Southland as E-Tail Center

By MARLA DICKERSON

Oct. 27, 1999 12 AM PT

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TIMES STAFF WRITER

Few entrepreneurs go hunting for venture capital while eight months pregnant. But in the land-rush environment of the Internet, expectant mom Laurie McCartney knew she couldn’t afford to delay the birth of her online business, EStyle.

Besides, who better to pitch a retail site catering to moms-to-be than its pregnant chief executive? Of course it didn’t hurt that McCartney also had a Harvard MBA and strategic planning experience with Walt Disney Co., the big daddy of consumer marketers.

Now armed with $15 million in venture capital, a management team packed with fellow Disney expatriates, an internationally recognized spokesmom in supermodel Cindy Crawford--and McCartney’s infant son Jack plugging products on the Web site--L.A.-based EStyle is looking to grow its first-born e-tail store, Babystyle.com, into the premier online site for upscale maternity clothes and baby gear.

“We want to develop an emotional relationship with the consumer,” said McCartney, 32. “[Our strategy] is very Disney-esque in that way.”

Whether she can emulate the success of her old employer is far from certain. Babystyle isn’t the first, the largest or the cheapest online mom-and-baby store.

What’s clear is that a new breed of entrepreneurs such as McCartney--folks who cut their teeth in fields such as entertainment or consumer marketing rather than computer programming--are turning Southern California into one of the most fertile hubs of e-commerce outside Silicon Valley. In the first half of 1999 alone, venture capitalists invested a record $1.1 billion in young Southland companies, primarily in Internet start-ups.

In addition to EStyle, this year’s venture winners include NetZero, CarsDirect.com, Digital Entertainment Network and BizRate.com. Those Southland firms are engaged in advertising, shopping, entertainment and consumer information--content and commerce applications rather than pure technology. The nation’s hottest Internet incubator, Pasadena-based Idealab, has launched more than 20 mostly consumer-related sites in just the last three years.

Industry watchers say these companies signal a new milepost in the digital economy. Silicon Valley’s technical wizards dominated the construction of the Internet superhighway. Now L.A.-based entrepreneurs such as McCartney, trained in the entertainment and consumption capital of the world, are beginning to drive it with consumer-oriented sites such as EStyle.

“Silicon Valley laid out the blank canvas,” said Tim Draper, a Bay Area venture capitalist whose L.A.-based Zone Ventures affiliate has invested in EStyle and more than a dozen other Los Angeles-area Internet start-ups over the past year. “They developed this great platform for all the creative people in L.A. to do their thing.”

Indeed, Draper and others predict L.A.’s entertainment juggernaut will become a powerhouse of Internet content creation, as it has done with all previous media.

With the technological infrastructure of the Internet now firmly in place, the market phase of the new medium has begun in earnest. “Dot-com” fever drove the stock market to new highs this year as entrepreneurs developed new business models to sell products, services, entertainment and information in cyberspace. Online retailing alone is expected to reach $36 billion in 1999, a 145% increase over 1998, according to Boston Consulting Group.

Because the Internet allows buyers and sellers to meet online, these e-tailers and dot-coms could be located anywhere. But experts say Southern California’s critical mass of creative, marketing and technical talent has uniquely positioned it to ride the consumer phase of the Internet.

Many Skills in Labor Force

Online postage purveyor Stamps.com, for example, was created by three UCLA MBA buddies who concluded that the Southland would be the perfect launch pad for their Santa Monica-based start-up. Rents are cheaper than in the Bay Area, and technical workers are plentiful and less mercenary than in Northern California.

“The universities and aerospace industry have created an abundance of talent here,” said Jeffrey Green, a Stamps.com co-founder and vice president of marketing. “And once you get them, it’s easier to keep them.”

But the Los Angeles region’s greatest strength is undoubtedly the creative and marketing muscle in its entertainment industry. Just as Microsoft Corp. fueled other software activity in the Pacific Northwest, and alumni of San Diego’s Hybritech sparked a mini-boom of spinoffs that turned that city into a center of biotech, L.A.’s entertainment companies are already fostering the next generation of Internet companies.

Consider that McCartney’s alma mater Disney already has become something of a training ground for e-commerce entrepreneurs.

As a four-year member of the entertainment giant’s strategic planning team, McCartney was charged with growing and repositioning properties such as the Disney Store and Disneyland Paris. But she, like other Disney veterans before her--including EToys founder Toby Lenk, EBay Chief Executive Meg Whitman and Cooking.com founder Dave Hodess--was itching to parlay those brand-building skills into her own start-up.

Opportunity knocked in early 1998, when she became pregnant and started shopping for maternity gear. As she schlepped from store to store, she envisioned a virtual shop where harried moms-to-be could find stylish goods at the click of a mouse. No dominant online player had yet emerged in the fragmented $13-billion maternity-and-baby market, but McCartney knew she’d need to move quickly to preempt competitors. She spent her first two trimesters working feverishly on a business plan, then set off in search of funding.

Female tech entrepreneurs are still something of a rarity in the macho venture capital universe; pregnant ones come around about as often as Haley’s Comet. But McCartney says her ballooning figure and maternity shopping war stories only strengthened the credibility of her business model with potential investors.

End result: Baby Jack was born in October 1998. Babystyle followed in July 1999, thanks to $1 million in seed capital from Zone Ventures, and a $14-million second round led by venture capital firms Global Retail Partners and Oak Investment Partners.

“I was eight months pregnant and literally waddling around Silicon Valley pitching the idea,” recalls McCartney. “It actually facilitated my ability to get financing . . . because there was a truth to what I was saying.”

What Attracts Venture Capital

Indeed, venture capitalists who have never considered looking beyond Silicon Valley to fund a California tech deal are increasingly looking south for opportunities. One reason is too much money chasing too few deals, forcing investors to look beyond the well-worn turf of Northern California for the next big idea.

But Jerry Gallagher, general partner in Connecticut-based Oak Investment Partners, says Southern California entrepreneurs are bringing a unique consumer focus and marketing pizazz to their online ventures that translate well to the Internet.

“These things tend to feed on each other, and L.A. has that critical mass,” Gallagher said. “It’s going to be one of the most important centers for e-commerce.”

Big pressure comes with big venture money. But McCartney, perched on an orange plush couch amid the construction detritus that passes for EStyle’s downtown Los Angeles offices, is a picture of hip self-assurance. The platinum cropped hair, leather jacket, black skirt, lacquered toenails and AWOL pantyhose could be vintage Melrose Avenue. But the steely marketer’s eye and deadpan consultant’s patter--everything is a “solution,” a “customer experience,” a “core competence” or a “strategic” something or other--were forged in the halls of Cambridge and the suites of Burbank.

It’s a polished skill set that Don Baarns, head of a Sylmar-based networking group for Internet professionals, says is supplanting the hard-core technical prowess that ruled the early stages of Internet development.

“In the beginning you had all these geeks running around making money with no competition,” said Baarns, executive director of Internet Professionals Network. “Everything is becoming more professional now. People with business skills are totally changing the landscape of this industry.”

In contrast to online superstores such as BabySuperMall.com, Babystyle is an upscale boutique, offering a narrower selection of specialty goods, including designer labels from Amy Coe, Hanna Andersson and DKNYbaby. The target customer is a college-educated first-time mother with little time but plenty of disposable income.

McCartney, like all Internet retailers, knows she must ramp up quickly to have any chance at grabbing the top spot in her category. Four of her key managers are fellow Disney veterans; eight of the company’s nine-member management team are women. EStyle’s downtown work force has quickly expanded to 45 employees who will soon occupy the entire 27th floor of a high-rise on Figueroa Street near 8th Street. Order fulfillment is handled by an outside contractor in La Mirada.

Keeping Focus on Shopping

McCartney, the youngest of seven children born to a New Jersey business owner, displayed a precocious entrepreneurial flair. As a seventh-grader, she revamped her father’s marketing strategy to boost revenue at his traffic equipment company. While an undergraduate at the University of North Carolina, she marshaled a force of tutu-clad volunteers to promote a campus dance recital. The English major was able to talk her way into the mergers and acquisitions department of Morgan Stanley & Co. fresh out of college.

“Being the youngest, you’re less risk-averse,” McCartney said. “You’re willing to go out and take some chances.”

It’s the same kind of chutzpah that led her to cold-call supermodel Crawford and eventually lure her onto EStyle’s board of directors, a move that gave the upstart company instant visibility. In exchange for an undisclosed equity stake, Crawford is now the company’s official “spokesmom.” The beauty-marked one is prominently featured on the Babystyle Web site cuddling with son Presley, dispensing style secrets and giving visitors a peek at her maternity wardrobe.

It’s all part and parcel of a “lifestyle” site meant to make consumers feel warm and fuzzy about a place that doesn’t exist beyond their computer screens. But the gal-pal content never strays too far from shopping.

That might sound obvious for a retail site. But McCartney claims Babystyle’s average transaction amount exceeds that of other baby e-tailers in part because the purchase message isn’t buried in the avalanche of prenatal health information, baby shower games, chat rooms and advice columns shoppers encounter on competing sites.

It’s a targeted strategy that appeals to some industry watchers.

“Some of those baby sites are so information-driven that the product gets lost,” says Emme Kozloff, retail analyst with Sanford C. Bernstein in New York. Babystyle “has a niche and a focus that stands out from the competition.”

The site may be focused, but McCartney is looking way ahead. A companion toddler site is scheduled to launch within six months, the first of an entire family of e-tail stores planned under the EStyle umbrella. She’s likewise looking to take the company public next year.

But even if dot-com fever cools, McCartney says she’s in it for the long haul.

“Even if this Internet frenzy goes away, I want to have a long-term sustainable business with a strong brand with real customer loyalty, and provide a great service,” she said. “I want to create something that will be around for a long time.”

* SPECIAL REPORT: Where is e-commerce headed? A look at small-business trends and tips, in Business, C1, 8-10

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Who’s Here Southern California has become a hotbed for e-commerce companies and other consumer-oriented online ventures. Players with headquarters here include:

* Babystyle.com: baby and maternity clothes (https://www.babystyle.com)

* BizRate.com: consumer information (https://www.bizrate.com)

* Buy.com: online superstore (https://www.buy.com)

* CarsDirect.com: cars (https://www.carsdirect.com)

* CheckOut.com: music and videos (https://www.checkout.com)

* Cooking.com: cookware (https://www.cooking.com)

* Digital Entertainment Network: youth entertainment programming (https://www.den.net)

* EToys: toys (https://www.etoys.com)

* GoTo.com: search engine (https://www.goto.com)

* HomeStore.com: real estate (https://www.homestore.com)

* NetZero: advertising and free Internet access (https://www.netzero.com)

* PetsMart.com: pet supplies (https://www.petsmart.com)