Digital Chef Cooks Up $35M Venture Round

Digital Chef of Napa Valley, Calif., raised $35 million in a second round of venture financing earlier this month, increasing to $45 million the total capital the company has raised since September 1998.

Weston Presidio Capital of San Francisco led the transaction, which was placed by Hambrecht & Quist, said Kevin Appelbaum, chief executive of Digital Chef. Van Wagoner, Hearst, IDG, Amerindo, Attractor and Damac also participated in the offering.

The company’s first round was led by The Sprout Group and included Boston Millennia, Marquette Ventures, Scripps Ventures and Hambrecht & Quist. The existing investors accounted for 20% of latest round in the Internet-based retailer of gourmet foods and kitchenware.

“This was a good opportunity to establish a relationship with a bank that we may want to work with in the future,” Appelbaum said. “They brought us a better idea of who was out there and went to a later-stage group that I hadn’t met before.”

Simultaneous to the close of the financing, Digital Chef acquired the rights to the name and content of Eating Well magazine and hired its editor-in-chief, Marcelle Langan DiFalco, as editorial director for the site’s content. In addition to the magazine, a full-time team of culinary professionals develops proprietary content – recipes, editorial and menus – and the company has an exclusive relationship with the Culinary Institute of America (CIA), Appelbaum said.

Beyond content, the company’s site offers more than 3,500 gourmet food and cooking products and features include a menu planning function, grocery list capabilities, step-by-step photos and scaleable recipes.

Appelbaum said the company intends to use the recent infusion of capital to expand the number of physical goods for sale, doubling the current number of items, and acquire more content. Additional proceeds will be used to increase advertising and marketing expenditures.

“We already have a base of customers, and we are in a scaling phase now,” Appelbaum said. “We want to really expand into the $55 billion category of gourmet and specialty foods and kitchenware.”

The company’s focus on a niche of the specialty retailing sector drew the attention of Weston Presidio, said General Partner Jim McElwee. The firm had been looking at the gourmet foods sector of the Internet and drew a bead on the company’s alliances with gourmet food professionals.

“What distinguishes them from other sites is the relationship with CIA and the number of chefs that are providing content to the site,” McElwee said. “The menus, recipes and other intellectual property the company owns are a reason to come back.”

McElwee joined Digital Chef’s board of directors following the deal.