February 21, 2001


 Search the Internet

E-Mail this feature to a friend
The Rediff US Special/Suleman Din

You can't find too many entrepreneurs who can say their company started with the idea to write a novel.

Of course, Varsha Rao didn't think her literary inclinations would lead to anything other than maybe a book on being a woman in business.

She wanted to pen the Great [Indian] American novel three years ago. So dedicated was Rao to the idea that she took a month's leave from her demanding, high-profile consulting job at McKinsey & Co in New York to do just that.

But like a quick plot twist, before she could write a single sentence, an old friend came calling with a pitch to launch a startup company.


Rao is not sure. But what she will admit, though, is that she was looking for a change from her career at McKinsey. So after some research and soul searching, she found herself in San Francisco, in a new, demanding, high-profile job, this time, running, an online retailer of high-end beauty products.

It was the beginning of her ride on the Internet economy rollercoaster, and it took her to some great heights. Rao and her fledgling online beauty company were written about in publications like People and The Industry Standard, and attracted considerable web traffic. She met President Bill Clinton, and attended glamorous events in New York, rubbing shoulders with its top fashionistas.

But when the Internet economy started bleeding last year, so did Eve. It was eventually sold and then promptly closed, joining the ubiquitous ranks of fallen dotcoms.

Soon after, Rao took a trip to South America, to reflect on what she had done wrong and on what she had done right. And to see once again what there was outside the high-paced life of the dotcom bubble.

She walked away with a reported $ 17.5 million, and is now thinking about heading yet another company; this time it could be in fashion. She is also considering becoming a VC, certainly an interesting reversal of roles. For Rao, 30, there is life after Eve, and she's ready to bite into the apple again.

And yes, she's thinking about a novel, though it may not have anything to do with her company. But if she were to write about how Eve started, Rao would have to first mention the phone call that began it all. The phone call that began Eve.

And how was Eve born?

She got a phone call from a friend, Mariam Naficy, who had gone off to study at Stanford when Rao, a Harvard MBA, went to McKinsey.

Interested in ecommerce, Naficy was running ideas by Rao all the time. The possibility of trying ecommerce didn't interest Rao as much as joining a venture with Naficy. Rao says she wanted to do something on her own, but she didn't know what.

That's when the thought of selling cosmetics flashed across her mind. Being small and easy to ship, they seemed the perfect product to hawk on the Internet. There were predictions that the online cosmetic industry could reach $ 1.2 billion by 2003. Women were becoming a force on the Internet. Rao saw an opportunity to market high-end cosmetics, to busy professionals, who knew what they wanted.

She researched and mulled over the proposition. On a vacation in New York state with some friends, Rao spoke about her plan. It was the first time she had ever brought it up with anyone. Predictably skeptical at first, they warmed to the idea.

It gave her the confidence to make a decision. A few days after she returned, she took a call at 2 am from Naficy. It was then that they decided to test the idea of online beauty.

Her husband, Cameron Poetzscher, an investment banker she met at Harvard, was supportive. But when Rao told her father, a chemistry professor and a stockbroker, and her mother, a systems analyst, about her plans, they thought she was crazy.

"They said, 'Why? You're at McKinsey. You have a good job. You're on track to becoming a partner,' " she recalls.

Their concern was not because Rao was leaving the navy-blue-and-pinstripe world of McKinsey for the hot reds and pinks of the cosmetics industry. Instead, they worried that she was leaving a secure career. Their fears, however, were allayed by her determination to be a success in the Internet market that generated hundreds of wonder stories.

Rao and Naficy knew they were on to something after their first meeting with a venture capitalist in San Francisco's Chinatown. Like all first attempts, they got the interview because a friend knew someone at the firm.

Rao says they had a very sketchy PowerPoint presentation. But the rep showed it to his boss and the VC boss called them. "It was just the two of us and an idea," she says. "We were laughing afterwards."

They later secured their seed money from Bill Gross, the southern California venture capitalist and brainchild of Idealab! Rao and Naficy had 90 minutes to make their pitch. A day later, Gross contacted them with an offer. The money raised in the first round, nearly $ 4 million, went into designing the website and signing up ten suppliers.

Even a virtual company needs space to work... Eve's first offices were small and sparse. The white table, that they would use as a background for the products they photographed, was also used for lunch breaks.

What was amazing for Rao was her staff's passion. "They worked at Eve as if it was their company," she recalls.

Rao remembers how employees cheered, like they were at a football game, when Eve's first television commercial was screened. An article by The Industry Standard on how the company prepared for the Christmas season had everyone exuberant.

The media also published tongue-and-cheek reports about the company website. They had to bargain for Eve's web address with six-year-old Eve Rogers, of Williamsburg, Va, whose mother had bought the address for her. A trip to Disneyland, $ 500 worth of toys, a new PC, Eve stock, and money for college, sealed the deal.

Being in the spotlight, at the head of a cosmetics company, Rao says, brought new challenges. A self-described fashion lover, (her first item of make-up was the mascara she bought in sixth grade. "A pink and green Maybelline one.") she was as a newcomer to the cosmetics industry clique, and struggled to break in.

"The cosmetics industry is a very close, tight, circle," she explains. "I spent a lot of time in New York City, doing face time with people."

Rao, a former cheerleader, soccer player, valedictorian and captain of her school's lacrosse team, was being invited to chintzy fashion events, and forced to constantly buy new gowns and get her hair and make-up re-done.

"At McKinsey, I'd just wear my business suits. But in this industry it definitely mattered what you wore, so I always tried to be relatively fashionable."

Rao and Naficy's business idea was constantly being challenged. skeptics tried to point out flaws in their business plan. Financiers said women wouldn't take to the Internet. They were wrong. They said women wouldn't buy cosmetics online. They were wrong.

The one thing that financiers worried about -- which proved to be the biggest challenge for Eve -- was: What would happen if the company wanted to market big high-end brands like Versace and Estee Lauder?

"All these prestige brands aren't available everywhere," she explains. "So we had to go and pitch to all these very large companies, that they should give their products to us, to distribute on our website.

"It wasn't an easy sell. Most of them didn't know who we were, didn't believe that we were going to protect their brand that they had spent millions to create. They were used to selling to Neiman-Marcus. Who were we?"

Yet they proved they could sign up clients, doggedly pursuing some of the biggest names, and getting brands like Versace, Calvin Klein, and BeneFit on board.

As its first anniversary approached, Eve was attracting over 600,000 visitors a month, more than three times any other web-only beauty site. By June, the company inked a deal to make itself a featured shop on Yahoo, and had plans to sell handbags, jewelry, and other accessories. Cosmetic industry trade publications reported that the company was on track to make more than $ 10 million by the year-end.

But Estee Lauder didn't bite Eve's pitch. With a 48 per cent stake in the prestige cosmetic market, Lauder declined to sell its products to independent e-tailers. Industry observers have pointed out that Estee Lauder's decision not to supply Eve, causing the company to be short on supply, was the reason for its downfall. Rao rejects this thesis.

"Our goal was to be a business in beauty, then expand out into other areas that women shop in. So if we didn't get every brand, it was not going to be the end of the world," she explains.

As the Internet economy began its downturn, the question of funding reared its head. Investors wanted to see profits, yesterday. The company had raised nearly $ 26 million in funding, but was searching hard for more cash.

"We were over our heads for the business that we were in, but we really saw there was potential in where it was going," Rao says. "We definitely felt we were not the right people to take Eve to be a billion dollar company.

"If it was going to be a billion dollar business in three years, that was going to be different than becoming a billion dollar company in 15 years. We started to think about an IPO around January of 2000, or look at being acquired."

Rao admits that "neither [she nor Naficy] had the experience of running a public company, even a small one... so we started looking for an experienced CEO, but we ended up selling the company before we actually found someone."

Idealab! bought back, soon after stopped funding it, and shut it down on October 20.

Rao had hoped Eve would live on. But today, the web address is nothing but a landing page, complete with an apology.

She is looking to her future now, but she won't say what. She has hinted that she might become a VC herself, a mentor to other entrepreneurs, and look into running a new company. The experience in cosmetics hasn't soured her either -- she's considering exploring the fashion industry.

But right now, she'll admit, with a smile, that she's unemployed. No better time than now, to write that book.

She has a living room full of material to fall back on if she is thinking about an autobiography. Throughout her tenure at Eve, Rao's parents dutifully collected every article and advertisement published on their daughter and her company. "They were tracking all of it, through good times and bad," she says.

"When we were sure about what was going to happen, and ultimately when we were going to close, they supported me, and let me know that I had done something really amazing. That I had earned great experience. That we had a great financial return for our investors and that I had nothing..."

She hesitates for a second. "Yeah, I really shouldn't be disappointed."

Som Chivukula and Shaheen Pasha contributed to this feature

Design: Lynette Menezes

Varsha Rao will appear on the Rediff Chat on February 21, 2000 hours PST. Don't forget to log in!

Women who inspire us: Varsha Rao
Boutique of the month:
Beauty in distress
An ugly end for

Back to top

Tell us what you think of this feature