Q&A: What DFJ Gotham Sees in E-Commerce Plays Like Moms’ Site Totsy

When New York-based e-commerce site Totsy raised a $5 million Series A in late 2010, the startup gained the expertise of two of New York’s best-known venture capital groups: Rho Ventures and DFJ Gotham Ventures, which led the round. Since then, the site—which holds limited time “flash sales” of merchandise for parents and children—has grown exponentially. Within a year of the funding, monthly revenues were up 3,000 percent, according to the company, and the number of brands willing to sell on Totsy’s site had grown from 96 to 500.

A source close to Totsy says the company is currently in the process of raising additional funding.

Daniel Schultz, co-founder and managing director of DFJ Gotham (pictured at right), is a member of Totsy’s board of directors, and a key advisor to CEO Guillaume Gauthereau (at left). The company has recruited marketing talent from the likes of FAO Schwartz and 1800FLOWERS.com. Now the management team is gearing up for the next stage of the company’s growth, which will require them to deftly navigate a rapidly expanding and extremely competitive e-commerce environment. In August, Totsy’s top competitor—Seattle-based, mom-friendly site Zulily—raised $43 million in funding. But the explosion of new e-commerce sites has sparked a fair amount of consolidation: In the fall, for example, flash-sales site Gilt Groupe bought struggling daily deals site BuyWithMe.

Schultz and Gauthereau sat down with Xconomy New York last week at the offices of DFJ Gotham to talk about e-commerce strategies, and what it will take to keep Totsy at the top of the pack.

X: The flash-sales category is very crowded, with players such as Gilt Groupe, ideeli, and Rue La La. How was Totsy designed to stand out from the competition?
GG: When we started we went for a very difference audience. We weren’t targeting the woman living in the rich neighborhood in Boston. We were approaching every single mom. From day one we had the vision that we believe every woman in the country is going to buy something in a flash sale at some point. So we went broad. The second element is that we tried from day one to be representative of everything you buy. I would say 70 or 80 percent of the sites are about what you wear. We believed that was part of what we should do, but it should not be the only thing we do.

X: How did Totsy connect with DFJ Gotham, and what made it a good marriage?
GG: We felt we wanted a local partner in New York City because we are based here. And New York is becoming one of the great cities for online retail. We thought that DFJ Gotham really understood our space and had great insights on our vision. When I looked at DFJ Gotham’s investing track record I thought, “they see what’s coming up next.” We want to benefit from that.

DFJ Gotham has been able to connect us to a few interesting companies in their portfolio, like StellaService, which is becoming really big in the consumer space. They’re benchmarking customer service practices. DFJ also has an investment in a company called SailThru. They have an e-mail marketing platform that reacts to behavior. It looks at what time you open your e-mail, when you read it, what articles you look at, and instead of sending you the same e-mail as everyone else, it sends you something personal. The products might be different, or you might receive it later because you don’t open your e-mail until 10 p.m. Now we’re on contract with both SailThru and StellaService.

DS: We’re not only investors in sites like Totsy, but we like e-commerce infrastructure and enablers, as well. SailThru and StellaService are not destination sites, but they enhance the performance of them, or they enable better conversion of customers on e-commerce sites.

X: But there are so many e-commerce companies popping up now, particularly in New York. How does DFJ Gotham predict which ones are likely to rise to the top?
DS: There has to be a certain amount of moxie and bravado coupled with some realism and tactical ability. It’s hard to find that combination. In the case of Totsy, we really tracked the business. We looked at potentially participating in the seed round, but we felt we had our work cut out for us … Next Page »

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