VCs Bet Internet Diamonds are Forever

If Mark Vadon were still a bachelor, the world may never have been introduced to Internet Diamonds.

Last year, while purchasing a wedding ring for his wife at Williams and Sons Jewelers of Seattle, the former management consultant for Bain & Co. became intrigued with the merchant’s strategy for distributing diamonds via the Internet. Within months, he became the company’s chief executive.

“The owners had a great model, but no financial, management or technical background,” said Vadon. “With a new round of funding we were able to re-launch the site.”

After a series of angel investments, Internet Diamonds last month closed its first institutional round of venture financing, raising $6 million from Bessemer Venture Partners and Trinity Ventures.

“We had five venture funds to choose from,” Vadon said. “In this environment it is easy to raise money but difficult to attract capital with the right connections behind it.”

As part of the deal, Bessemer Principal Joanna Strober and Trinity General Partner Tod Francis will join the company’s board. Strober has helped develop several e-commerce companies that have made public offerings, including Etoys, Flycast and Mothernature.com.

“The jewelry business is a huge, inefficient market without a dominant player,” said Strober. “Since we don’t have to pay for 5th Avenue-type rent, we end up getting customers a better deal.”

Proceeds from the investment will go toward marketing.

“We anticipate a large offline campaign to build consumer confidence,” Vadon said.

He added that Internet Diamonds is negotiating distribution deals with Internet portals and “other sites that are fishing from the same demographic as us.”

Internet Diamonds will raise another round of private financing “not that far in the future,” Vadon said. He would not disclose if his company planned to seek additional venture firms for the round, or if Internet Diamonds intends to eventually go public.