Niche Deals Sites Grab Cash

NEW YORK (TheStreet) — Despite skepticism about the long-term viability of Groupon(GRPN) and pullback from Facebok and Yelp, deals sites are still piquing investor interest.

Daily deal sites scored $174 million in funding during the third quarter of this year, up from $44 million in the same period last year, according to Daily Deal Media.


But rather than catering to the masses and trying to become the next Amazon(AMZN) as Groupon has done, deal sites garnering the most buzz these days are focused on providing discounts on niche products.

New York-based Lot18, a deals site that sells wine and other gourmet wares, announced this week it has raised $30 million in funding. The round is Lot18’s third in a year as it expanded to 90 employees and 600,000 registered users.

It also intends to double its headcount in the coming year.

Lot18’s knowledge of the $100 billion wine and specialty food market is what has helped attracted investor interest, CEO Phillip James said.

“Groupon and LivingSocial are leaders in their space but that was an era that started two to three years ago and it’s not a good strategy to create another undifferentiated deal site,” James said. “People like our space because there are large verticals that are bounded by real passion.”

Seattle-based online baby clothing sales site Zulily, meanwhile, nabbed $43 million in venture funding in August while home decor site One King’s Lane raised $40 million in September, valuing the New York-based company at $440 million.

Fab.com, which sells modern furniture and decorations at a discount, scored $8 million in its first funding round this summer. The site, which started out as a social networking site for gay men, launched in its current form in June. It has over 900,000 members and recently released mobile apps for Android and iOS.

Fab and other specialized deals sites can still thrive despite the dominance of larger players in the market, said Jay Levy, a partner at Zelkova Ventures which invested in Fab.

“The parallel is that you have Walmart(WMT) and Target(TGT) but you also have REI, running stores and all these niche retailers that are highly successful in a world where you can go to larger stores and buy a similar product,” he said. “There are niche players who can do $100 million in revenue as well.”

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