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Originally published August 10, 2011 at 9:46 PM | Page modified August 10, 2011 at 10:19 PM

Zulily captures $43 million in venture capital

Zulily, a Seattle Internet startup, received the largest local venture-capital investment of the year this week when Meritech Capital Partners backed the company with $43 million.

Seattle Times business reporter

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Zulily, a Seattle Internet startup, received the largest local venture-capital investment of the year this week when Meritech Capital Partners backed the company with $43 million.

The online seller of upscale clothing for babies, children and mothers expects to use the money to hire more workers, said company co-founder Darrell Cavens.

Last month, the company moved its headquarters to an 80,000-square-foot building near Starbucks' headquarters in Sodo. According to a rough calculation that real-estate experts use, the space could accommodate about 400 workers.

Zulily currently employs about 240, Cavens said.

"It's been pretty rapid growth for us over the last 18 months, and we expect that to continue," he said.

Cavens and Mark Vadon, the chairman and founder of Blue Nile, the online diamond and jewelry site, started Zulily in January 2010. It has raised $54 million in venture backing.

The company would not disclose revenues but said it has over 4 million registered users and offers some 2,200 brands.

Craig Sherman, managing director of Meritech Capital Partners, said Zulily's limited-time sales create a fun experience for online shoppers and make the company attractive for investment. Meritech also has invested in companies such as PopCap Games, Facebook and Zipcar.

Zulily is one of the so-called flash-sale websites, which, along with Gilt Groupe and Amazon's newly launched MyHabit, offer discounts for 48 to 72 hours.

Unlike Groupon and Living Social online deals, flash-sale sites don't require a coupon and sell items directly.

Visits to such websites by U.S. shoppers rose 109 percent from the same month a year ago, according to online intelligence company Experian Hitwise.

"They are the next generation of e-commerce companies," Sherman said.

Zulily.com had the highest share of visits with 16 percent, followed by Ideeli and Living Social Escapes. Amazon's MyHabit ranked 11th after only two months in operation, the data showed.

Kate Newlin, retail consultant and principal for New-York-based Kate Newlin Consulting, said flash sales put the excitement back in the shopping experience.

"There is an odyssey it; a sense of discovery in finding something," she said. "It's thrilling."

Internet deals, coupled with online shopping's convenience, have made e-commerce businesses a hot pocket for VC money the last few years, said Jack Love, publisher of Internet Retailer.

During the second quarter, U.S. consumers spent $37.5 billion with online retailers, up nearly 14 percent year-over-year, according to web-measurement firm comScore. The increase represents the seventh consecutive quarter of e-commerce growth year-over-year and is the biggest jump since pre-recession spending levels, the firm's data showed.

Andrew Lipsman, senior analyst for comScore, said he doesn't expect online shopping trends to slow any time soon, especially as retailers go mobile.

Some 78 million people used smartphones last quarter to access retail content, comScore reported.

"We're not at the tipping point where physically shopping in the store is the minority," said Newlin, of Kate Newlin Consulting. "But I think that will come."

Christine Harvey: 206-464-3263 or charvey@seattletimes.com

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