Zulily Zips Out of Stealth and Raises $4.6M, Led by Maveron and Ex-Blue Nilers

12/17/09Follow @gthuang

I’m no expert in online retail, but this seems pretty interesting. Seattle-based Zulily has emerged from stealth mode and is announcing today a $4.6 million Series A funding round led by Maveron, the Seattle venture capital firm founded by Howard Schultz and Dan Levitan. Maveron is known for its investments in consumer and tech businesses like eBay, Drugstore.com, Pinkberry, Shutterfly, and Cranium.

Zulily is led by CEO Darrell Cavens and chairman Mark Vadon, former executives at Seattle online jeweler Blue Nile (NASDAQ: NILE). (Vadon remains executive chairman at Blue Nile.) When I talked with Dan Levitan last month, he mentioned that he had passed on investing in the Blue Nile team twice before, and wasn’t going to let that happen again.

The idea behind Zulily (pronounced Zoo-lily) is to create a “private sale” shopping site focused on children’s apparel, baby gear (car seats, strollers, toys), and maternity furnishings. The target consumers are busy moms. Private sale just means you have to sign up as a member of the site, and then you get access to special deals, like big discounts on a limited number of brand-name and designer items. The site will have its beta launch sometime in the first quarter of 2010. “We’re really excited to launch a new brand and new company around products for kids,” says Cavens, who most recently worked at Microsoft after spending nearly nine years at Blue Nile.

Private sale websites have been getting a lot of buzz lately, partly from the success of high-end fashion retailers like Rue La La from Boston and Gilt Groupe in New York. The business model—which involves buying overstocked items from brand-name designers and heavily discounting them in rush sales—was pioneered by Vente-Privee in France around 2001. (Vente-Privee has since become the dominant private-sale player in Europe.)

But Cavens says overstock is just one piece of the plan. Another is helping retailers “get out their message around their brand,” he says. Hundreds or even thousands of suppliers of baby and kid gear have trouble getting wide distribution. “We talk to manufacturers, and they can market their product on a site like this, out to our members,” Cavens says.

Zulily plans to start out doing one to two sales per day of five to 30 items each. Its revenue model is straightforward retail. “We buy products at a great price, and put a markup on the product,” Cavens says. Consumers will be able to sign up for free; only members can see the sales. The advantage over shopping at an Amazon.com or other commerce site, Cavens says, boils down to “price, and discovery” of sale items.

Cavens says he had been talking with Vadon over the past six months about starting an “interesting and different business” around specialty retail and e-commerce. Having relatively young kids himself, he got excited about Zulily’s niche. And he says he’s not aware of other private-sale sites based in Seattle, nor are there many in Silicon Valley.

The startup is now up to five employees and has office space at Maveron. Cavens says he’s looking to hire for several open positions (such as buyer, Web developer, and operations and logistics admin) and hopes to expand the staff to a little more than 10 in the new year.

I also asked about lessons learned from his Blue Nile days. “It’s in my DNA to deliver a phenomenal customer experience,” Cavens says. “Retail is very much about execution. I learned that dealing with the thousand little details that make a business great. I’ve had that ingrained in me. It sounds plain and simple, but I think people get somewhat distracted from that.”

As for the name, “Zulily” doesn’t actually mean anything, Cavens says. “We spent a lot of time coming up with something with an interesting, fun element to it. It’s unique. It’s a hard process. It’s so defining for eternity after.” He says he “talked to a lot of moms and folks around” and got positive feedback.

It remains to be seen whether the current economic climate will end up helping or hurting Zulily’s chances, but for now its timing looks fairly strong. “We’re excited from a space standpoint and a market standpoint. We’re trying to pull together a very strong team,” Cavens says. “We’re trying to build a culture around delivering a top-notch experience, and having fun along the way.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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