Paul Allen takes a stake in online jeweler

Blue Nile, which competes in the luxury goods niche, plans to announce tomorrow that it has closed its fourth round of funding.

Online jeweler Blue Nile announced today that it has closed its fourth round of funding.

Citing competitive pressures, the company declined to say how much it raised. Blue Nile plans to use the money to build its brand, improve its infrastructure and expand its product offerings, company chief executive Mark Vadon said.

"This gives us a substantial cash reserve that will allow us to stay open regardless of market conditions," he said.

Paul Allen's Vulcan Ventures led the investment round. Previous Blue Nile investors Bessemer Venture Partners, Trinity Ventures, Kleiner Perkins Caufield & Byers, Weiss Peck & Greer Venture Partners, and Integral Capital Partners also participated in the round.

Competition in the online luxury goods market has been growing in recent months. Amazon.com entered the niche in December with its $10 million investment in Ashford.com. Meanwhile prominent venture capital companies such as Sequoia Capital, CMGI @Ventures, and Idealab have backed a slew of luxury goods sites.

Unlike books, toys or groceries that are often sold at a discount to price-conscious consumers, retailers often sell luxury goods such as jewelry, diamonds and fine pens far above their cost. And the market for such goods is larger than that for books or music. Analysts estimate that the diamond jewelry market alone is $30 billion in the United States.

But the market poses significant challenges online. Few consumers may be willing to spend hundreds or thousands of dollars to buy jewelry and other luxury goods without seeing the items first.

And despite the potential profits, investors have soured on e-tail and luxury goods stocks. Ashford, for example, has seen its shares plummet 92 percent since reaching its 52-week high of $35 in December. In mid-afternoon trading, Ashford's shares were at $2.94, down 77 percent from its September initial public offering price of 13.

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