Online Gift Company Raises Initial VC –

NEW YORK – Flooz.com, a seller of online gift credits that are accepted at a variety of Web retailers, in February raised $1 million in a first round of venture financing.

San Francisco-based Venture Strategy Group, which invests in branded-consumer companies, handed over part of the capital in February and is slated to deliver the remainder in May. Flooz.com also raised $3 million from angel investors, bringing the total financing to $4 million.

The company, named after the ancient Persian slang for cash, will use the money to continue developing its service, which at press time was in its beta stage. Flooz.com expects to raise another round of capital this spring to boost marketing efforts, however, the target figure is uncertain, said Co-founder and Chief Executive Robert Levitan.

Gift givers purchase flooz credit online from Flooz.com, and a notice is sent electronically to recipients, who then buy merchandise ranging from food items to clothing from affiliated Web retailers. The advantage of Flooz.com is that it simplifies gift giving by allowing recipients to choose where to shop and letting shoppers divide the credit among several stores.

Some companies will give flooz credit as a reward to repeat customers, Venture Strategy Group Managing Director Joanna Gallanter said. A key perk for merchants is that Flooz.com charges a fee only if a purchase is made. “That’s a value proposition they can understand,” Mr. Levitan added.

Flooz.com will add a list of charities to its Web site as an option for flooz credit holders to donate their gift, and the company intends to allocate a portion of regular Flooz.com transactions to charity.

The company plans to spend the late winter improving its site by adding reminder tools, a search-by-product or price option, more robust accounting services and electronic greeting cards to accompany the flooz credit, Mr. Levitan said. The company also will add additional retailers such as art.com, a site that sells prints and frames, and Nirvana Chocolate, which offers a selection of Belgian chocolates.

Mr. Levitan sees credit card companies and Web portals as potential competitors – or partners – for his company. “They keep me up at night, both in terms of competitive threat and in terms of potential partnerships,” he said, adding that rivals could save money and gain other benefits from working with Flooz.com rather than competing with it.

“The Web is a business that is built very quickly with partnerships and focus, so while a credit card company or a portal could develop a similar service, they can probably do it faster and better with us than without us,” he added.

Flooz.com was founded in August 1998 by Mr. Levitan’s college friend, Spencer Waxman. Mr. Levitan, a co-founder of the woman’s Web site iVillage Inc. (VCJ, February, page 61), had advised Mr. Spencer during his spare time until eventually deciding to “jump in with both legs.”

Mr. Levitan, also a college acquaintance of Ms. Gallanter’s, said he views Venture Strategy Group as a bridge between angel investors and traditional venture firms, and the firm will help Flooz.com develop its brand.

Flooz.com is the first company to operate under the corporate umbrella of Great River Interactive Inc., which helps to create e-commerce companies. Great River companies are forbidden to own or ship products themselves, Mr. Levitan said, calling the model “e-commerce with the real e.'”