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E-commerce startup Retail Convergence Inc. announced Thursday it has raised $25 million to finance a management buyout of apparel closeout site SmartBargains.com, and launch the first of what is expected to be a stable of brand marketing sites. The Boston company landed the backing from founding investors New England Development, Breakaway Ventures, Mugar Enterprises Inc. and General Catalyst Partners, all of Boston, and paid an undisclosed amount in cash to acquire SmartBargains. The company will continue to operate SmartBargains as an off-price retailer of name-brand apparel and other goods, and will use its established e-commerce platform to build new sites, beginning with RueLaLa.com, an invitation-only private sale property launched April 9. Retail Convergence CEO Ben Fischman said the company over the past three months worked on buying out SmartBargains' investors, which had put more than $75 million into the company since 1999. SmartBargains most recently landed $10 million from Highland Capital Partners LLC of Lexington, Mass.; Maveron LLC of Seattle; Gordon Brothers Group LLC and New England Development, both of Boston; Time Warner Inc. of New York; and General Catalyst. The financing closed in May 2006 to complete a $28 million round first commenced in September 2005, after a failed bid for a public offering in 2004. Fischman said none of the SmartBargains investors retain equity in the new company. General Catalyst's stake in Retail Convergence is a new investment, said the firm's co-founder and managing director David Fialkow. Dennis Baldwin, managing partner of Breakaway Ventures, a consumer-oriented fund created by former Reebok Inc. CEO Paul Fireman after selling the footwear company to Germany's Adidas AG in 1996, said he was attracted to the opportunity to do a management buyout of SmartBargains and use its customer files and industry relationships to launch other online retailing plays. Baldwin, Reebok's former head of marketing, said the company will focus on partnering with the brands it does business with to come up with new sites and new strategies to target consumers. "We are very bullish on e-commerce, it is a much more pleasant experience than it has been in the past, and there are a lot of macro trends that we think will drive its growth," Baldwin said. "By providing an exciting new shopping experience while vigorously protecting the integrity of our partner brands, Retail Convergence will elevate the e-commerce experience for everyone." Fischman said the launch of RueLaLa takes advantage of trends in viral marketing and social networking to create a new model for brand marketers to reach consumers. The site hosts two-day "events" which highlight a single brand and offer customers limited-time buying opportunities. Consumers join the site upon receiving invitations from other members, and members receive purchasing credits each time they recruit a new member who buys something. Fialkow said SmartBargains has a strong and growing business, but that the core opportunity in Retail Convergence lies in building new models to sell merchandise online. Fischman said the company is already working on several initiatives in addition to RueLaLa, but that it is unlikely the company will launch any other sites this year. RueLaLa and other future launches will operate using the existing infrastructure SmartBargains has built, but likely will feature more direct shipping from partner brands. SmartBargains gets about 75% of its inventory using contracted warehouse and shipping partners in Kentucky, and the company has contracted call center support based in North Carolina. Retail Convergence used no outside financial adviser, and received legal counsel from Brian Goldstein of Goulston & Storrs in Boston. Private practice attorney Len Nannarone in Boston represented the investors. -- Clifford Carlsen
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