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Watch seller's capital sees a big uptick

The same venture capitalists that backed online drugstore PlanetRx are backing Ashford.com with a second round of financing worth $30 million.

With valuations of public e-commerce companies at record highs, venture capital firms are betting huge sums of money on start-ups such as retail watch site Ashford.com, which received $30 million in its second round of funding.

Benchmark Capital and Sequoia Capital, the VC firms behind eBay and Yahoo, respectively, joined Bowman Capital Management in a $30 million round of funding for Ashford.com, which is owned by Newwatch. The site recently changed its name from Newwatch.com. All three firms also teamed up recently to fund PlanetRx, an online pharmacy that competes with Drugstore.com.

Houston-based Newwatch says it offers more than 6,000 watches from 60 manufacturers on Ashford.com. The site, which launched just over one year ago, received $4 million in its first round from Benchmark.

Watches are both easy to sell and easy to deliver, said Ashford.com chief financial officer David Gow. "There aren't a whole lot of colors associated with a watch," Gow said. "It's easy to look at on a Web site and discern if you'd be comfortable with it."

Internet-related deals are getting larger, said Kirk Walden, director of PricewaterhouseCoopers' quarterly Money Tree venture capital survey. In 1998, the largest round--which went to Starmedia, which has since filed for an IPO--was $80 million. In that context, Newwatch's $30 million is "a big chunk of money for a second round, but it's not unheard of," Walden said.

Ken Cassar, an analyst with Jupiter Communications, said Newwatch's ability to raise $34 million "makes you wonder about the wisdom of the market." That's because consumers don't purchase watches as freqently as they buy items like books and pharmaceuticals. Ashford.com "will have to acquire every purchase they get," Cassar said. "They'll never get over the customer acquisition hump."

If Ashford.com is to become the Amazon.com of the watch category, as Gow put it, the company must spend plenty on marketing to build its brand. "All e-commerce companies like to think they have a lower cost structure, but of course we do need to invest a lot in generating traffic and making people aware of our offerings," he said.

Like the online bookseller, Ashford.com will also use the funding to branch out into other product categories, according to Gow. "We'd like to have some affinity between products; we won't sell refrigerators," he said. "But the boundaries of affinities are looser in the online world."

And why the name change for a company that controls the watches.com domain? According to a company statement, "the company chose Ashford.com because 'Ashford' evokes trust, stability, comfort, and an old British feel. The '.com' combines that stature with the cutting edge and convenience of the Internet."