Fast-Growing Zulily Adds $43M, Wants to Stand Alone in Mom & Baby Deals

8/11/11Follow @curtwoodward

Here’s one way to measure a fast-growing company: It runs through four different headquarters in about 18 months just to contain all the employees. That’s the story with Zulily, one of Seattle’s main contenders in the exploding (and crowded) marketplace for digital discount shopping.

Zulily operates a members-only daily deals service targeting moms, bringing discounts in the 50-90 percent range on upscale products for kids and parents. Even though it’s still a toddler age-wise, Zulily has already blown up to about 240 employees and says it just passed the 4 million member mark. When the startup launched publicly early this year, they counted only about 15,000 members.

And as of today, Zulily officially has another $43 million in venture financing in the tank to fuel continued growth, after a round led by Meritech Capital Partners and including previous investors. The new money brings Zulily’s total venture financing so far to $53.6 million.

I chatted with Zulily CEO Darrell Cavens about the company’s wild ride so far and its plans for the future. The interview was a pretty rare occasion, since Cavens and company have been rather quiet in the past several months as they worked on building the startup.

The “daily deals” sector has been a wonder of modern business, both in substance and me-too hopefuls. Groupon, the Chicago-based flagship of online bargain aggregation, has been called the fastest-growing company in history as it steams toward a megabucks IPO. Its knockoffs and followers are legion.

Zulily operates in an offshoot known as the “private sale” realm, which adds an air of exclusivity by requiring membership to get its hot bargains. The business side, however, is pretty old-school retail, as Xconomy’s Greg Huang explored in this piece ahead of the rollout: Zulily helps suppliers offload inventory and takes a piece of the action on the sales it generates.

Cavens and his co-founder, Mark Vadon, worked togethert at Blue Nile (NASDAQ: NILE), the Seattle-based online gem and jewelry seller—Vadon was a founder of Blue Nile, while Cavens was a senior vice president. That company did something similar to what Zulily is attempting, breaking a higher-end product niche out of traditional retail and establishing a strong Web brand.

Cavens pegs the kid-related products market at about $60 billion. “It’s a massive category. I just think it’s underserved,” he says, with mass-market stores like Babies R Us on one hand, and not many bigger standalone retail outlets as you go upmarket.

Cavens wouldn’t talk revenue, but says publicly available site traffic figures help tell the tale of engagement from the members who get daily deal e-mails. Data from Compete.com, for instance, shows Zulily growing from about 1.1 million unique visitors in January to about 3.2 million in May, with a slight setback to about 2.6 million in June.

“They’re coming back again and again and again,” he says. “What we’re seeing is that we have a very deeply engaged audience to the e-mail each morning, and we’ve got hundreds of thousands of moms who are coming back every single day.”

One interesting note that Cavens hit on in discussing how Zulily has built its brand was the idea of aggressive curation, with a boutique feel. He said products offered on the site might not always draw huge numbers—a fancy dollhouse for several hundred dollars was a recent example—but help reinforce the overall experience.

He likened it to publishing a newspaper, where the mix of stories and images is constructed to give people an entire package of (hopefully) compelling content. It’s an idea that Ajay Chopra of Trinity Ventures—a Zulily investor—discussed in this recent Xconomy guest column, calling it “social entertainment shopping” that moves consumers “from a ‘search’ paradigm to find products and services to a ‘discovery and sharing’ paradigm.”

Cavens says the new money from Meritech and others should keep Zulily operating well for some time. The company plans to keep adding to its growing employee roster, particularly with buyers and engineers. “I think this gives us a tremendous amount of runway to go after some pretty aggressive goals and growth,” he says. “The goal here was to raise enough that this could get us to the long term.”

With so many players around in the overall online discounts sector, there’s bound to be some consolidation—and Zulily isn’t the only one targeting moms and kids. Cavens says Zulily isn’t thinking about that much and wants to keep focusing on its own path. But with people who helped Blue Nile eventually go public at the helm, he says Zulily doesn’t see itself getting snapped up, either. “I think we very much view this as a standalone company, long-term,” he says.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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