10 million in April—and as of March was generating more than $1 million in average monthly sales. (James declined to offer more current sales stats.) Investors in Lot18 include FirstMark Capital in New York and NEA in Menlo Park, CA, which also has offices in the Washington, DC area.

Amish Jani, a managing director with FirstMark, said via e-mail that Lot18 operates in a large, complex category that requires expertise to navigate the highly fragmented base of wine producers. “Not anyone can just jump into it,” he says.

Online wine retailers, Jani says, tend to follow cut-and-dried structures for selling to customers. “Lot18 is part of this whole category of next generation retail companies that offer consumers exceptional efficiency in discovery, curation, and value,” he says.

James’s and Fortuna’s prior experience as entrepreneurs also helped sway FirstMark’s decision to back Lot18. “Having two successful serial entrepreneurs come together to launch Lot18 gave us strong confidence that they could scale very rapidly,” Jani says.

Prior to co-founding Lot18, Fortuna was CEO of Quigo Technologies, a contextual advertising services firm that, according to James, was sold in 2007 to AOL for more than $350 million. Fortuna is also a partner with management consulting firm Abbott, Keeven & Fisher Partners.

James previously satisfied his palate for both wine and entrepreneurship. He founded Snooth in 2007, a social website for discovering, discussing, and buying wine from local vendors. He served as Snooth’s CEO until he left to start Lot18. “Snooth is like an IMDB for wine,” James says. (Fortuna also invested in Snooth.)

Philip James also founded Snooth.com

James and Fortuna formed Lot18 in March 2010, and their website went public last November. Lot18 is free to join, but you may have to wait for access. James says the website uses an algorithm to randomly admit new members, though one can skip the velvet rope through an invite from existing members. “We like that it’s members-only because it allows us to moderate growth,” he says.

Keeping membership growth under control is important, James says, because of the limited merchandise quantities. “We work with a lot of smaller, family-owned wineries and food producers,” he says. Lot18 offers five to 10 different product sets that rotate after about 48 hours or as items sell out. Controlling the number of members helps reduce customer disappointment if they miss out on a product, James says.

A procurement team based in California wine country chooses the lineup of items featured by Lot18, he says. “Their connections allow us to offer this level of access,” he says. “We have wines as low as $10 or $12 a bottle and up to over $100.” Other specialty foods sold through Lot18 include maple syrup that is tapped by hand from maple trees in upstate New York.

Though it has rapidly grown from a staff of six at its inception to more than 85, Lot18 is looking to hire, James says, with job openings for engineers, designers, and other non-technical positions. The company is also working on launching a travel section of the website that will be centered on food and wine. “Go to Italy and hunt for truffles,” James says. “It’s going to be very epicurean focused travel.”

James is not put off by the shakiness of the broader economy when he considers Lot18′s prospects. “Wine is fairly acyclical so it’s not really affected by swings in the economy,” he says, in terms of personal purchases. He says a bottle of wine and a movie at home is an affordable night’s worth of entertainment. It also does not hurt that Lot18 attracts an affluent clientele. Says James: “Half of our users earn over $100,000.”

João-Pierre S. Ruth is the editor of Xconomy New York. He can be reached at jpruth@xconomy.com and followed on Twitter @jpruth. Follow @jpruth

By posting a comment, you agree to our terms and conditions.