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Venture Capitalists May Feel Guilty : Gilt Group Raises a Fashionable 138 Million Dollars

Gilt Groupe Inc. recently raised another $138 million in financing.  Although I wish the Gilt Groupe the very best, I am perplexed by how venture capital companies throw around money and valuations.  How is is justified for a company that is not profitable to be valued at a BILLION dollars?  In my opinion, this defies logic.  Yes, I understand that companies such as Google  and Facebook  receive large valuation.  However, in my opinion an online luxury retailer is not currently in the same playing field as Google and Facebook.

According to a Wall Street Journal May 11, 2011 article, "Gilt Groupe Inc., an online retailer of luxury goods, has raised $1... from investors
, including Japan's Softbank Group and Goldman Sachs Group, valuing the company at $1 billion even though it has yet to turn a profit." http://online.wsj.com/article/SB10001424052748703730804576315553100978150.html

Let's keep in mind that as indicated in the Wall Street Journal Article mentioned above, "The new funding comes as 3½-year-old Gilt faces tough competition in the business of running limited-time sales for fashion, trips and furniture. In addition, its core discount-fashion business is coming under pressure from the recovery in the luxury business."  Essentially, this points out that when Gilt Groupe started a few years ago, inventory of luxury product may have been more readily available.  Designers needed a new outlet to sell off inventory.  A "private" shopping experience appeared to be a perfect match.  However, as the site becomes more popular, doesn't that contradict what the fashion designer brand is trying to achieve.  To put it bluntly, "luxury" fashion designers do NOT want consumers to know that they are selling product at "discounts".  They need high margin to continue promoting their brands.  When they need to dump merchandise at a discount, they want this to be done in the shadows.  In my opinion, as Gilt promotes their site to the world, this may ultimately be a thumb in the eye for the popular designer brands.

As per the Wall Street Journal article, "The $1 billion valuation on Gilt in this latest round of funding is more than double the value put on the company when it raised $35 million in April 2010."

If my math is correct, $138. million recent financing + $35. million in April 2010 equals, $173,000,000. raised in a little over a year.  Wow, these guys have friends in important places.  Wow, I am jealous..  But on the other hand, do those venture capitalists feel guilty at all.  Would they take $173 million dollars out of their own bank account and put it on the color red on a roulette wheel?  It must be nice to gamble with other peoples money.

Learn more about private shopping clubs
.
Learn about luxury fashion
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You may also have interest in reading the Private Shopping Clubs Selling Clothing and Fashion Accessories
 blog post.

It is important to note that I do NOT have anything against the Gilt Groupe.  In fact, I think that they are genious.  For a company to pop up within the past few years and rise so quickly they should be commended.  Their management has clearly done a fantastic job with marketing, investor relations, strategy, etc.  In all honesty, I wish I was as clever and business savy.  I hope that Gilt Groupe continues on a successful path.  It is good for them and the fashion industry.

If you were a popular fashion designer would you want the world to be continuously reminded that your product is on sale (even if it is for a limited time)?  If you are a popular fashion designer and would like to sell product, you can contact Gilt Groupe to learn more about the process.  It may be a good idea for your business.

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