Virtual Vineyards harvests venture cash

The Palo Alto, California-based company will announce on Monday that it has received financing from New Millennium Partners, GE Capital, and Media One. The wine seller plans to use the cash to launch a radio and television advertising campaign beginning in September and expand the wine selection on its site. Virtual Vineyards already has a print and Web advertising campaign.

On Monday, the firm will also announce that co-founder and chief executive Robert Olson will step aside to become vice president. New chief executive Bill Newlands is the former chief executive of wine maker Domain Chandon, a unit of LVMH Moet Hennessy Louis Vuitton. Doug Koo, former chief financial officer of Blue Chalk Cafe, will be named the company's CFO.

The executive changes and the financing come as the company prepares to begin its first major marketing campaign since its launch in early 1995.

"We have put a lot of time and energy in the past year [into] getting our distribution system in place," said Olson. "Now, it is time to exploit it."

But a major marketing campaign requires raising hordes of cash--something that hasn't come easily to Virtual Vineyards given its line of business.

Venture capitalists have been wary of funding a company that may hit snags with a public offering because complicated regulations governing the shipping of alcohol across their borders.

"[Selling alcohol]] over the Internet has complicated matters tremendously," said Olson.

In the last year, Virtual Vineyards has established a three-tier network of wholesalers and retailers which allow it to ship wine legally to the majority of U.S. markets, as well as to key markets in Europe, Asia, and South America, the company said.

"Even so, the real challenge for us has been programming the various idiosyncrasies in the laws into our systems," said Olson. "But the great thing about software is that you can program your way around the [idiosyncrasies.]"

Still, without the marketing might and dollars of other e-commerce sites, and hampered by government regulations, Virtual Vineyards has maintained steady growth, according to the company.

"Business has been pretty much doubling every year on a consistent basis, frankly, without much in the way of marketing or advertising," said Olson.