Revolution Growth, a local venture capital firm, will announce Tuesday that it is leading a $25 million-plus investment in Lanham-based Optoro, deepening Revolution’s bet in e-commerce.
Optoro, which began nine years ago in the Brown University dorm room of a Washington entrepreneur, develops software that enables big-box retailers to redirect their unsold or returned inventory, from laptops to blenders, to online sites such as eBay and Amazon.com.
“Ten percent of all goods purchased from retailers are returned,” said Optoro co-founder Tobin Moore, 31. “Most go to middlemen and get flipped from trucks to pallets and pawnshops and dollar stores. What we did is take the product directly from retailers and found a way to connect with the consumer online.”
Optoro employs 90 people and is looking to set up an office in the District. It follows four other recent investments by Revolution Growth, a $450 million Washington-centric fund that was begun with great fanfare 18 months ago by Ted Leonsis, Steve Case and Donn Davis, all three of whom made their names and fortunes at AOL during the late 1990s.
Revolution is targeting a new investment category that the principals call “speed-up capital,” which is designed to expand companies worth $100 million into ones worth $1 billion or more.
Although Leonsis, Case and Davis are tech-savvy millionaires with strong operating backgrounds, the jury is out on whether the strategy will pay off for the fund’s three-dozen investors.
E-commerce can be a very risky sector, and Revolution Growth has invested millions in it. It led a similar-size investment last year in FedBid, which attempts to make it easier for government agencies and businesses to buy things. It also invested in Echo360, which is trying to help universities move their education content, including classroom instruction, online. The company’s five investments represent a $100 million commitment from its fund.
“Our pacing is exactly as we planned,” Leonsis said. “We thought we would do three or four deals per year, that they would all be of this size, with the potential to do follow-on investing with a very strong set of entrepreneurs, mostly located here in Maryland, D.C. and Virginia.”
Leonsis, who is majority owner of the Verizon Center, NBA Wizards and NHL Capitals, said the biggest hurdle to finding companies that meet Revolution’s requirements is the high valuations that some entrepreneurs want for their companies.
“There is so much money to be invested, that valuations have been very, very high,” he said. “We’ve seen some terrific companies . . . but there are entrepreneurs who say, ‘The only thing that matters to me is valuation. I don’t want your help. I am only interested in price.’ We tend to walk away from those positions.”
Leonsis said he has honed his experience as current co-chief executive of Groupon, the troubled daily deals company in which he has a big investment, into an expertise in e-commerce, which in turn led to the investment in Optoro. He will join the Optoro board as part of the deal. He also sits on the board of American Express.
Returned goods are costly for big-box stores such as Best Buy and Wal-Mart. Most of the goods are new, but become devalued once they are returned.
Traditionally, the items end up at liquidators or pawnshops. Optoro allows retailers to sell those items directly to consumers.
“Their business is booming,” Leonsis said. “They could do close to $30 million this year.”
Leonsis said that Revolution approached Optoro, which had already received an investment from Nigel Morris, co-founder of CapitalOne bank and known for his savvy investing. Tysons Corner-based Grotech also participated in the most recent investment with Revolution.
“Because we have been deep into the e-commerce business and marketplace, we saw this segment as being important,” Leonsis said. “Then we find Optoro was right in our back yard, and so we approached them.”